Facts of the Case

The petitioner, M/s. Syed Asad Ahmed, a proprietary concern at Ballari, Karnataka, was issued a show-cause notice dated 22.11.2024 in FORM GST DRC-01 (No. ZD291124109231V) by the Assistant Commissioner of Taxes (Enforcement), asking why GST should not be levied on the solatium amount received by the petitioner for land acquired by the State for the period 2020-21. A subsequent Order-in-Original was also passed confirming the demand. The petitioner approached the Karnataka High Court, Dharwad Bench, under Articles 226 and 227 of the Constitution, seeking quashing of both the show-cause notice and the assessment order, contending that solatium paid on compulsory land acquisition cannot attract GST.

Issues Involved

  1. Whether GST can be levied on solatium paid to a landowner as part of compensation for compulsory acquisition of land.
  2. Whether the impugned show-cause notice and subsequent Order-in-Original, issued despite settled coordinate-bench precedent, were sustainable.

Petitioner's Arguments

  • Solatium is a statutory augmentation of compensation for compulsory acquisition, not consideration for any supply of goods or services, and therefore falls outside the charge of GST.
  • The issue stood squarely covered by a coordinate bench decision of the same High Court in Smt. Asha R. v. Assistant Commissioner of Commercial Taxes, which held GST inapplicable to solatium.
  • A later coordinate bench following the same view had also directed reversal of any coercive recovery, including bank account freezing, once the demand was quashed.

Respondent's Arguments

  • The State's counsel initially contended that only a show-cause notice had been issued and hence the writ petition was premature.
  • No independent ground was pressed to distinguish the facts from the precedents cited by the petitioner once it was pointed out that a final Order-in-Original had also since been passed.

Court Order / Findings

  • The Court held that the issue was no longer res integra, being conclusively settled by two coordinate-bench rulings holding that GST is not applicable on solatium paid for land acquisition.
  • It rejected the State's submission that the petition was premature merely because a show-cause notice was under challenge, noting that a subsequent order-in-original had also been passed and was under challenge.
  • Applying the settled ratio, the writ petition was allowed and the impugned notice and order dated 22.11.2024 were quashed in entirety.
  • The core ratio is that solatium paid on compulsory acquisition of land is not consideration for a taxable supply and cannot be subjected to GST.

Important Clarification

  • Solatium and interest paid under land acquisition law are statutory compensation, not consideration flowing from a supply, and are outside the scope of Section 7 of the CGST/KGST Act.
  • Where the identical question has already been settled by a coordinate bench, department authorities are expected to follow it rather than re-litigate the same issue against similarly placed assessees.
  • Coercive recovery measures, including bank account freezing, taken pursuant to a quashed demand must be reversed by the department.

Sections Involved

  • Section 7, CGST Act, 2017 – defines 'supply', the taxable event under GST.
  • Section 73, KGST Act, 2017 – determination of tax not paid, invoked for issuing the DRC-01 notice.
  • Articles 226 and 227, Constitution of India – writ jurisdiction invoked to challenge the notice and order.

Decision – In Favour of

The decision is in favour of the assessee. The writ petition was allowed and both the show-cause notice and the assessment order demanding GST on solatium were quashed, with directions to reverse any coercive steps.

Case Details

Court: High Court of Karnataka, Dharwad Bench — Case No.: Writ Petition No. 101432 of 2025 (T-RES) — Coram: Hon'ble Mr. Justice M. Nagaprasanna — Date of Order: 4 November 2025.

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