N S GANESH vs THE STATE OF KARNATAKA
- Court
- Karnataka High Court
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WP No. 19486 of 2025
TH
RESERVED ON 10 SEPTEMBER 2026
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
TH
DATED THIS THE 14 DAY OF OCTOBER, 2026
PRESENT
THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
AND
THE HON'BLE MRS. JUSTICE K.S. HEMALEKHA
WRIT PETITION NO.19486 OF 2025 (GM-MM_S)
BETWEEN:
N.S. GANESH
AGED ABOUT 55 YEARS
GPA HOLDER OF SHASHI KUMAR
TH
FLAT NO.142, 14 FLOOR,
PEBBLE BAY, TOWER-1,
DOLLARS COLONY,
RMV EXTENSION II STAGE,
BANGALORE NORTH-560094.
…PETITIONER
(BY SMT. ANUPARNA BORDOLOI, ADVOCATE)
AND:
1. THE STATE OF KARNATAKA
REPRESENTED BY ITS SECRETARY,
DEPARTMENT OF COMMERCE AND INDUSTRIES,
VIKAS SOUDHA,
BANGALORE-560001.
2. THE DIRECTOR
DEPARTMENT OF MINES & GEOLOGY,
KHANIJA BHAVAN,
RACE COURSE ROAD,
BANGALORE-560001.
3. THE DEPUTY DIRECTOR,
DEPARTMENT OF MINES AND GEOLOGY,
Digitally signed
by C K LATHA
Location: High
Court of
Karnataka
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WP No. 19486 of 2025
CHITRADURGA DISTRICT,
KARNATAKA-577501.
…RESPONDENTS
(BY SMT. NILOUFER AKBAR, ADDL. GOVERNMENT ADVOCATE)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO ISSUE A WRIT
OF CERTIORARI OR ANY OTHER APPROPRIATE OR ORDER
WHEREBY SETTING ASIDE THE ORDER DATED 29.03.2025 ISSUED
BY THE RESPONDENT NO.3 TO EXTENT OF ARBITRARILY
DEDUCTING A SUM OF RS.15,41,436/- FROM THE TOTAL AUCTION
AMOUNT OF RS.2,89,05,436/- AS THE SAME IS ILLEGAL AND
WITHOUT ANY AUTHORITY OF LAW (ANNEXURE-A) AND ETC.
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS, COMING ON FOR PRONOUNCEMENT THIS DAY,
ORDERS WAS PRONOUNCED AS UNDER:
CORAM: HON'BLE MR. VIBHU BAKHRU ,CHIEF JUSTICE
and
HON'BLE MRS. JUSTICE K.S. HEMALEKHA
C.A.V. ORDER
(PER: HON'BLE MRS. JUSTICE K.S. HEMALEKHA )
1. The petitioner has preferred the present petition impugning
the order dated 29.03.2025 [ the impugned order ] issued by
respondent No.3-Deputy Director, Department of Mines and
Geology [ DMG ] Chitradurga, insofar as it declines to refund the
entire amount deposited pursuant to the public auction of iron ore,
by deducting a sum of ` 15,41,436, comprising ` 5,57,436 towards
income tax and ` 9,84,000 towards Value Added Tax [ VAT ] from
`
refundable amount of 2,89,05,436. Petitioner also seeks interest
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at the rate of 18% towards the deposited auction amount of `
2,89,05,436 by considering his representation dated 04.06.2025.
PREFATORY FACTS
2. The facts necessary for adjudication of the present petition,
shorn of unnecessary details are as follows :
3. Pursuant to the permission accorded by the Government of
Karnataka vide Government Order on 09.08.2006, DMG issued an
auction notice dated 22.08.2006 for sale “on as is where is basis”,
of approximately 20,000 metric tonnes [ MT ] of old iron ore dumps
stated to be lying in Sy.No.38 of Doddabyaladakere Village,
Hosadurga Taluk, Chitradurga District [ the subject site ]. The
auction was held on 23.08.2006 and Sri Shashi Kumar [ the
`
auction purchaser ] was declared the highest bidder for
2,46,00,000. Pursuant thereto, an initial sum of ` 61,50,000
representing 25% of the bid amount, was deposited on 26.08.2006.
4. The auction thereafter became subject matter of several
proceedings before this Court. Upon conclusion of the proceedings
which had initially impeded further action pursuant to the auction,
the auction purchaser expressed his readiness to pay the balance
consideration and sought permission to lift and transport the ore.
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On being called upon by the authorities, the balance bid amount
was remitted on 16.06.2010 together with royalty and amounts
demanded towards income tax and VAT. Thus, an aggregate
amount of ` 2,89,05,436 comprising the bid amount, royalty and
taxes stood paid pursuant to the auction. The amounts of `
5,57,436 towards income tax and ` 9,84,000 towards VAT were
remitted through demand drafts drawn in favour of the respective
tax authorities and forwarded to them by the DMG.
5. Despite receipt of the entire amount, the auction purchaser
was not permitted to lift the ore. Upon inspection, the Deputy
Director, DMG, Chitradurga (respondent No.3) in his inspection
report dated 15.02.2013, recorded that the area was thickly
overgrown and that no traces of previous mining were found. This
was followed by a report dated 25.04.2013 of the Joint Director,
North Zone, which, inter alia recorded that the 20,000 MT of iron
ore forming the subject matter of the auction was nowhere found or
seen at the site, and that a decision was required to be taken
regarding refund of the amount deposited by the bidder.
6. The request for issuance of Mineral Dispatch Permits [ MDPs ]
nevertheless came to be declined and the matter was carried
through further proceedings. Ultimately in W.P No.2184/2017, while
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WP No. 19486 of 2025
declining to interfere with the earlier endorsement and the claim for
compensation at the prevailing value of the ore, this Court reserved
liberty to the auction purchaser to make representation seeking
refund of the bid amount, royalty and taxes. Pursuant thereto,
representations were submitted seeking refund of ` 2,89,05,436
together with interest.
7. As the representations remained undecided, the auction
purchaser again approached this Court in W.P No.12671/2023
(GM-MM-S). This Court directed the competent authority to
consider the representation dated 06.06.2023 and take a decision
thereon. Pursuant to the said direction, the claim underwent
consideration at different levels of the department and the State
Government. The DMG recommended refund of the amount
deposited by the auction purchaser on 19.03.2024. Significantly,
the law department also opined that the auction purchaser was
`
entitled to refund of 2,89,05,436 comprising the bid amount,
royalty and other taxes together with interest at the admissible
bank rate on the respective amounts from the date of their
deposits.
8. The Government thereafter accorded concurrence for refund
`
of 2,89,05,436. In the interregnum, the auction purchaser died
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and upon the necessary authorisation and indemnity bond being
furnished, the DMG passed the impugned order dated 29.03.2025.
However, instead of refunding the entire amount, DMG deducted
` 15,41,436 comprising of ` 5,57,436 towards income tax and
` 9,84,000 towards VAT and directed refund of the balance of
` 2,73,64,000. The said amount was paid on 31.03.2025. The
petitioner thereafter submitted a representation dated 04.06.2025
seeking refund of the balance of ` 15,41,436 together with interest
at 18%. During the pendency of the present petition, DMG has
addressed the income tax and the commercial tax authorities
seeking refund of the respective amounts. The commercial tax
authorities have initiated proceedings for refund of the VAT
component on the premise that no taxable event has occurred,
while the income tax component continues to remain unpaid. It is in
these circumstances, the petitioner seeks refund of the balance
amount together with interest on the amounts which remained with
the respondents.
SUBMISSIONS OF THE PARTIES
9. Learned counsel appearing for the petitioner submits that the
auction purchaser had paid the entire amount demanded by the
respondents aggregating to ` 2,89,05,436. However, the
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WP No. 19486 of 2025
respondents’ subsequent inspection reports disclosed that 20,000
MT of iron ore forming subject matter of auction was not available
at the subject site. It is therefore contended that deduction of `
15,41,436 comprising ` 5,57,436 towards income tax and `
9,84,000 towards VAT from the amount admittedly refundable to
the auction purchaser is wholly without authority of law. Learned
counsel submits that no sale, delivery or transfer of goods having
taken place, the transaction never fructified and no taxable event
occurred. Consequently retention of the amounts towards tax is
impermissible. It is further submitted that the impugned order is
non-speaking, as it neither assigns any reason for such deduction
nor identifies any statutory provision authorising it.
10. Insofar as interest is concerned, learned counsel places
considerable reliance on the opinion of the law department dated
27.06.2024, which recommended refund together with interest at
admissible bank rate from the respective dates of deposit. It is
submitted that the auction purchaser, having remitted the amount
upon being called upon to do so and on the assurance that the
requisite permits would thereafter be issued, cannot be deprived of
compensation for the prolonged retention by the State of an
`
aggregate sum of 2,89,05,436, particularly when the auction
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purchaser did not receive the iron ore for which the amount has
been paid. The State is, therefore, bound to compensate the
auction purchaser for the deprivation and loss of use of his money.
Accordingly, interest at the rate of 18% is sought.
11. Smt. Niloufer Akbar, the learned Additional Government
Advocate, submits that the amount of ` 5,57,436 towards income
tax and ` 9,84,000 towards VAT were remitted by demand drafts
drawn by petitioner himself in favour of the respective income tax
and commercial tax authorities and were merely forwarded by the
DMG to those authorities. The said amounts were therefore, never
credited to the account of the DMG and the DMG could refund only
the amount standing to its credit. It is submitted that the
respondents have subsequently taken up the matter with the
respective tax departments for refund of those amounts and the
commercial tax department has already initiated proceedings for
refund of the VAT component. It is further submitted that `
2,73,64,000 had already been refunded in the manner specifically
requested by the petitioner under the indemnity bond dated
25.03.2025 and therefore the impugned order does not warrant any
interference.
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12. As regards the claim for interest, the learned Additional
Government Advocate contends that the claim of interest at 18%
p.a. has been negated in the earlier proceedings and that the
endorsements dated 21.05.2013 and 11.08.2015 have attained
finality and it is therefore submitted that the petitioner cannot
reopen the said case in the present proceedings.
REASONS AND CONCLUSIONS
13. It is not in dispute that the auction purchaser had deposited
`
an aggregate sum of 2,89,05,436 pursuant to the auction. The
transaction, however, did not fructify and the auction purchaser
was not permitted to lift the iron ore. In the earlier round of
litigation, liberty was reserved to seek refund of the amounts
deposited. The auction purchaser thereafter approached this Court
in W.P No.12671/2023 seeking consideration of his representation.
This Court noticed that the request for issuance of permit made in
the representation dated 23.05.2023 had already been turned
down by an endorsement, which stood confirmed by the order
dated 23.11.2020 in W.P.No.2184/2017, and, the petitioner not
pressing the said representation, confined the direction to
consideration of the subsequent representation dated 06.06.2023.
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14. Pursuant to the said direction, the matter was processed at
the departmental and governmental levels. On 07/09.10.2023 it
was indicated that the decision in the matter was required to be
taken at a higher level of the Government and the relevant
proposal and material were accordingly forwarded. This was
followed by a legal notice dated 27.11.2023 issued on behalf of the
auction purchaser, and a hearing notice dated 11.12.2023 fixing a
hearing before the Secretary on 20.12.2023 concerning refund of
the amount deposited by the auction purchaser. Respondent No.2,
`
by communication dated 19.03.2024 recommended refund of
2,89,05,436. The legal consultant also opined that the amount
deposited by the auction purchaser was liable to be refunded. More
importantly, the Additional Secretary, Department of Law, Justice
and Human Rights, with approval of the Principal Law Secretary by
opinion dated 27.06.2024 recommended refund of the amount
together with interest at the admissible bank rate on the respective
deposits. Thus, the entitlement to refund was ultimately not in
dispute. Even the entitlement of interest found express recognition
in the opinion of the law department. Pursuant to the subsequent
concurrence of the Finance Department and the Government, the
DMG passed the impugned order and a sum of ` 2,73,64,000 was
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refunded on 31.03.2025. What remained unpaid was ` 15,41,436
representing ` 5,57,436 towards income tax and ` 9,84,000
towards VAT. The mere fact that these two amounts have been
forwarded by the DMG to the respective tax departments cannot
prejudice the auction purchaser. The amounts were paid only
because they formed part of the demand raised pursuant to the
auction transaction. Once the transaction itself did not fructify and
the respondents accepted that the auction purchaser was entitled
to refund of the entire amount, inter-departmental remittance or
adjustment cannot be a ground to deny refund to the person who
had made the payment. Therefore, there remained no justification
for the State to retain the amount paid pursuant to such
transaction. Continued retention of money without corresponding
consideration and without compensating the auction purchaser for
being deprived of his dues, would result in the State retaining a
benefit to which it was not entitled and would attract the principle of
restitution and unjust enrichment.
15. The principles governing award of interest in circumstances
such as the present one are no longer res integra . In Dr. Poornima
1
Advani and Another vs Government of NCT and Another , the
1
Civil Appeal No.2643/2025 2025 INSC 262
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WP No. 19486 of 2025
Supreme Court considered the principles of restitution and unjust
enrichment in the context of money collected and retained by the
State and held that the interest is not a penalty but the normal
accretion on capital and is compensatory in nature. A person
deprived of the use of money legitimately due to him is entitled to
be compensated for such deprivation. The Supreme Court
observed that the absence of any express statutory provision for
payment of interest does not justify the State's retaining another's
money without compensating them. Thus, the question that
remains is whether the petitioner is entitled to interest and if so, for
what period and at what rate?
16. It cannot be overlooked that the auction purchaser had
parted with a substantial amount pursuant to the auction conducted
by the State. Despite such payment, the auction purchaser did not
receive the iron ore which formed the subject matter of auction.
Thereafter, notwithstanding successive representations and orders
of this Court requiring consideration of his claim for refund, the
money continued to remain with the State and its instrumentalities.
The petitioner was thus deprived of the use of money legitimately
due to be refunded to the auction purchaser. The contention of the
respondents that there is no contractual provision, providing for
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interest does not conclude the issue. The claim is not upon a
contractual stipulation, it is on a principle that a person who is
deprived of the use of money which ought to have been returned to
him is required to be appropriately compensated for such
deprivation. As stated above, the decision by the Supreme Court in
Dr. Poornima Advani ( supra ) is apposite. There, the appellants
had purchased an e-stamp paper of ` 28,10,000. The stamp paper
was lost and as the fresh stamp paper was purchased for
completing the transaction, their application for refund of the said
amount towards the first stamp paper was rejected. The learned
Single Judge directed refund of the principal amount, holding that
the taxing event had not occurred and that continued retention of
the amount by State was impermissible. The same came to be
confirmed by the Division Bench. However, the interest was not
ordered. The Supreme Court held that the contention that the
interest could not be awarded in the absence of any statutory
provision was without merit. Further, it was observed that the
interest is not a penalty nor a punishment, but a normal accretion
on capital. When a person is deprived of the use of money to which
he is legitimately entitled, he has a right to be compensated for
such deprivation whether such compensation is described as
interest, compensation or damages.
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17. The Supreme Court further observed that where the doctrine
of restitution is attracted, interest should follow. It referred to Hari
2
Chand vs State of UP , the judgment of the Allahabad High Court,
where it was dealing with a similar controversy in a stamp matter
and had held that the payment of interest is a necessary corollary
to the retention of money to be returned under the order of the
appellate court or revisional authority and where an interest at the
rate of 8% per annum was directed for the period during which the
money remained with the State. The Supreme Court also referred
to the decision in ONGC Ltd. vs Commissioner of Customs,
3
Mumbai where the court had explained the principles of
restitution. The Supreme Court observed at para No.27 as under:
“27. In the case of O.N.G.C. Ltd. v. Commissioner of
Customs Mumbai, JT 2007 (10) SC 76, (para 6), the facts
were that the assessment orders passed in the Customs
Act creating huge demands were ultimately set aside by this
Court. However, during pendency of appeals, a sum of Rs.
54,72,87,536/- was realized by way of custom duties and
interest thereon. In such circumstances, an application was
filed before this Court to direct the respondent to pay
interest on the aforesaid amount w.e.f. the date of recovery
till the date of payment. The appellants relied upon the
judgment in the case of South Eastern Coal Field Ltd. v.
State of M.P., (2003) 8 SCC 648. This Court explained the
principles of restitution in the case of O.N.G.C. Ltd. (supra)
as under:-
“Appellant is a public sector undertaking.
Respondent is the Central Government. We agree
2
2012 (1) AWC 316
3
JT 2007 (10) SC 76
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that in principle as also in equity the appellant is
entitled to interest on the amount deposited on
application of principle of restitution. In the facts and
circumstances of this case and particularly having
regard to the fact that the amount paid by the
appellant has already been refunded, we direct that
the amount deposited by the appellant shall carry
interest at the rate of 6% per annum. Reference in
this connection may be made to Pure Helium Indian
(P) Ltd. v. Oil & Natural Gas Commission, JT 2003
(Suppl. 2) SC 596 and Mcdermott International Inc.
v. Burn Standard Co. Ltd. JT 2006 (11) SC 376.”
(Emphasis supplied)”
18. Of particular relevance is the reliance placed by the Supreme
Court on the decision in Union of India through Director of
4
Income Tax vs Tata Chemicals Limited . The principle reiterated
therein is that the money received and retained without right carries
with it the right of interest. The Government cannot, merely
because there is no express statutory provision providing for
interest, avoid its obligation to reimburse the lawful money of a
person together with interest for the period of undue retention. The
Supreme Court expressly observed that legislation provides for
interest on refund of tax, deemed tax or advance tax and held that
it treats refund due to the assessee as a debt owed by the revenue.
The relevant observations at para No.29 of Dr. Poornima Advani
( supra ) reads as under:
4
(2014) 6 SCC 335
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WP No. 19486 of 2025
“29. In the case of Union of India through Director of
Income Tax v. Tata Chemicals Ltd., (2014) 6 SCC 335, this
Court held that when the collection is illegal, the Revenue is
obliged to refund such amount with interest as money so
deposited was retained and enjoyed by it. No discrimination
can be shown between the assessee and Revenue in
paying interest on the refund of tax. Money received and
retained without right, carries with it the right to interest.
There being no express statutory provision for payment of
interest on the refund of excess amount/tax collected by the
Revenue, the Government cannot shrug off its apparent
obligation to reimburse the deductors lawful monies with
accrued interest for the period of undue retention of such
monies. Obligation to refund money received and retained
without right implies and carries with in the right to interest.
The relevant observations are as under:-
“Providing for payment of interest in case of refund
of amounts paid as tax or deemed tax or advance
tax is a method now statutorily adopted by fiscal
legislation to ensure that the aforesaid amount of tax
which has been duly paid in prescribed time and
provisions in that behalf form part of the recovery
machinery provided in a taxing Statute. Refund due
and payable to the assessee is debt-owed and
payable by the Revenue. The Government, there
being no express statutory provision for payment of
interest on the refund of excess amount/tax
collected by the Revenue, cannot shrug off its
apparent obligation to reimburse the deductors
lawful monies with the accrued interest for the
period of undue retention of such monies. The State
having received the money without right and having
retained and used it, is bound to make the party
good, just as an individual would be under like
circumstances. The obligation to refund money
received and retained without right implies and
carries with it the right to interest. Whenever money
has been received by a party which ex ae quo et
bono ought to be refunded, the right to interest
follows, as a matter of course.”
(Emphasis supplied)
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19. The Supreme Court in Dr. Poornima Advani ( supra )
awarded interest at 8% per annum on the entire amount from
20.08.2018, the date of the judgment of the learned Single Judge
recognizing the entitlement to refund till 29.02.2020, when part
payment was received, and thereafter on the balance amount.
20. The principle enunciated therein squarely applies to the
present case. In the present facts, the representation of the
petitioner underwent consideration at different levels of the
Government. The DMG, by communication dated 19.03.2024,
`
recommended refund of 2,89,05,436 albeit without interest, and
by communication dated 06.06.2024, clarified in response to the
queries raised by the Finance Department that the auction
conditions contained no provisions for penalising the auction
purchaser and that no loss of revenue had been caused to the
State. The translation of the relevant communication dated
19.03.2024 reads as under:
“On this background, when the legal section opinion
was sought, the Legal Consultant have given the opinion as
hereunder (the legal opinion report copy is attached).
11. Looking into the entire file I am of the opinion that
as a prudent man the State Government is bound to
return the amount deposited by G.P.Shashikumar
without interest. There is no fault on the part of State
Government in performing its duty and delay was
caused due to non deposit of auction amount by
applicant in time, so the State Government is not liable
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to pay interest on deposited amount as claimed by the
applicant. State Government is not benefited out of the
deposited amount. In view of the same the State
Government may refund the deposited amount to
Sri.G.P.Shashikumar without interest.
While in consonance with the legal opinion for the re-
payment of the bid amount of Rs.2,89,05,436/- to the bidder
(without interest) it is opined action can be taken. And the
same material factors is brought to the Government's further
action.”
21. The relevant translated extract of the note sheet of the
Department of Commerce and Industries (Mines) recorded upon
receipt of the said communication dated 06.06.2024 reads as
under :
“Note 59) U/S (Mines 1)
As described in the paragraph 56-49 n/f, Chitradurga
District Hosadurga Taluk, Doddabyaladakere village in
survey No.38 about 20,000 MT of old dumps iron ore open
auction bid amount Rs.2,73,64,000 (total amount
Rs.2,89,05,436 out of this excepting the tax amount
Rs.15,41,436 Rs.2,73,64,000/- to refund to the bidder, as
th
stated by the finance department in paragraph 57(5) point
after obtaining the opinion from the Legal Department, can
send the file to the Finance Department for concurrence.”
22. Of particular significance is the opinion dated 27.06.2024 of
the Department of Law, Justice and Human Rights. With the
approval of the Principal Law Secretary it opined as under :
“74) Though, the representations were made by
the auction purchaser, the department has not acted upon
the said representations. Therefore he filed another Writ
Petition where in, a direction was given to the department to
consider only the representations dated 06.06.2023.
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75) In the representation dated 06.06.2023, he
has sought for the refund of the entire amount of
Rs.2,89,05,436/- with royalty and other taxes paid by him
along with interest. In one such case of Ms. Chitrakuta
Steels and Power Pvt Ltd., the very department of
Commerce and Industries, on 12.06.2019, has ordered to
refund the bid amount with interest as per GO
No:gabhue/kaa.sha/ccc.1332/2018/ccc.1332/2018/baddima
paa/2019-20, dated: 12.06.2019 (enclosed).
76) Therefore, in this case also and in the interest
of justice and on a parity ground, the auction purchaser is
also entitled to refund of Rs. 2,89,05,436/- with royalty and
/152/MMM/2020 other taxes paid by him along with the
interest, since the permit was cancelled for the reasons best
known to the department concerned. As such, he is entitled
to refund of the admissible Bank rate of interest on the
amount of Rs. 61,50,000/- and Rs. 2,27,55,436/-
respectively as on the dates of deposits of the bid amounts.
This is the opinion of Law Department. ”
23. It opined that on parity with the refund with interest granted in
the case of Ms. Chitrakuta Steels and Power Pvt. Ltd., the auction
purchaser was entitled to refund of the amount deposited by him
including royalty and taxes together with interest at the admissible
bank rate from the respective dates of deposit. Thus, the State's
own law department specifically recognised not only the entitlement
to refund but also the claim for interest and a period for which such
interest ought to run.
24. The Finance Department thereafter accorded concurrence
on 17.08.2024 for refund of ` 2,89,05,436. Its concurrence was
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silent as regards interest. The translation of the relevant portion
reads as under :
“ The proposal with the department opinion is examined the
finance department opines as below:
1. For refund of the Bid Amount which is bidded in the
Open Auction for the Iron Ore in survey No.38,
Doddabyaladakere village, Hosadurga Taluk, Chitradurga
District the finance department have given its concurrence.
2. As the bid remitted amount is remitted the Mines and
Geology Department Head of account
0853.00.102.1.02.000 and only the said amount
Rs.2,89,05,436/- only subject to the conditions of the
process complying as per order No.FD 35 TAR 2019 dated
16.10.2019 to refund from the Head of Account, the
concurrence is given from the Finance Department.
(Approved from Secretary to Govt. Finance Department) ”
25. The concurrence was communicated by respondent No.1 on
27.09.2024. The auction purchaser having died in December 2024,
his mother appointed the petitioner as her General Power of
Attorney [ GPA ] Holder. Upon an indemnity bond dated 25.03.2025
being furnished, the DMG passed the impugned order dated
29.03.2025 directing refund of ` 2,73,64,000 after deducting `
15,41,436 comprising of ` 5,57,436 towards income tax and `
`
9,84,000 towards VAT. The amount of 2,73,64,000 was thereafter
refunded on 31.03.2025. The petitioner thereafter represented on
04.06.2025 seeking release of the balance ` 15,41,436 together
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with interest. During the pendency of the present proceedings, the
DMG addressed communications dated 11.03.2026 to the income
tax department and commercial tax authorities seeking refund of
the amount remitted to them. The commercial tax authorities have
since proceeded on the premise that no taxable event has occurred
and initiated steps for refund of ` 9,84,000, whereas no
corresponding response has been received from the income tax
department.
26. The next question that arises for consideration is whether the
petitioner is entitled to interest on the amount which remained with
the respondents and if so, the rate and period for which such
interest is payable.
27. In this regard it would be apposite to refer to the decision of
the Supreme Court in Dr. Poornima Advani ( supra ). The
principles governing award of interest in the circumstances as that
of the present case are no longer . In the present case,
res integra
the auction purchaser had deposited the entire amount pursuant to
the auction. The consideration for which it was paid, however, was
never received by him. The respondents’ own subsequent reports
have disclosed that the auctioned quantity of iron ore was not
available at the subject site. Once the transaction did not fructify
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and the respondents themselves accepted the auction purchaser's
entitlement to refund, there remained no justification for the State to
retain the amount paid pursuant to such transaction. Continued
retention of the money without corresponding consideration and
without compensating the auction purchaser for deprivation of its
use would result in State retaining a benefit to which it was not
entitled and would attract the principle of restitution and unjust
enrichment. The principles governing awarding of interest in
circumstances such as the present case are no longer res integra.
The Supreme Court in Dr. Poornima Advani ( ) observed the
supra
principles of restitution and unjust enrichment in the context of
money collected and retained by a State, held that the interest is
not a penalty but a normal accretion of capital and is compensatory
in character and observed at para No.16 as under :
“16. The concept of awarding interest on delayed
payment has been explained by this Court in the case of
Authorised Officer Karnataka Bank v. M/s R.M.S. Granites
Pvt. Ltd. & Ors. in Civil Appeal No. 12294 of 2024, we quote
the following observations:-
“It may be mentioned that there is misconception about
interest. Interest is not a penalty or punishment at all,
but it is the normal accretion on capital. For example if A
had to pay B a certain amount, say ten years ago, but
he offers that amount to him today, then he has
pocketed the interest on the principal amount. Had A
paid that amount to B ten years ago, B would have
invested that amount somewhere and earned interest
thereon, but instead of that A has kept that amount with
himself and earned interest on it for this period. Hence
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WP No. 19486 of 2025
equity demands that A should not only pay back the
principal amount but also the interest thereon to B. [See:
Alok Shanker Pandey v. Union of India : AIR 2007 SC
1198.]”
28. It was further observed that a person deprived of the use of
money legitimately due to him is entitled to be compensated for
such deprivation and held at para Nos.20, 21 and 22 as under:
“20. In the case of Secretary, Irrigation
Department, Government of Orissa v. G.C. Roy, (1992) 1
SCC 508, a Constitution Bench of this Court opined that a
person deprived of use of money to which he is legitimately
entitled has a right to be compensated for the deprivation,
call it by any name. It may be called interest, compensation
or damages. This is also the principle of Section 34 of the
Civil Procedure Code.
21. The essence of interest as held in the case of
Lord Wright in Riches v. Westminister Bank Ltd., 1947 (1)
ALL ER 469, at page 472, is that it is a payment, which
becomes due because the creditor has not had his money
at the due date. It may be recorded either as representing
the profit he might have made if he had had the use of the
money, or, conversely, the loss he suffered because he had
not that use.
22. In the case of Commissioner of Income Tax v.
Dr. Sham Lal Narula, AIR 1963 Punjab 411, a Division
Bench of the High Court of Punjab articulated the concept of
interest as under:-
“The words ‘interest’ and ‘compensation’ are
sometimes used interchangeably and on other
occasions they have distinct connotation. “Interest” in
general terms is the return or compensation for the use
or retention by one person of a sum of money belonging
to or owed to another. In its narrow sense, ‘interest’ is
understood to mean the amount which one has
contracted to pay for use of borrowed money. ……… In
whatever category “interest” in a particular case may be
put, it is a consideration paid either for the use of money
or for forbearance in demanding it, after it has fallen
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due, and thus, it is a charge for the use or forbearance
of money. In this sense, it is a compensation allowed by
law or fixed by parties, or permitted by custom or usage,
for use of money belonging to another, or for the delay
in paying money after it has become payable.”
(Emphasis supplied)”
`
29. Pursuant to the impugned order, a sum of 2,73,64,000 was
stated to have been refunded on 31.03.2025. However,
subsequent communication produced by the State records that, out
of the amount sanctioned for refund, a sum of ` 8,00,000 remained
to be released on account of K-2 process system (Annexure-R8).
The same communication also refers to the amount of ` 5,57,436/-
remitted towards income tax and seeks refund thereof from the
concerned income tax authorities.
30. For the foregoing reasons, the petition is allowed in part and
the following order:
(i) The impugned order dated 29.03.2025 insofar as
it withholds ` 15,41,436, comprising ` 5,57,436
`
towards income tax and 9,84,000 towards VAT
is set aside.
(ii) Respondent Nos.1 and 3 are directed to refund
the payment of the balance sum. It shall be open
to them to obtain reimbursement or adjustment of
the said amounts from the respective tax
department in accordance with law.
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WP No. 19486 of 2025
(iii) The petitioner shall be entitled to interest at 8%
per annum on ` 2,89,05,436 from 31.07.2023
(the date of the order in W.P No.12671/2023)
until 31.03.2025.
(iv) The respondents shall be entitled to credit, with
effect from 31.03.2025 only in respect of the
amount actually paid to the petitioner on that
date.
(v) From 01.04.2025, interest at 8% per annum shall
be payable on ` 8,00,000 and ` 15,41,436 until
the date of actual payment.
(vi) The aforesaid amounts together with accrued
interest shall be paid within a period of eight (8)
weeks from date.
Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE
Sd/-
(K.S. HEMALEKHA)
JUDGE
CKL