Compensatory interest on interim tax payment granted where the payer was ultimately found not liable and the State retained the funds.

A writ court may grant compensatory interest on money paid under an interim arrangement when the payer is ultimately found not liable and the State has enjoyed the benefit of the funds. The concession linked to the sales tax exemption was treated as an exemption under section 8A of the Karnataka Sales Tax Act, 1957, and the interim payment of Rs. 45 lakhs did not alter the petitioner's entitlement to final relief. The absence of an express interest condition in the interim order did not prevent equitable compensation. Interest was directed from the respective dates of payment until refund at 10% per annum.

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Issues: Whether the petitioner was entitled to interest on the sum of Rs. 45 lakhs paid under an interim order of the writ court, and, if so, at what rate.

Analysis: The concession under the Government notifications issued in relation to the sales tax exemption was treated as an exemption traceable to section 8A of the Karnataka Sales Tax Act, 1957. The amount of Rs. 45 lakhs was paid only because of an interim arrangement in the writ proceedings, and the petitioner was ultimately found not liable to the demand. The court held that writ jurisdiction is equitable in nature and that a party deprived of the beneficial use of its money, while the State has had the use of it, may be compensated by interest. The absence of an express condition in the interim order did not bar the court from granting appropriate final relief. On the facts, the retention of the amount by the State warranted compensation, and the rate had to be fixed having regard to the circumstances and comparable precedents.

Conclusion: The petitioner was held entitled to interest on the sum of Rs. 45 lakhs from the respective dates of payment until refund, and interest was directed at 10% per annum.

Final Conclusion: The writ petition succeeded, the demand was not sustained, and the petitioner obtained monetary restitution by way of compensatory interest on the amount earlier paid under the interim order.

Ratio Decidendi: A writ court exercising equitable jurisdiction may award compensatory interest on money paid under an interim order when the payer is ultimately found not liable and the State has had the benefit of the amount.

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