Reimbursement of Land Compensation amount paid to Farmers and Land Owners during Execution of Work attracts GST: AAR [Read Order]

The Karnataka Authority for Advance Ruling ( AAR ), held that reimbursement of land compensation amount paid to farmers and land owners during execution of work attracts GST.

The applicant, M/s Sree Subha Sales stated that they have been awarded contract for establishment of a Sub-station andconstruction of 66kV SC tap line on DC towers for a distance of 18.4 kms on partial turnkey basis including supply of all matching materials / equipment and erection (including civil works) of all from Karnataka Power Transmission Corporation Limited.

The applicant stated that as per the agreement entered between them and KPTCL, the work order amount does not include the compensation amount paid to farmers. It is being paid as mere reimbursement. Applicant states that regarding this they have obtained clarification from the finance advisor of KPTCL that, this transaction does not attract GST.

The Applicant stated that land compensation is paid to the land owner on whose land the express feeder line passes and to any land within 9-meter vicinity on either side of the express feeder line since there should not be any trees, plants or structures within the 9-meter vicinity of the express feeder line as per norms. Where it is inevitable to cut the crops and trees during the course of execution of project, crop compensation and tree cut compensation is paid to the farmers.

Thus, the farmers or land owners are paid compensation either for cutting the trees or crops grown in their land or for not growing any trees or crops or to build any structures below the express feeder line. This is the service supplied by the farmers or land owners to the KPTCL and the same is covered under schedule II of COST Act 2017

The applicant has sought advance ruling in respect of the following question as to applicability of GST for reimbursement of land compensation amount paid to farmers and land owners during the course of execution of work.

A Division Bench consisting of Dr. M.P. Ravi Prasad Additional Commissioner of Commercial Taxes Member (State) and Kiran Reddy T Additional Commissioner of Customs and Indirect Taxes Member (Central) observed that “Reimbursement of land compensation amount paid to farmers and land owners during the course of execution of work is chargeable to GST as the Applicant does not qualifies to be a Pure Agent.”

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