Holding

The demand for price under Section 21(5) is a compensatory recovery, not a penal action, and the appellants cannot retain benefits obtained under the vacated interim orders.

Summary

The appellants, lessees of two granite quarry leases in Karnataka, operated the quarries and exported granite after the Supreme Court’s interim orders allowing renewal of leases and issuance of transport permits, even though the underlying leases had been quashed by the High Court. After the Supreme Court dismissed the appeals, the State of Karnataka demanded payment of the price of the exported granite under Section 21(5) of the Mines & Minerals (Development & Regulation) Act, 1957, which the appellants contended was a penal levy. The Court examined whether the marginal note ‘penalties’ in Section 21 could render the price recovery a penalty and whether the appellants could retain benefits accrued under the now‑vacated interim orders. It held that the demand for price is compensatory, not penal, and that Section 21(5) empowers the State to recover the price of minerals raised without lawful authority. Consequently, the appellants were placed in the position they would have occupied had the interim orders never been granted and were liable to pay the price of the granite. The appeals were dismissed without any order as to costs.

Issues considered

The nature of the demand for price under Section 21(5) of the MMDR Act – whether it constitutes a penalty or compensation
Whether the appellants can retain benefits earned under the Supreme Court’s interim orders after the appeals were dismissed
The relevance of the marginal note ‘penalties’ in interpreting Section 21
The applicability of Section 21(5) when extraction is deemed to be without lawful authority

Legislation cited

Constitution of Indias. Article 142
Karnataka Minor Mineral Concession Rules, 1969s. Rule 3A
Mines & Minerals (Development & Regulation) Act, 1957s. 21

Subjects

mineral leasespenalty vs compensationSection 21interim ordersprice recoverystatutory interpretationquarryingKarnataka

Judgment

,.,. J
KARNATAKA RARE EARTH AND ANR. A
V.

THE SENIOR GEOLOGIST, DEPARTMENT OF MINES AND
GEOLOGY AND ANR.

JANUARY 23, 2004
B
[R.C. LAHOTI, ASHOK BHAN AND B.P. SINGH, JJ.]

Land Laws:

Mines & Minerals (Development & Regulation) Act, 19)7; Section 211 C
Karnataka Minor Mineral Concession Rules, 1969; Rule 3A: Grant of lease
to quany granites-Challenge to--Grant of lease quashed by High Court-
Writ appeal dismissed-On Appeal, Supreme Court passed interim orders
directing renewal of lease and to release transport permits-Lessees operated
quarries and exported granite blocks even after the dismissal of the appeals- D
State demanding price of granite exported-Challenge to--Dismissed by High
)
.--+. Court-On appeal, Held: Provisions as to recovery ofprice could be construed
as recovery of compensation and not penalty-On dismissal of appeals,
extraction/disposal of mineral was without lawful authority-Lessees could
not relain benefits earned by them in terms of inlerim orders of Supreme
Court-State Government empowered in terms of Section 2 I of the Act to E
order recovery of price in respect of mineral extracted by the lesse.es without
any lawfiil authority-Constitution of India, Article I 42.

Interpretation of Statutes:

,?- Section 21-Marginal note/Title-Penalties-Implication of-Held: It F
cannot be pressed into service to give such colour to the meaning of the
provisions of law which ii cannot have in /aw-Construing so, recovery of
price of•nineral by the State is compensalion in lieu of loss ofmineral extracted
by the Lessees without authority of law and not a penalty.
G
Appellant-lessees were holding two quarry leases in Government
'"'· land. Grant of 203 such leases in Government land had been challenged
and Single Judge of the High Court upheld the challenge and it was
affirmed by the Division Bench of the High Court. The lessees
unsuccessfully approached this Court. IAlankar Grani/es and Ors. v. PGR
965 H
.Al·

966 SUPREME COURT REPORTS [2004] I S.C.R.

A Scindia, MLA and Ors., 1199617 SCC 4161 However, by its earlier interim
orders, this Court directed that the renewals/grants in favour of the
appellant-lessee would continue and also granted them transport permit.
Appellants operated the quarries, transported blocks of granites/mim~ral
and also exported the same to foreign countries even after dismissal of
the appeals. State Government issued orders demanding price of the
B granite blocks so exported. Aggrieved, lessees challenged the order by way
of Writ Petitions which were dismissed by the High Court. Hence the
present appeals.

It was contended for the appellant-lessees that since the appellant
C had extracted and exported the granite blocks after payment of royalty
and as per the said interim orders, they acted lawfully and bonajidely; that
the mining lease was valid in terms of the interim orders of Supreme
Court; and that the demand for price of grant of blocks by the State
Government was in the nature of penalty.

D Dismissing the appeals, the Court

HELD: I.I. The demand by the State of Karnataka of the pric1: of r-
' '
the mineral cannot be said to be levy of penalty or a penal action. Section
21 of the Mines & Minerals (Development and Regulations) Act, 1957 d1:als
E with a variety of situations. The provision as to recovery of price is in the
nature of recovering the compensation and not penalty; so also the power
of the State Government to recover rent, royalty or tax in respect of 11ny
mineral raised without any lawful authority can also not be called a penal
action. The underlying principle of sub-section (S) of Section 21 is tha1t a
person acting without any lawful authority must not find himself pla1:ed
F in a position more advantageous than a person raising minerals with lawful
authority. (971-D F; Gf

South Eastern Coalfields Ltd. v. State of MP. and Ors., (2003( 8 S4CC
648, relied on.

G 1.2. It is true that by the interim orders passed by this Court the
appellants were allowed during the pendency of the earlier appeals to
operate under the mining leases, whether freshly granted or renewed and
to effectuate the interim orders the authorities were also directed to issue
transport permits. The plea of the appellants that the dismissal of the
H appeals was not in their knowledge cannot be accepted inasmuch as the
KARNATAKA RARE EARW 1•. SNR. GEOLOGIST. DEPT. OF MINES AND GEOLOGY 967
' .J. ' judgments must have been pronounced in an open Court and their counsel A
at Delhi must have gathered the knowledge thereof. In any case, the
appellants cannot be heard taking shelter behind their own convenient
ignorance. Whether they had the knowledge of the judgment or not and
whether the transport permits were obtained by the appellants before the
dismissal of the appeals during which the interim orders were in operation
. or after the dismissal of the appeals when the interim orders had ceased
B
to operate would not make any difference. For the purposes of the law it
is enough that the appellants have enjoyed the benefit under the interim
orders of the Court which have stood vacated with the dismissal of their
appeals. As the appellants have lost from the Court, they cannot be allowed
to retain the benefit earned by them under the intei'im orders of this Court. c
The High Court has rightly held the appellants liable to be placed in the
same position in which they would have been if this Court would not have
protected them by issuing interim orders. All that the State Government
is demanding from the appellants was the price of the minor minerals.
No penal proceedings, much less any criminal proceedings, have been
initiated against the appellants. It cannot be said that the appellants were D
-~
being asked to pay any penalty or are being subjected to any penal action.
I ,
1972-B, C, D; 973-8, C, D, E)

South Eastern Coalfields ltd. v. State of MP. and Ors., 12003) 8 SCC
648, relied on.
E
1.3. The marginal note 'penalties' cannot be pressed into service for
giving such colour to the meaning of sub-section (5) of Section 21 of the
Act as it cannot have in law. The recovery of price of the mineral is
intended to compensate the State for the loss of the mineral owned by it
,> and caused by a person who has been held to be not entitled in law to F
raise the same. There is no element of penalty involved and the recovery
of price is not a penal action it is just compensatory. 1974-D, El

Director of Public Prosecutions v. Schildkamp, 119691 3 All ER 1640,
referred to.
G
Blacks law Dictonwy, Seventh Edition, P.1421; The law lexicon, P.
"' Ramanatha A iyar, Second Edition, P. 1431; and Principles of Statuto1:v
Interpretation by G.P. Singh, (Eighth Edition, 2001 P.147), referred to.

1.4. The Court while dismissing the appeals filed by the appellants H
968 SUPREME COURT REPORTS [20041 I S.C.R.

A in the year 1996, \'acated the interim orders, could ha\'e also relieved the .l •
appellants of the consequences logically and necessarily flowing from the
dismissal of the appeals by taking into consideration the equity of relieving
against hardship or could also ha\'e done so in exercise of its jurisdiction
conferred by Article 142 of the Constitution. (974-FJ.

B Samatha"· State of A.P. and Ors., (1997) 8 SCC 191, relied on.

Hi11dus1a,1 Steel\'. State of Orissa., (1970( I SCR 753 and Consolidated
Coffee"· Agricultural Income Tax Officer, (2001 ( I SCC 278, distinguislu~d.

C CIVIL APPELLATE JURISDICTION : Ci\'il Appeal Nos. 3618-
3019 of 1999.

From the Judgment and Order dated 1.12.98 of the K.arnataka High
Court in W.P.Nos. 4030-31 of 1997.

D K.V. Vishwanathan and K.V. Venkataraman for the Appellants.

Sanjay R. Hegde for the Respondents.

The Judgment of the Court was deli\'ered by
. .
E R.C. LAHOTI, J. The grant of 203 leases for quarrying granite~. in
go\'ernment land under Rule 3 of the Karnataka Minor Mineral Concession
Rules 1969, contrary to the prohibition contained in Rule 3A, was challenged
in the. Karnataka High Court in public interest litigation. The writ petitions
were allowed by the learned single Judge and all the grants were quashed.
.
Writ appeals were dismissed by a Di\'ision Bench of the High Court. The
F unsuccessful lessees came up to this Court and by judgment dated January -<\.
18, 1996 Alarikar Granites Industries and Ors. v. P.G.R. Scindia, MLA and
Ors., [1996] 7 SCC 416 this Court directed the appeals to be dismissed by
holding that the grants of leases were made against the prohibition contained
in Rule 3A and were rightly held by the High Court to be invalid.
G
The appellants before us were holding two quarry leases and were
amongst the appellants in this Court in the appeals by special leave referred
to hereinabove. On 19.11.1993, by an interim order, the Court directed that /
the renewals or existing grants in favour of the appellants would continue: till
the next date of hearing. On 21.11.1993, the Court modified the previous
H order by extending its operation 'to continue till further orders of the Court'.
KAkNATAKA RARE EARTH "· SNR. GEOLOGIST, DEPT. or MINES AND GEOLOGY [LAHOTI. J.] 969

The appellants brought to the notice of the Court that in spite of the previous A
interim order the appellants were not issued transport permits with the result
that the renewal or grant of leases was of no avail to them as they were not
able to remove the minerals quarried by them. In the opinion of the Court
such action of the respondents resulted in frustrating the interim orders. It
was clarified that the appellants in whose favour interim orders were granted, B
should be granted transport permits also by the appropriate authority on
payment of royalty and complying with the rules. On I 8. I .1996, the appeals
came to be dismissed as already stated.

According to the appellants they had operated the quarries and
transported several granite blocks on the strength of the order passed by this C
Court. They had paid the prescribed royalty and exported the granite blocks.
The quarrying had taken place during the pendency of the appeals and the
export had taken place on 24.1.1996 as the dismissal of the appeals on
18.1.1996 at Delhi did not come to the notice of the appellants or the authorities
of the State at Karnataka until after the granite blocks had already been D
exported. On 14/15.2.1996, the State of Karnataka issued an order calling
upon the appellants to pay the price of the granite blocks calculated at the
.,.
-
j .
minimum rate per unit volume of minor mineral. The appellants filed writ
petitions in the 1-ligh Court laying challenge to the impugned action of the
respondents proposing to recover the price of the granite blocks which were
already exported. The writ petitions were dismissed. Feeling aggrieved the E
appellants have filed these appeals by special leave.

The substance of the plea, forcefully urged by the learned counsel for
the appellants and highlighted from very many angles, is that the act of the
appellants in quarrying the granite stones and exporting the same was
accompanied by payment of royalty and issuance of transport permits by the F
authorities of the State and though done under the interim orders of this
Court was nevertheless a lawful and bona fide act. The mining leases in
favour of the appellants ought to be held to be valid, in spite having been
invalidated by the High Court, in view of the interim orders passed by this
Court. The appellants cannot be held liable for payment of price of the G
granite blocks. The demand of price of the granite blocks is a demand in the
nature of penalty and hence cannot be sustained. Reliance is placed by the
learned counsel on the decision of this Cou1t in Hindustan Steel v. State of
Orissa, [1970] 1 SCR 753 and Consolidated Coffee v. Ag;icultural Income
Tax Office, [2001] 1 SCC 278.
H
970 SUPREME COURT REPORTS [2004) I S.C.R.

A Having heard Shri K.V. Vishwanathan, the learned counsel for the
appellants and Shri Sanjay R. Hegde, the learned counsel for the State of
l •
Karnataka, we are satisfied that no fault can be found with the view taken by
the High Court and the appeals are devoid of any merit and hence liable to
be dismissed.

B Section 21 of the Mines and Minerals (Development & Regulation)
Act 1957 (hereinafter 'MMDR Act', for short) reads as under:-"

21. Penalties.-( 1) Whoever contravenes the provisions of sub-section
(I) or sub-section (IA) of section 4 shall be punished with
imprisonment for a term which may extend to two years, or with fine
c which may extend to twenty-five thousand rupees, or with both.

(2) Any rule made under any provision of this Act may provide
that any contravention thereof shall be punishable with imprisonment
for a term which may extend to one year, or with fine which may
D extend to five thousand rupees, or with both, and in the case of a
continuing contravention, with an additional fine which may extend
to five hundred rupees for every day during which such contravention
continues after conviction for the first such contravention.
..
'r'

(3) Where any person trespasses into any land in contravention of
E the provisions of sub-section (I) of section 4, such trespasser may be
served with an order of eviction by the State Government or any
authority authorised in this behalf by that Government and the State
Government or such authorised authority may, if necessary, obtain
the help of the police to evict the trespasser from the land.
F
(4) Whenever any person raises, transports or causes to be raised
or transported, without any lawful authority, any mineral from any --.(_.
land, and, for that purpose, uses any tool, equipment, vehicle or any
other thing, such mineral tool, equipment, vehicle or any other thing
shall be liable to be seized by an officer or authority specially
G empowered in this behalf.

(4A) Any mineral, tool, equipment, vehicle or any other thing
seized under sub-section (4), shall be liable to be confiscated by an
order of the cou11 competent to take cognizance of the offence under <'
sub-section (I) and shall be disposed of in accordance with the
H directions of such court.
"!-·.

KARNATAKA RARE EARTH>: SNR. GEOLOGIST, DEPT. OF MINES AND GEOLOGY (LAHOTI, I.] 97 \

(5) Whenever any person raises, without ariy lawful authority, A
·f ,1
any mineral from any land, the State Government may recover from
such person the mineral so raised, or, where such mineral has already
been disposed of, the price thereof, and may also recover from such
·person, rent, royalty or tax, as the case may be, for the period during
which the land was occupied by such person without any lawful
authority.
B

(6) Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974), an offence under sub-section (I) shall
be cognizable."

The submission of Shri Vishwanathan is that the impugned demand by the
c
State of Karnataka has been raised by reference to sub-Section (5) of Section
21 above-quoted which is nothing but a levy of penalty. The applicability of
the provision is not attracted unless the extraction and export of the minor
mineral by the appellants can be said to be 'without any lawful authority',
which it is not, in the facts and circumstances of the case, as already noticed, D
submitted Shri Vishwanathan.
..,. In our opinion, the demand by the State of Karnataka of the price of
' ' the mineral cannot be said to be levy of penalty or a penal action. The
marginal note of the Section-'Penalties', creates a wrong impression. A reading
of Section 21 shows that it deals with a variety of situations. Sub-Sections E
(I), (2), (4), (4A) and (6) are in the realm of criminal law. Sub-Section (3)
empowers the State Government or any authority authorized in this behalf to
summarily evict a trespasser. Sub-Section (5) empowers the State Government
to recover rent, royalty or tax from the person who has raised the mineral
f~om any land without any lawful authority and also empowers the State
F
.~
Government to recover the price thereof where such mineral has already been
disposed of inasmuch as the same would not be available for seizure and
confiscation. The provision as to recovery of price is in the nature of recovering
the compensation and not penalty so also the power of the State Government
to recover rent, royalty or tax in respect of any mineral raised without any
lawful authority can also not be called a penal action. The underlying principle G
of sub-Section (5) is that a person acting without any lawful authority must
not find himself placed in a position more advantageous than a person raising
~ minerals with lawful authority.

The correct principles of law applicable to the facts of the present case
H
.. ,;(

972 SUPREME COURT REPORTS [2004] I S.C.R.

A emanating from· equity, and statutorily embodied in sub-Section (5) of Section l ••
21 abovesaid, are to be found dealt with extensively in a recent decision of
this Court in South Eastern Coa(ftelds ltd. v. State of M.P. and Ors., [2003]
s sec 648.
It is true that by the interim orders passed by this Court the appellants
B were allowed during the pendency of the earlier appeals to operate under the
mining leases, whether freshly granted or renewed and to effectuate the interim
orders the authorities were also directed to issue transport permits. Admittedly,
the transport permits were obtained by the appellants after the dismissal of
their appeals. The appellants claim that both the parties were ignorant of the
c dismissal of the appeals when the transport permits were issued and the
granite blocks were exported. It is difficult to accept the plea of the appellants
that the dismissal of the appeals was not in their knowledge inasmuch as the
judgments must have been pronounced in an open Court and their counsel at
Delhi must have gathered the knowledge thereof. In any case the appellants
cannot be heard taking shelter behind their own convenient ignorance. In our
D opinion, whether they had the knowledge of the judgment or not and whether
the transport permits were obtained by the appellants before the dismissal of
the appeals during which the interim orders were in operation or afti~r the
dismissal of the appeals when the interim orders had ceased to operate would ..
1"

not make any difference. For the purposes of the law it is enough that the
appellants have enjoyed the benefit under the interim orders of the Court
E
which have stood vacated with the dismissal of their appeals. It is also
noteworthy that this Court had not, in the earlier appeals, directed the judgment
of the High Court to remain stayed in its entirety and this is an additional fact
or which tells adversely on the appellants ..

F In South Eastern Coalfields Ltd., (supra), this Court dealt with the
effect on the rights of the parties who have acted bona fide, protected by -(
..
interim orders of the Court and incurre·d rights and obligations while the
interim orders stood vacated or reversed at the end. The Court referred to the
doctrine of actus curiae neminem gravabit and held that the doctrine wa:; not
confined in its application only to such acts of the Court which were erroneous;
G the doctrine is applicable to all such acts as to which it can be held that the
Court would not have so acted had it been correctly apprised of the facts and
the law. It is the principle of restitution which is attracted. When on account
~
of an act of the party, persuading the Court to pass an order, which at the end
is held as not sustainable, has resulted in one party gaining advantage which
H it would not have otherwise earned, or the other party has suffered an
KARNATAKA RARE EAR!ll 1·. SNR. GEOLOGIST, DEPT. OF MINES AND GEOLOGY [LAllOTI, J.l 973

impoverishment which it would not have suffered but for the order of the A
Court and the act of such party, then the successful pa11y finally held entitled
to a relief, assessable in terms of money at the end of the litigation, is entitled
to be compensated in the same manner in which the parties would have been
if the interim order of the Cou11 would not have been passed. The successful
party can demand (a) the delivery of benefit earned by the opposite party B
under the interim order of the Court, or (b) to make restitution for what it has
lost.

In the facts of this case, in spite of the judgment of the High Court, if
the appellants would not have persuaded this Court to pass the interim orders,
they would not have been er.titled to operate the mining leases and to raise C
and remove and dispose of the minerals extracted. But for the interim orders
passed by this Court, there is no difference between the appellants and any
person raising, without any lawful authority, any mineral from any land,
attracting applicability of sub-Section (5) of Section 21. As the appellants
have lost from the Court they cannot be allowed to retain the benefit earned
by them under the interim orders of the Court. The High Court has rightly D
held the appellants liable to be placed in the same position in which they
would have been if this Court would not have protected them by issuing
interim orders. All that the State Government is demanding from the appellants
is the price of the min or minerals. Rent, royalty or tax has already been
recovered by the State Government and, therefore, there is no demand under E
that Head. No penal proceedings, much less any criminal proceedings, have
been initiated against the appellants. It is absolutely incorrect to contend that
the appellants are being asked to pay any penalty or are being subjected to
any penal action. It is not the case of the appellants that they are being asked
to pay a price more than what they have realised from the exports or that the
price appointed by the respondent State is in any manner arbitrary or F
unreasonable.

Is sub-section (5) of Section 21 a penal enactment? Can the demand of
mineral or its pricl' tl1ereunder be called a penal action or levy of penalty?

A penal statute or penal law is a law that defines an offence and G
prescribes its corresponding fine, penalty or punishment. (Blacks Law
Dictionary, Seventh Edition, p.1421 ). Penalty is a liability composed as a
punishment on the party committing the breach. The very use of the term
'penal' is suggestive of punishment and may also include any extraordinary
liability to which the law subjects a wrong-doer in favour of the person H
974 SUPREME COURT REPORTS [2004) I S.C.R.

A wronged, not lin1ited to the damages suffered. (See, The Law Lexicon, P. l •
Ramanatha Aiyar, Second Edition, p.1431).

In support of the submission that the demand for the price of mineral
raised and exported is in the nature of penalty, the learned counsel for the
appellants has relied on the marginal note of Section 21. According to Justice
B G.P. Singh on Principles of Statutory Interpretation (Eighth Edition, 200 I, at
p.147) though the opinion is not uniform but the weight of authority is in
favour of the view that the marginal note appended to a Section cannot be
used for construing the Section. There is no justification for restricting the
Section by the marginal note nor does the marginal note control the meaning
c of the body of the Section if the language employed therein is clear and
spells out its own meaning. In Director of Public l'rooecutions v. Schildkamp,
(1969] 3 All ER 1640, Lord Reid opined that a side note is a poor guide to
the scope of a section for it can do no more than indicate the main subject
with which the section deals and Lord Upjohn opined that a side note being
a brief precis of the section forms a most unsure guide to the construction of
D the enacting section and very rarely it might throw some light on the intentions
of Parliament just as a punctuation mark.

We are clearly of the opinion that the marginal note 'penalties' cannot f
be pressed into service for giving such colour to the meaning of sub-Section
(5) as it cannot have in law. The recovery of price of the mineral is intend,ed
E to compensate the State for the loss of the mineral owned by it and caused
by a person who has been held to be not entitled in law to raise the same.
There is no element of penalty involved and the recovery of price is not a
penal action. It is just compensatory.

F The Court while dismissing the appeals filed by the appellants in the
year 1996, which dismissal vacated the interim orders, could have also relieved _...
·•
the appellants of the consequences logically and necessarily flowing from the
dismissal of the appeals by taking into consideration the equity of relieving
against hardship or could also have done so in exercise of its jurisdiction
conferred by Article 142 of the Constitution. So was done in Samatha v.
G State of A. I'. and Ors., [ 1997] 8 SCC 191, 277 para 131. This Court having
directed the State Government to ensure further mining operations by
industrialists concerned in the scheduled area, restrained the lessees of mining l

leases not to break fresh mines, but in the meanwhile allowed them to remove (
the minerals already extracted and stocked in the reserved forest area within
H four months' time from the date of judgment.
KARNATAKA RARE EARlll 1·. SNR. GEOLOGIST, DEPT. OF MINES AND GEOLOGY [LAllOTl,J.] 975

Neither the appellants prayed for 5uch relief nor the Court has passed A
• ).
I any such order. What this Court had not done, could not obviously have been
done by the High Court in exercise of its writ jurisdiction in view of the
earlier judgment of this Court having achieved a finality.

The two decisions relied on by the learned counsel for the appellants
are not applicable to the facts of the present cases. Hindustan Steel (supra) B
is a case under the Orissa Sales Tax Act, 1947. The appellant company was
engaged in construction activity. During the course of such activity the
company supplied building materials to the contractor for construction and
....4
adjusted the value of the goods ~upplied at the rates specified in the tender.
The Court held such transaction of supply of building materials to be a sale
and, therefore, the company a 'dealer' covered by the Act. However, the
c
persons incharge of the affairs of the company had not registered the company
as dealer in the honest and genuine belief that the company was not a dealer.
The Court held that the liability to pay penalty did not arise merely upon
proof of default in registering as a dealer. An order imposing penalty for
failure to carry out the statutory obligation is the result of a quasi-criminal D
proc11eding and penalty will not ordinarily be imposed unless the party obliged
has either acted deliberately in defiance of law or was guilty of conduct
;~ contumacious or dishonest or acted in conscious disregard of its obligation.
Penalty will not also be imposed merely because it is lawful to do so. In spite
of a minimum penalty prescribed the authority competent to impose the
E
penalty may refuse to impose penalty if the breach complained of was a
technical or venial breach or flew from a bona fide though mistaken belief.
In Consolidated Coffee (supra), the court was dealing with Section 42(1) of
Karnataka Agricultural Income Tax Act, 1957. A default by assessee in making
payment of tax attracted a penalty equivalent to one and a one-half percent
of the tax remaining unpaid for the first three months and two and one-half F
,,>- percent of such tax for each month subsequent thereto. There was also a
provision for payment of interest on delayed payment of tax. This Court held
that interest is compensatory while penalty is penal, i.e. punishing in character.
Where delay in payment of tax was attiibutable to the order of stay passed
by the Court, it was held that the order of stay placed the demand for the tax
G
in abeyance and, therefore, during the period of stay the assessee cannot be
said to be in default and hence no penalty can be imposed on the assessee
~
on the stay being vacated. However, still the Court held that a late payment
surcharge/interest is necessarily compensatory in character and a penalty is
a punishment.
H
976 SUPREME COURT REPORTS [20041 I S.C.R.

A At the end, the learned counsel for the appellants submi(ted that the
appellants may be allowed the liberty of making a representation to the State
Government for some relier at least in the calculation of the amount of price.
Needless to say that the appellants are always at liberty to do and we express
no opinion thereon.

B The appeals are dismissed though without any order as to the costs.

S.K.S. Appeals dismissed.

-r-
.'

'