M/S Saudi Arabian Airlines vs Union Of India
- Court
- Supreme Court
2026 INSC 933
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1052 OF 2013
M/S. SAUDI ARABIAN AIRLINES APPELLANT(S)
VERSUS
UNION OF INDIA & ORS. RESPONDENT(S)
J U D G M E N T
UJJAL BHUYAN, J.
Appellant has preferred this appeal being
aggrieved by the judgment and order dated 09.08.2010
passed by the High Court of Judicature at Bombay (briefly
‘the High Court’ hereinafter) in Writ Petition No. 3269 of
2004 ( M/s. Saudi Arabian Airlines Vs. Union of India )
alongwith three other writ petitions.
2. By the aforesaid judgment and order dated
Signature Not Verified
Digitally signed by
ABHINAV KUMAR
09.08.2010 (impugned judgment and order), the High
Date: 2026.09.01
16:43:52 IST
Reason:
Court has dismissed the writ petition filed by the appellant
seeking the following reliefs:
(a) to declare the provisions of Section 38(3) of
Chapter V of the Finance Act, 1979, as amended
by the Finance Act, 1994, as unconstitutional
and ultravires Article 14 of the Constitution of
India;
(b) to issue a writ of certiorari or a writ in the nature
of certiorari or any other appropriate writ, order
or direction, calling for the papers and
proceedings pertaining to the passing of the
th th
orders dated 8 August 2001, 9 January, 2003
th
and 29 October, 2004 and after going into the
legality, validity and propriety thereof, to quash
and/or set aside the said orders;
(c) to issue a writ of mandamus or a writ in the
nature of mandamus or any other appropriate
writ, order or direction, directing the
respondents to forthwith refund the sum of Rs
17,00,000.00 deposited by the petitioners
th
pursuant to the order dated 12 July, 2002
2
passed by the respondents together with interest
thereon at the rate of 15% per annum from the
date of deposit till payment and/or realization
thereof;
3. The matter relates to imposition of penalty under
Section 38(3) of the Finance Act, 1979 (briefly ‘The Finance
Act’ hereinafter) for delayed payment of Foreign Travel Tax
(‘FTT’ for short) into the Government treasury.
4. Briefly stated, appellant is an airline company
carrying on the business of transporting passengers between
various locations in India and abroad under the name and
style of M/s. Saudi Arabian Airlines. It has a license to
operate flights to and from India.
5. As required under the Finance Act, appellant
has to deposit FTT into the Government treasury within the
time stipulated thereunder as well as in terms of the
Foreign Travel Tax Rules, 1979 (briefly ‘the 1979 Rules’
hereinafter), framed under the Finance Act. Appellant in the
course of its business collected FTT from the passengers
3
going abroad in its aircrafts in accordance with the Finance
Act and the 1979 Rules.
6. For the months of July, 1995, December, 1996
and November, 1997, there was delay in payment of FTT of
only 1 day. There was a delay of 3 days in deposit of FTT
for the month of August, 1994 and a delay of 11 days for
the month of April, 1996. Further, there was delay of 2
months and 3 days i.e. 63 days in making payment of FTT
for the month of December, 1995. However, in 5 out of the
6 instances of delay, the demand drafts were purchased by
the appellant through the concerned banks before the due
dates for making the payment but there were delays in
depositing the demand drafts by 1 day, 3 days, 11 days and
63 days respectively, as noted above. That apart, the total
short payment of FTT in 7 cases was an aggregate amount
of Rs. 14,000.00 out of which Rs. 12,000.00 has been held
to be barred by limitation. As such, only Rs. 2,000.00 was
payable by the appellant.
7. 14 separate show cause notices were issued on
different dates to the appellant whereby it was called upon
to show cause as to why the FTT short payment should not
4
be recovered from it alongwith interest and penalty under
Section 38 of the Finance Act and as to why interest should
not be levied and penalty should not be imposed on it under
the said provision for late payment of FTT.
8. Appellant submitted reply to the show cause
notices. Primary contention of the appellant was that short
payment or late payment of FTT was not deliberate; it was
because of technical reasons. Therefore, the same should
be condoned.
9. Adjudicating authority after hearing the authorized
representative of the appellant noted that there were total 19
cases where the appellant had contravened the provisions of
the Finance Act and the 1979 Rules. In 6 cases, FTT collected
by the appellant should have been deposited into the
Government treasury before the expiry of 30 days, as specified
under Rule 4 of the 1979 Rules. However, in these 6 cases,
it was found that the FTT collected were deposited into the
Government treasury after expiry of 30 days, further noting
that there was delay from 1 day to 2 months in these 6
cases. The adjudicating authority also noted that interest
at the rate of 20 percent per annum on such late payment
5
of FTT as leviable under Section 35A of the Finance Act was
not paid by the appellant for the period for which there was
delay in payment of FTT. According to the adjudicating
authority, the total interest leviable for this late payment of
FTT worked out to Rs. 2,58,630.00 as on the dates of
payment of the respective amount of FTT. The adjudicating
authority also found that in 9 cases, the actual amount of
FTT required to be deposited by the appellant under
Section 35(2) of the Finance Act was Rs. 5,50,74,600.00
but the appellant had paid only Rs. 5,49,86,900.00; thus
there was shortfall of Rs. 87,700.00. That apart, interest at
the rate of 20 percent per annum on the short payment of
FTT was also not paid by the appellant. The interest
amount for this short payment of FTT was Rs. 45,632.00.
The adjudicating authority also found that in 13 cases, the
monthly returns were belatedly filed beyond the specified
period. There was delay of 1 day to 2 months in these 13
cases.
9.1. Holding that the appellant had contravened the
provisions of the Finance Act and the 1979 Rules which
made it liable to penal action, the adjudicating authority
6
vide the order-in-original dated 14.06.1999 while
confirming the demand of FTT to the extent of Rs.
87,700.00, which was the short payment, also confirmed
the levy of interest of Rs. 2,58,630.00 on late payment of
FTT to the extent of Rs. 3,56,45,700.00. Invoking the
provisions of Section 38(3) of the Finance Act, the
adjudicating authority also imposed penalty on the
appellant to the extent of Rs. 12,000.00 in respect of 6
cases of late payment of FTT, Rs. 18,000.00 in respect of
9 cases of short payment of FTT, and Rs. 6,000.00 in
respect of 3 cases of late submission of monthly return.
10. Aggrieved by the aforesaid order-in-original dated
14.06.1999, appellant preferred an appeal before the third
respondent, being the appellate authority. The appellate
authority passed order-in-appeal dated 24.11.1999, remanding
the matter back to the adjudicating authority to enable the
appellant to produce satisfactory evidence to substantiate its
claim. Adjudicating authority was directed to look in the issue
afresh after granting proper opportunity of personal hearing to
the appellant.
7
11. On remand, the Deputy Commissioner of
Customs i.e. the adjudicating authority confirmed the
short payment of FTT to the extent of Rs. 14,000.00. For
such short payment, interest at the rate of 20 percent as
provided under Section 35A(1) of the Finance Act was levied
till payment. Further, because of late payment of FTT to the
extent of Rs. 3,56,45,700.00, interest of Rs. 2,58,630.00
i.e. at the rate of 20 percent per annum was levied under
the aforesaid provision of the Finance Act. Thereafter, the
adjudicating authority referred to Section 38(3) of the
Finance Act and took the view that for failure to pay FTT to
the credit of the Central Government under Section 35(2),
appellant was liable to pay penalty in addition to the FTT
and the interest so levied. Moreover, in view of the delay in
the submission of FTT returns, penal action as provided
under Rule 10A(1) of the 1979 Rules were liable to be taken.
Accordingly, vide the de novo order-in-original dated
08.08.2001, the adjudicating authority directed the
appellant to pay the following amounts:
(i) Rs. 14,000.00 on account of short payment of
FTT;
8
(ii) interest of Rs. 2,58,630.00 for late payment of
FTT to the extent of Rs. 3,56,45,700.00;
(iii) interest at the rate of 20 percent on the short
payment of Rs. 14,000.00 till actual payment of
the said amount;
(iv) penalty of Rs. 71,29,140.00 was imposed under
Section 38(3) of the Finance Act in respect of 6
cases of late payment of FTT;
(v) penalty of Rs. 2,800.00 in respect of 7 cases of
short payment of FTT; and
(vi) penalty of Rs. 47,000.00 was imposed for 3
cases of late submission of monthly return.
12. Aggrieved by the aforesaid de novo order-in-
original dated 08.08.2001, appellant preferred appeal
before the appellate authority i.e. Commissioner of
Customs (Appeal) (respondent No. 3 herein). The appellate
authority upheld the de novo order-in-original by rejecting
the appeal vide the appellate order dated 09.01.2003.
Though it was specifically argued on behalf of the appellant
that in the initial order-in-original, the penalty imposed was
9
much less than what came to be imposed in the de novo
order-in-original on remand by the appellate authority, thus
placing the appellant in a worse of condition, the appellate
authority held that the adjudicating authority had only
imposed the minimum penalty provided under the statute
which was inadvertently overlooked in the initial proceedings.
Appellate authority held that penalty is imposable not only
where the carrier has not paid the tax but also in cases
where there is delay in payment of the tax. Delay in
payment of tax beyond the due date amounts to failure to
pay the tax. In such a case, Section 38(3) of the Finance
Act would be applicable. Interestingly, the appellate
authority observed that all the submissions made by the
appellant may be genuine but because the tax was
deposited beyond the time limit, penalty would be attracted
automatically. However, while determining penalty i.e.
between the maximum and the minimum amounts, the
circumstances under which the payment of tax was
delayed and intention of the carrier or the other person may
be taken into consideration. But taking the view that
adjudicating authority had looked into all these aspects while
10
imposing the minimum penalty, the appellate authority held
that no discretion has been conferred either on the
adjudicating authority or on the appellate authority to
impose penalty less than the minimum prescribed.
13. It may be mentioned that appellant preferred a
revision application under Section 129 of the Customs Act,
1962 before Government of India, Ministry of Finance,
Department of Revenue. By order dated 29.10.2004, the
revisional authority disposed of the revision application in
terms of the said order.
13.1. In the aforesaid order, the revisional authority
accepted the contention of the appellant that in 5 cases the
show cause notices were issued beyond the prescribed time
limit of 6 months under Rule 7 of the 1979 Rules.
Accordingly, the demand of interest for those 5 cases were
set aside on the ground of limitation. However, the revisional
authority did not accept the other contentions of the
appellant including on the question of penalty. It opined
that under Section 38 (3) of the Finance Act, there is no
discretion with regard to the minimum quantum of penalty
which is a statutory compulsion. Once there is a delay,
11
imposition of penalty is automatic. Insofar enhancing the
quantum of penalty is concerned, Central Government was
of the view that in the de novo order-in-original, the
adjudicating authority had only imposed the minimum
prescribed penalty under the statute which was overlooked
through inadvertence in the initial order-in-original.
However, on the aspect of demand of interest of
Rs.2,58,630.00 on account of delayed payment of FTT
amounting to Rs.3,56,45,700.00, the revisional authority
remanded the case back to the adjudicating authority for
the limited purpose of ascertaining whether the show cause
notices for demanding interest on the delayed payment of
the aforesaid amount of FTT were issued within the
prescribed time limit under Rule 7 of the 1979 Rules and
thereafter to decide the same in accordance with law.
14. The aforesaid revisional order dated 29.10.2004
came to be challenged before High Court by way of a writ
petition being Writ Petition No. 3269 of 2004 seeking the
reliefs quoted supra. The basic thrust of the writ petition
pertained to imposition of penalty, rather enhancement of
the same in the de novo order-in-original.
12
14.1. Before the High Court contentions advanced on
behalf of the appellant were that under the proviso to Rule
11 of the 1979 Rules, no officer of customs is competent to
impose penalty under Section 38 (3) of the Finance Act for
more than rupees five thousand. Rule 11 is a part of the
statute. It provides for lesser penalty than provided for in
Section 38 (3) of the Finance Act. Proviso to Rule 11 being
beneficial to the assessee, it should be given effect. Sub-
section (3) of Section 38 came to be inserted in the statute
by way of amendment in 1994. However, there was no
amendment to the proviso to Rule 11 which was retained.
Such omission to amend the proviso to Rule 11 is a
conscious decision of the legislature. However, such
contention on behalf of the appellant was rejected by the
High Court by holding that provisions of the Finance Act
will prevail over the 1979 Rules. Reconciliation between
sub-section (3) of Section 38 and the proviso to Rule 11 is
not possible as there is a clear conflict between the two.
Therefore, the subordinate legislation will have to give way
to the parent statute.
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14.2. Insofar the question of mens rea is concerned,
the High Court took the view that the penalty leviable under
Section 38 is in respect of default or failure to pay statutory
dues. In other words, such penalty is for breach of civil
obligation. In such a provision, there is no element of any
criminal aspect or requirement for criminal intendment as
is generally contemplated under criminal proceedings.
Therefore, there is no need to establish proof of criminal
motive or any mens rea on the part of the defaulter. It is
not an essential element for imposing penalty under the
Finance Act and the 1979 Rules.
14.3. After posing to itself that the sole question that
arose for consideration was whether the authorities below
were justified in imposing and sustaining the penalty in
consonance with sub-section (3) of Section 38 of the
Finance Act ignoring the proviso to Rule 11 of the 1979
Rules, the High Court answered the said question by
holding that breach of civil obligation against the appellant
stood established which was sufficient to attract the
penalty which was in the nature of fine. Imposition of such
penalty is irrespective of the fact whether or not the
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contravention made by the defaulter was with any guilty
intention.
14.4. The High Court also rejected the contention
advanced on behalf of the appellant that there is a
distinction between ‘failure to pay the tax’ and ‘delay in the
payment of the tax’. The contention was that only when
there is a ‘failure to pay the tax’, sub-section (3) of Section
38 would get attracted; in other words, mere delay in
payment of tax would not amount to ‘failure to pay the tax’;
therefore, delayed payment does not attract penalty.
Rejecting such contention, the High Court held that
delayed payment is equivalent to non-payment i.e. ‘failure
to pay the tax’. According to the High Court, once the
limitation period for deposit of the tax is over, then it is
immaterial when the defaulter in future makes the
payment. Once there is default, Section 38 (3) is attracted
and the prescribed authority cannot impose a penalty
which is below the minimum amount of penalty prescribed
by the statute.
14.5. Lastly, the High Court also repelled the contention
of the appellant that it was not open to the adjudicating
15
authority to enhance the quantum of penalty after it was sent
back on remand. The High Court held that the remand was
not limited; rather it was made to enable the adjudicating
authority to consider all the issues after complying with the
principles of natural justice. Since it was not a limited
remand, it was open for the adjudicating authority to
enhance the amount of penalty in consonance with the
provisions of sub-section (3) of Section 38 of the Finance
Act.
14.6. Accordingly, vide the impugned judgment and
order dated 09.08.2010, the High Court dismissed the writ
petition preferred by the appellant.
15. Mr. P.V. Dinesh, learned senior counsel for the
appellant, at the outset, submits that the issue which
arises for consideration in this case is whether any penalty
is liable to be imposed upon the appellant under Section
38(3) of the Finance Act when there is no wilful failure to
pay or any wilful default or wilful delayed payment? He
further submits that an associated question which arises
for consideration is whether the quantum of penalty liable
to be paid for violation of Section 35(2) of the Finance Act
16
should be exclusively as per Section 38(3) of the said Act or
in conjunction with the provisions of the 1979 Rules. Mr.
Dinesh submits that there is one more issue which this
Court may consider and that is whether unintentional
delay in payment of the tax can be equated with non-
payment and thereby attract penalty?
15.1. Learned senior counsel has drawn the attention
of the Court to various provisions of the Finance Act and
the 1979 Rules including the amendments to Section 38
introduced in 1994. In fact, he submits that sub-sections
(3) and (4) of Section 38 came to be introduced in the
statute only by way of an amendment in 1994 but there
was no amendment to Rule 11 of the 1979 Rules.
15.2. Adverting to sub-section (4) of Section 38 of the
Finance Act which also came to be introduced by way of the
aforesaid amendment in 1994, Mr. Dinesh submits that
whenever there is violation of the 1979 Rules, Section 38(4)
would be attracted in which event the penalty shall not be
less than Rs. 500.00 but which may extend to
Rs. 50,000.00 and where the breach is a continuing one, a
further penalty which shall extend to Rs. 500.00 per day
17
during the period when such breach continues. Though
this point was argued before the High Court, the same was
not considered or discussed by the High Court.
15.3. Submission of Mr. Dinesh is that even assuming
that there is a violation of sub-section (2) of Section 35, the
penalty can be imposed only in accordance with Section
38(4) of the Finance Act and not the penalty provided for in
sub-section (3) of Section 38. He reiterates his contention
that though sub-section (4) was introduced in Section 38
by way of an amendment in 1994, the legislature
consciously did not delete Rule 11 which says that the
maximum penalty can only be Rs. 5,000.00.
15.4. However, the core submission of Mr. Dinesh is
that Section 38(3) deals with a situation where there is
absolute non-payment of the tax i.e. failure to pay the tax.
Belated payment of tax but before issuance of the show
cause notice cannot be treated as non-payment of tax or
failure to pay the tax.
15.5. Referring to the 6 instances where payment of
tax was delayed, he submits that in respect of 5 instances,
the demand drafts were issued by the concerned bank
18
before the due dates, but the demand drafts could be
deposited into the Government treasury for delays ranging
from 1 day to 11 days and only in respect of one case, there
is delay of 63 days in depositing the tax. He submits that
insofar the 5 cases are concerned, the delay in depositing
the demand drafts was because of security restrictions and
in the sole case of 63 days, the concerned employee
entrusted with the task of depositing the tax was on
emergency leave.
15.6. Adverting to Section 35A of the Finance Act, he
submits that the aforesaid provision deals with a situation
such as the one in the present case. Section 35A provides
for levy of interest for default in payment of FTT. For such
default, the minimum interest rate is 20 per cent and the
maximum is 30 per cent per annum.
15.7. Learned senior counsel submits that a penalty
being penal in nature can only be imposed in the case of
absolute non-payment or wilful default and not where there
is mere delay in paying the tax or depositing the bank draft.
In this connection, learned senior counsel for the appellant
has placed reliance on the decision of this Court in the case
19
of U.S. Technologies International Private Limited Vs.
1
Commissioner of Income Tax .
15.8. Finally, learned senior counsel submits that
appellant had raised the ground of limitation in issuing the
demand notices as per Rule 7. The appellate authority
observed that though the said submission of the appellant
may be genuine but the fact remained that the tax was
deposited beyond the time limit. In revision, the revisional
authority considered the question of limitation in the case
of short payment of tax but did not apply Rule 7 in the case
of delayed payment of tax leading to imposition of the
penalty.
15.9. Learned senior counsel submits that not only
the authorities below, but the High Court also fell in error
in upholding the penalty imposed on the appellant. He
submits that the same cannot be sustained and is liable to
be set aside. Therefore, the appeal may be allowed with
consequential relief to the appellant.
1
(2023) 8 SCC 24
20
16. Per contra , Mr. Arijit Prasad, learned senior
counsel appearing for the respondents referred to the
contours of the present adjudication. He submits that the
present civil appeal is concerned with delayed crediting of
payment of FTT by the passengers embarking on
international journey as collected by the carrier which is
authorized by the Central Government. As admitted by the
appellant itself, there are 6 instances of delayed payment,
the delay ranging from 1 day to 11 days in 5 cases and 63
days in the last case.
16.1. After referring to the Finance Act and the 1979
Rules including the amendments brought in by the 1994
amendment, more particularly to sub-section (3) of Section
38, he submits that it is the stand of the revenue that when
there is a default in payment of FTT, it becomes mandatory
to impose penalty, the minimum of which cannot be less
than one-fifth of the amount of tax not paid, though the
quantum of penalty may extend to three times the amount
of tax not so paid.
16.2. According to him, the controversy in the present
appeal arises from the imposition of penalty under Section
21
38(3) of the Finance Act in cases involving delay in the
deposit of FTT by the carrier. Admittedly, the carrier i.e. the
appellant had not credited the tax on 6 instances within
the specified period after having collected the tax from the
passengers.
16.3. He submits that the entire foundation of the
appellant’s case proceeds on a fundamental misconception
of the statutory scheme. Appellant has sought to invoke the
limitation under Rule 7 of the 1979 Rules whereas the
present proceedings are not governed by Rule 7 at all. The
proceedings in question are purely penal in nature and are
governed by Rule 12 which deals with issuance of show
cause notice and compliance with the principles of natural
justice prior to imposition of penalty. While Rule 7 applies
to cases where tax has not been paid, short paid or
erroneously refunded and provides a limitation period for
issuance of notice in such recovery proceedings, Rule 12
operates in a completely different field which governs
penalty proceedings and mandates that no penalty shall be
imposed without the issuance of show cause notice and the
grant of an opportunity of hearing. Significantly, Rule 12
22
does not prescribe any period of limitation. On that basis,
he submits that insofar as the quantum proceedings are
concerned, those are governed by Rule 7 whereas penal
proceedings are governed by Rule 12. In the instant case,
Rule 12 has been complied with.
16.4. Elaborating further, learned senior counsel
submits that the distinction between Rule 7 and Rule 12 is
clear and well-established. Rule 7 pertains to recovery of
tax dues and carries a limitation period whereas Rule 12
pertains to imposition of penalty and is guided solely by the
principles of natural justice. The related proceedings being
for imposition of penalty under Section 38(3), falls squarely
within the ambit of Rule 12. Therefore, the submission of
the appellant that the proceedings are barred by limitation
under Rule 7 are misconceived and legally untenable.
16.5. Adverting to Section 38(3) of the Finance Act,
Mr. Prasad submits that the said provision creates a
statutory liability for imposition of penalty in cases where
a carrier fails to pay the FTT within the prescribed time
limit. The expression used in the statute is ‘fails to pay’
which is of wide import and does not require proof of
23
intention, mens rea or wilful default. The provision is
structured as a strict liability clause within a fiscal statute.
The scheme of the Finance Act clearly demonstrates a
three-fold consequence in cases of non-compliance:
liability to pay the tax, liability to pay the interest for the
period for which the tax was not paid, and liability to pay
penalty for failure to pay the tax. The legislative intent is
clear: delay or non-payment of tax is not to be treated
lightly. When there is a breach of payment, penal consequences
are attracted automatically in addition to levy of interest. He
submits that in the context of the statutory scheme, delay in
payment of the tax is equivalent to non-payment of tax. Any
other interpretation would be incongruous and would do
violence to the plain language of the statute. The statute
does not carve out any exception for minor delays or bona
fide conduct.
16.6. Referring to the decision of this Cout in
2
Mathuram Agrawal Vs. State of Madhya Pradesh , he
submits that the intention of the legislature in a fiscal
statute must be governed strictly from the plain language
2
(1999) 8 SCC 667
24
used and where the words are clear, there is no scope
for any intendment or equity. As a matter of fact, in fiscal
matters, adherence to timelines is of paramount importance
and the legislature has consciously adopted a strict framework.
16.7. Learned senior counsel has placed reliance on
the decisions of the High Court in Iran National Airlines Vs.
3
Union of India and that of the Delhi High Court in
4
Combatta Aviation Ltd. Vs. Union of India .
16.8. He, therefore, submits that the High Court has
correctly held that the penalty leviable under Section 38 is
a penalty in case of default or failure of statutory obligation.
In other words, it is for breach of civil obligation. There is
no element of any criminal aspect as is generally
contemplated under criminal proceedings. In support of his
contentions, learned senior counsel has placed reliance on
the following decisions:
i. J.K. Industries Ltd. Vs. Chief Inspector of
5
Factories and Boilers ;
3
2006 (202) ELT 588 (Bom.)
4
2000 (115) ELT 622 (Del.)
5
(1996) 6 SCC 665
25
6
ii. R.S. Joshi Vs. Ajit Mills Limited ; and
iii. Gujarat Travancore Agency Vs. Commissioner of
7
Income Tax .
16.9. Urging upon the Court to uphold the penalty
imposed by the revenue on the appellant, learned senior
counsel seeks dismissal of the appeal.
17. Submissions made by the learned counsel for
the parties have received the due consideration of the
Court.
18. At the outset, it would be appropriate to refer to
the statutory scheme governing Foreign Travel Tax (already
referred to as ‘FTT’).
19. The Finance Act, 1979 (already referred to as
‘the Finance Act’ hereinabove) has been enacted to give
effect to the financial proposals of the Central Government
for the financial year 1979-80. It received the assent of the
President of India on May 10, 1979 and on the same day
was published in the Official Gazette of India
6
(1977) 4 SCC 98
7
(1989) 3 SCC 52
26
Extraordinary. Chapter V comprising Sections 33 to 42
deals with FTT.
20. Section 35 is specific to FTT. Sub-section (1)
says that there shall be levied on all passengers embarking
on international journeys a tax, called FTT, at the rate of
Rs. 300.00 (initially Rs. 100.00) for every such journey
to any place outside India other than a place in a
neighbouring country, and at the rate of Rs. 100.00
(earlier Rs. 50.00) for every such journey where such
journey is to a place in a neighbouring country.
Explanation to sub-section (1) defines ‘neighbouring
country’ to mean any country which the Central
Government may, having regard to the classes of persons
who generally perform journeys to such country, the
distance between India and such country, the means of
communications available for reaching such country and any
other relevant circumstances, specify in this behalf by
notification in the official gazette.
20.1. As per sub-section (2), in accordance with the
rules made under Chapter V, FTT shall be collected by the
officers of customs appointed under the Customs Act, 1962
27
or by such officers of the Central Government or the State
Government or the International Airports Authority of India
or such carriers as may be authorized in this behalf by the
Central Government by notification in the official gazette
and paid to the credit of the Central Government.
21. By the Finance Act, 1994, to be precise by
Section 97 thereof, the Finance Act was amended by way of
insertion of Section 35A after Section 35. Section 35A reads
as follows:
35-A.
Interest for default in payment of foreign travel tax-
(1) Where any carrier or other person fails to pay the
foreign travel tax to the credit of the Central Government
under sub-section (2) of Section 35, in accordance with
the rules made under this Chapter, he shall pay an
interest on the amount of tax not so paid for the entire
period for which payment of such tax has been delayed,
at such rate, not below twenty per cent, and not exceeding
thirty per cent, per annum, as the Central Government
may, by notification in the Official Gazette, specify in this
behalf.
(2) Where, on or before the date of commencement of
Section 97 of the Finance Act, 1994, the foreign travel tax
had not been paid by any carrier or other person to the
credit of the Central Government, in accordance with the
rules made under this Chapter, the carrier or other person
28
shall pay the amount of such tax within a period of thirty
days of such commencement, failing which he shall be
liable to pay the interest in accordance with the provisions
of sub-section (1).
21.1. Thus, sub-section (1) of Section 35A says that
where any carrier or other person fails to pay the FTT to the
credit of the Central Government under sub-section (2) of
Section 35 and in accordance with the rules made under
Chapter V, he shall pay an interest on the amount of tax
not so paid for the entire period for which payment of such
tax has been delayed at such rate, not below 20 per cent
and not exceeding 30 per cent per annum as the Central
Government may by notification in the official gazette,
specify in this behalf.
21.2. In terms of sub-section (2), where on or before
the date of commencement of Section 97 of the Finance Act,
1994, FTT had not been paid by any carrier or other person
to the credit of the Central Government in accordance with
the rules made under Chapter V, the carrier or other
person shall pay the amount of such tax within a period of
30 days of such commencement, failing which he shall be
liable to pay the interest in terms of sub-section (1).
29
22. As per Section 37, no carrier or other person in
charge of a ship or an aircraft shall allow any passenger to
board the ship or aircraft unless such passenger has paid
the tax payable by him under Chapter V.
23. Section 38 deals with penalties. Sub-section (1)
provides that every passenger who embarks or attempts to
embark on an international journey without paying the tax
payable by him under Chapter V shall, in addition to his
liability to pay the tax, be liable to a penalty not exceeding
Rs. 200.00.
23.1. As per sub-section (2), every carrier or other
person in charge of a ship or an aircraft, who in
contravention of the provisions of Section 37 allows any
passenger or passengers to board the ship or aircraft, shall
be liable to a penalty not exceeding three times the amount
or the aggregate amount of the tax payable by the
passenger or passengers so allowed to board the ship or
aircraft.
23.2. Original sub-section (3) provided that any
penalty under Section 38 may be adjudged, collected and
paid to the credit of the Central Government by such
30
authority and in such manner as may be specified in the
rules made under Chapter V. However, by the Finance Act,
1994, more particularly Section 97 thereof, the original
sub-section (3) has been substituted by the following sub-
sections:
(3) Every carrier or other person who fails to pay the
foreign travel tax to the credit of the Central Government
under sub-section (2) of Section 35 shall, in addition to
the payment of such tax and the interest leviable thereon,
be liable to pay penalty which shall not be less than one-
fifth but which may extend to three times of the amount
of the tax not so paid to the credit of the Central
Government.
(4) Any rule made under this Chapter may provide that in
case of breach thereof by the carrier or other person, he
shall be liable to a penalty which shall not be less than
five hundred rupees but which may extend to fifty
thousand rupees, and where the breach is a continuing
one, with further penalty which may extend to five
hundred rupees for every day after the first during which
such breach continues.
(5) Any penalty under this section may be adjudged,
collected and paid to the credit of the Central Government
by such authority and in such manner as may be specified
in the rules made under this Chapter:
Provided that no order for imposing a penalty shall be
passed by such authority unless the carrier or other
31
person on whom the penalty is proposed to be imposed is
given an opportunity of being heard in the matter by such
authority.
23.3. As per the substituted sub-section (3), every
carrier or other person who fails to pay the FTT to the credit
of the Central Government under sub-section (2) of Section
35 shall, in addition to the payment of such tax and the
interest leviable thereon, be liable to pay penalty which
shall not be less than one-fifth but which may extend to
three times of the amount of the tax not so paid to the credit
of the Central Government. Sub-section (4) is interesting.
It says that any rule made under Chapter V may provide
that in case of breach thereof by the carrier or other person,
he shall be liable to a penalty which shall not be less than
Rs. 500.00 but which may extend to Rs. 50,000.00 and
where the breach is a continuing one, with further penalty
which may extend to Rs. 500.00 for everyday after the first
day during which such breach continues.
23.4. The new sub-section (5) corresponds to the
earlier sub-section (3) of Section 38 with the proviso thereto
32
making compliance to the principles of natural justice
explicit.
24. It may be mentioned that as per Section 97 of
the Finance Act, 1994, Section 38A has been inserted in
the Finance Act after Section 38. Section 38A provides for
modes of recovery.
25. Section 40 of the Finance Act empowers the
Central Government to make rules for carrying out the
purposes of Chapter V.
26. In exercise of the powers conferred by Section 40
of the Finance Act, the Central Government has made the
Foreign Travel Tax Rules, 1979 (already referred to as ‘the
1979 Rules’ hereinabove).
27. As per Rule 4, the tax collected in any month by
any carrier shall be paid by such carrier before the expiry
of 30 days from the end of that month into the treasury at
the place where the customs port or customs airport of
departure of the ship or aircraft is situated. In terms of the
proviso, the Collector of Customs may, on sufficient cause
being shown and having regard to the system of accounting
33
adopted by any carrier, allow such carrier to pay the tax
before the expiry of a longer period than the period of 30
days aforesaid.
28. Rule 7 deals with a situation where the tax is not
paid or underpaid or erroneously refunded. As per sub-rule
(1), when any tax due has, for any reason whatsoever either
not been paid or has not been paid in full into the treasury
under Rule 4 or has been erroneously refunded under Rule
5, the Assistant Collector of Customs may within six
months from the relevant date, serve notice upon the
carrier concerned requiring it to show cause why it should
not pay the amount specified in the notice. However, as per
the proviso, when it is a case of collusion or wilful mis-
statement or suppression of facts by the carrier, the
limitation period of six months gets extended to two years.
28.1. Sub-rule (2) of Rule 7 provides that the Assistant
Collector of Customs after considering the representation,
if any, made by the carrier on whom notice is served under
sub-rule (1), shall determine the amount of tax to be paid
by such carrier, which shall not be in excess of the amount
34
specified in the notice whereafter the carrier shall pay the
amount so determined.
29. Rule 8 mandates that at each customs port or
customs airport to which Chapter V of the Finance Act
extends, in respect of every voyage by a ship or by an
aircraft, the carrier concerned shall prepare three copies of
the passenger manifest showing therein the details of the
passengers going on the voyage and present them at the
time of departure to the jurisdictional officer of customs.
30. Submission of returns regarding tax collected etc.
is provided for in Rule 9. Under Rule 9, every carrier required
under Rule 4 to pay the tax into the treasury shall file a
return in respect of every month before the expiry of 30 days
from the end of that month before the Collector of Customs
or his nominee having jurisdiction showing the particulars of
the flights operated, number of passengers carried, amount
of tax collected and paid into the treasury etc.
30.1. As per the proviso, the Collector of Customs may
allow such carrier to file returns before expiry of a longer
period than the period of 30 days having regard to the
system of accounting adopted by the carrier.
35
31. While Rule 10 provides for preservation of records
by the carrier, Rule 11 deals with adjudication of penalties.
Rule 11 being relevant is extracted hereunder:
11. Adjudication of penalties. – In every case in
which any person is liable to penalty under
Section 38 of the Act, such penalty may be
adjudged by an officer of customs mentioned in
Section 3(c) or Section 3(d) of the Customs Act:
Provided that no officer of customs mentioned
in Section 3 of the Customs Act shall be competent
to impose a penalty exceeding five thousand rupees
in any such case.
31.1. Thus what Rule 11 contemplates is that in a
case where a person is liable to penalty under Section 38
of the Finance Act, such penalty may be adjudged by an
officer of customs as mentioned in Section 3 of the Customs
Act, 1962. However, the proviso clarifies that no officer of
customs shall be competent to impose a penalty exceeding
five thousand rupees in any such case.
32. Rule 12 provides for issuance of show cause
notice before levy of penalty. It says that no order imposing
any penalty on any person shall be made unless such
person:
36
(a) is given a notice in writing informing him of the
grounds on which it is proposed to impose a penalty;
(b) is given an opportunity of making a representation in
writing within such reasonable time as may be specified
in the notice against the grounds for imposition of the
penalty mentioned therein; and
(c) is given a reasonable opportunity of being heard in the
matter.
32.1. However, the proviso says that such a notice
may at the instance of the person concerned be made
orally.
33. While Rule 13 provides for appeal, Rule 14 deals
with powers of revision. On the other hand, the Central
Government is conferred with the power of revision under
Rule 15.
34. Having surveyed the statutory framework, we
may focus our attention on Section 38 which got enlarged
by way of an amendment in 1994. As noticed above,
Section 38 deals with penalties. Both sub-sections (1) and
(2) may not be relevant for the present case but nonetheless
for completion of the analysis, we may deal with these two
sub-sections as well. As per sub-section (1), every passenger
37
who embarks or attempts to embark on an international
journey without paying FTT would be liable to penalty at the
rate mentioned thereunder, in addition to the FTT not paid
by him. So, this sub-section is specific to a passenger who
does not pay FTT. On the other hand, sub-section (2) says
that every carrier or person in charge of a ship or an aircraft
allowing any passenger to board the ship or aircraft without
paying FTT shall be liable to a penalty as per the
prescription mentioned therein. Here also, if the carrier or
other person in charge of the carrier violates Section 37,
which mandates that no carrier or other person in charge
of a ship or an aircraft shall allow any passenger to board
the ship or aircraft unless such passenger has paid the
FTT, it shall be liable to a penalty which is prescribed in
sub-section (2). Therefore, both sub-sections (1) and (2)
deal with a situation where a passenger does not pay the
FTT. In the first scenario, the passenger will have to pay
the prescribed penalty and in the second scenario, the
carrier or person in charge of the carrier shall have to pay
the penalty for allowing such passenger to board the ship
or aircraft without payment of FTT.
38
35. That brings us to sub-section (3) of Section 38.
Though we have already extracted the said provision, for the
purpose of a detailed examination, the same is re-extracted
hereunder:
(3) Every carrier or other person who fails to pay the
foreign travel tax to the credit of the Central Government
under sub-section (2) of Section 35 shall, in addition to
the payment of such tax and the interest leviable thereon,
be liable to pay penalty which shall not be less than one-
fifth but which may extend to three times of the amount
of the tax not so paid to the credit of the Central
Government.
35.1. Thus, what sub-section (3) of Section 38
provides is that every carrier or other person who fails to
pay the FTT to the credit of the Central Government as is
required under sub-section (2) of Section 35, shall in
addition to the payment of the defaulting FTT and the
interest leviable thereon, be also liable to pay penalty which
shall not be less than one-fifth but which may extend to
three times of the amount of the tax not so paid to the credit
of the Central Government. There are two crucial expressions
in this provision. The first one is ‘fails to pay the foreign travel
tax’ appearing at the beginning of the provision; and the second
39
one is ‘the amount of the tax not so paid’ at the end of the
provision. Both these expressions find place in the same
provision i.e. sub-section (3) of Section 38. Before we enter
into an analysis of the above two expressions, we need to
keep in mind that this provision contemplates a scenario
where FTT is collected from the passengers, but the carrier
or the other person fails to pay the same to the credit of the
Central Government. In that context, the expression ‘fails
to pay the foreign travel tax’ would mean that there is
failure on the part of the carrier or the other person in
paying the FTT to the credit of the Central Government.
‘Failure to pay’ would mean ‘non-payment’. ‘Failure to pay’
would not mean and cannot be equated with ‘delay in
making payment’. The legislature has carefully used the
expression ‘fails to pay the foreign travel tax’ to imply non-
payment of FTT. If the legislative intent would have been to
cover delayed payment of tax, then the legislature would
have used a different expression. It is trite law of
interpretation that when it comes to interpretation of
taxation and fiscal statutes, we are not to import further
meaning(s) to the expression used by the legislature by our
40
own interpretative expansion which is not permissible.
Now, if the expression ‘fails to pay the foreign travel tax’ is
used in conjunction with the expression ‘the amount of the
tax not so paid’, the legislative intent becomes crystal clear.
It means sub-section (3) of Section 38 contemplates a
scenario where there is failure to pay the tax or non-
payment of the tax into the credit of the Central
Government. Therefore, sub-section (3) of Section 38 would
not cover a situation where a carrier or other person is
charged for delayed payment of FTT. We are clear in our
mind that in the context of sub-section (3) of Section 38,
failure to pay the FTT or non-payment of FTT is not to be
equated with delayed payment of FTT.
36. A similar issue like the present one came up for
consideration before this Court in US Technologies
International Private Limited . The question before a two-
Judge Bench of this Court was imposition of penalty under
Section 271-C of the Income Tax Act, 1961 (briefly ‘the
1961 Act’) on failure of the respective assessees to deposit
the tax deducted at source (TDS) or for belated remittance
of TDS. After analyzing the rival submissions, the Bench
41
posed the question for consideration to itself as to whether
in case of belated remittance of TDS after deducting the
TDS, such an assessee is liable to pay penalty under
Section 271-C of the 1961 Act? The Bench also considered
the associated question as to the meaning and scope of the
expression ‘fails to deduct’ occurring in Section 271-C(1)(a).
Whether an assessee who causes delay in remittance of
TDS deducted by him can be said to be a person who ‘fails
to deduct TDS’? In other words, the question was whether
delay in remittance of TDS is equivalent to failure to deduct.
36.1. Since Section 271-C of the 1961 Act is relevant,
the same is extracted hereunder:
271-C. Penalty for failure to deduct tax at source .—
(1) If any person fails to—
( a ) deduct the whole or any part of the tax as
required by or under the provisions of
Chapter XVII-B; or
( b ) pay the whole or any part of the tax as
required by or under—
( i ) sub-section (2) of Section 115-O; or
( ) the second proviso to Section 194-B;
ii
42
then, such person shall be liable to pay, by way of
penalty, a sum equal to the amount of tax which
such person failed to deduct or pay as aforesaid.
(2) Any penalty imposable under sub-section (1)
shall be imposed by the Joint Commissioner.
36.2. The Bench noted that it was a case of belated
remittance of TDS though deducted by the assessee and
not a case of non-deduction of TDS at all. After due
consideration, the Bench held that the expression ‘fails to
deduct’ occurring in Section 271-C(1)(a) cannot be read
into the expression ‘failure to deposit the tax deducted’.
This Court declared that on mere delay in remittance of
TDS after deducting the same by the assessee concerned
there shall not be any penalty leviable under Section 271-C
and held that the assessee had remitted the TDS belatedly;
it is not a case of non-deduction of TDS at all. Therefore,
the assessee is not liable to pay the penalty under Section
271-C of the 1961 Act. This Court declared as a proposition
of law that on mere belated remitting of the TDS after
deducting the same by the assessee, no penalty shall be
leviable under Section 271-C of the 1961 Act. Relevant
43
portion of the judgment in US Technologies International
Private Limited are extracted hereunder:
37. Even otherwise, the words “fails to deduct”
occurring in Section 271-C(1)(a) cannot be read
into “failure to deposit/pay the tax deducted”.
38. Therefore, on true interpretation of Section
271-C, there shall not be any penalty leviable
under Section 271-C on mere delay in remittance
of the TDS after deducting the same by the
assessee concerned. As observed hereinabove, the
consequences on non-payment/belated remittance
of the TDS would be under Section 201(1-A) and
Section 276-B of the 1961 Act.
39. In view of the above in all these cases as the
respective assessees remitted the TDS though
belatedly and it is not case of non-deduction of the
TDS at all they are no ( sic ) liable to pay the penalty
under Section 271-C of the Income Tax Act.
Therefore, any question on applicability of Section
273-B of the Act is not required to be considered
any further.
40. In view of the above and for the reasons stated
above, all these appeals succeed. Impugned
judgment(s) and order(s) passed by the High Court
are hereby quashed and set aside and the
question of law on interpretation of Section 271-C
of the Income Tax Act is answered in favour of the
assessee(s) and against the Revenue and it is
44
specifically observed and held that on mere belated
remitting the TDS after deducting the same by the
person / assessee concerned, no penalty shall be
leviable under Section 271-C of the Income Tax Act.
Present appeals are accordingly allowed. No costs.
37. We now take up sub-section (4) of Section 38
which is re-extracted hereunder:
(4) Any rule made under this Chapter may provide
that in case of breach thereof by the carrier or other
person, he shall be liable to a penalty which shall not
be less than five hundred rupees but which may
extend to fifty thousand rupees, and where the
breach is a continuing one, with further penalty
which may extend to five hundred rupees for every
day after the first during which such breach
continues.
37.1. A reading of sub-section (4) would indicate that
when there is a breach of any rule made under Chapter V
of the Finance Act, by the carrier or other person, such
carrier or other person shall be liable to a penalty which
shall not be less than Rs. 500.00 but which may extend to
Rs. 50,000.00 and where the breach is a continuing one, a
further penalty is to be levied which may extend to Rs.
500.00 for every day of breach. Any analysis of sub-section
45
(4) would be incomplete without an analysis of the
corresponding provisions of the 1979 Rules because sub-
section (4) encompasses any rule under the 1979 Rules for
breach of which the carrier or other person shall be liable
to a penalty. Therefore, such a rule becomes part of the
statutory scheme conceptualized under sub-section (4).
37.2. Rule 4 provides a time limit of 30 days for
deposit of the FTT collected in any month by any carrier
into the Government treasury. However, as per the proviso,
on sufficient cause being shown and having regard to the
system of accounting adopted by any carrier, the Collector
of Customs may grant a longer period beyond the period of
30 days for deposit of such tax. Coming to Rule 9, we find
that as per this provision, every carrier required to pay the
tax into the treasury under Rule 4 shall have to file a return
in respect of every month before expiry of 30 days from the
end of that month. Such return will have to be filed before
the Collector of Customs or his nominee having jurisdiction
providing the details as required under Rule 9. The proviso,
however, gives discretion to the Collector of Customs to
46
grant further time to such carrier to file the return beyond
the period of 30 days.
37.3. Therefore, sub-section (4) of Section 38 of the
Finance Act will have to be read alongwith Rules 4 and 9 of
the 1979 Rules because this is the statutory scheme of sub-
section (4) of Section 38. Further, it is evident that sub-
section (4) of Section 38 read with Rules 4 and 9 of the 1979
Rules deal with a situation of delayed payment of FTT into
the Government treasury. As already discussed above,
delayed payment of FTT into the Government treasury
cannot be equated with non-payment of FTT into the
Government treasury. A hypothetical scenario may arise.
For example, a defaulting carrier may deposit the FTT so
collected into the Government treasury after receiving a
show cause notice under Rule 9. Will it be a case of non-
payment or delayed payment? The answer to our mind is
obvious. Any deposit made after issuance of the show cause
notice cannot clothe the default as an instance of delayed
payment. It will be a case of non-payment. Conversely, any
payment made prior to issuance of show cause notice
would be construed to be a case of delayed payment.
47
37.4. There is one more aspect. As noticed above, Rule
4 provides a timeline of 30 days for deposit of FTT collected
from the passengers for any month by a carrier into the
Government treasury. But, in terms of the proviso, a
discretion is vested on the Collector of Customs to grant a
longer period to such carrier beyond the period of 30 days
for deposit of the FTT. Of course, the carrier must show
sufficient cause for the delay in such deposit as well as
having regard to the system of accounting adopted by the
carrier. If on the above two grounds the Collector of
Customs is satisfied and the delay in depositing the FTT is
condoned, the question of delay in the deposit of FTT would
not arise. Therefore, in such a case, the further question of
imposition of penalty would not arise. Likewise under
Rule 9, every carrier which is required to deposit the FTT
into the Government treasury under Rule 4, shall also have
to file a monthly return within a period of 30 days from the
end of the concerned month. Again, the proviso thereto
gives discretion to the Collector of Customs to condone the
delay in the filing of such return by the carrier. Once the
delay is condoned, there would not arise any question of
48
imposition of penalty for such delay. Thus, what transpires
from the above discussion, is that the timeline for deposit
of FTT into the Government treasury or the timeline for
filing of monthly return by the carrier is not inflexible. It is
flexible but on the exercise of the discretion conferred upon
the Collector of Customs. Therefore, the view taken by the
lower authorities and by the High Court that the moment
the timeline for deposit of FTT or filing of return is
breached, imposition of penalty is automatic is not the
correct view.
38. This brings us to Rule 11 of the 1979 rules which
deals with adjudication of penalties. Rule 11 is not specific
to any sub-section of Section 38 but generally to Section 38
of the Finance Act. It says that in every case in which a
person is liable to penalty under Section 38 of the Finance
Act, such penalty may be adjudged by an officer of customs
as mentioned in Section 3(c) or Section 3(d) of the Customs
Act. However, the proviso puts a cap by declaring that no
officer of customs as mentioned in Section 3 of the Customs
Act shall be competent to impose a penalty exceeding Rs.
5,000.00 in any such case. Prima facie , there appears to be
49
a conflict between sub-section (3) of Section 38 and Rule
11 as regards the quantum of penalty. The High Court says,
and rightly so, that whenever there is a conflict between the
parent statute and the subordinate legislation, the provisions
of the parent statute will prevail. There cannot be any
dispute with such a proposition. However, since we have
held that the present case would not come within the ambit
of sub-section (3) of Section 38, we need not delve into and
render a definitive finding on the inter-play between sub-
section (3) of Section 38 and Rule 11.
39. Finally, we may consider Rule 12 of the 1979
Rules. It provides for issuance of show cause notice before
levy of penalty. Therefore, Rule 12 will have to be read in
conjunction with Rule 11 which deals with adjudication of
penalties because issuance of prior show cause notice is a
part of the adjudicatory process before levy of penalty.
Further, Rule 12 is an elaboration of the proviso to sub-
section (5) of Section 38 which says that no order of penalty
shall be passed without giving the affected person an
opportunity of being heard. The language of Rule 12 is
interesting. There is a negative injunction, like the proviso
50
to sub-section (5) of Section 38. It says no order imposing
any penalty on any person shall be made unless the
affected person is given a written notice containing the
grounds on which penalty is proposed. Thereafter, the
affected person shall be given an opportunity of making a
representation in writing for which reasonable time may be
specified in the notice. The representation in writing shall
be against the grounds for imposition of the penalty as
specified in the notice. At the end of this process, the
affected person shall be given a reasonable opportunity of
being heard in the matter. In other words, the concept of
personal hearing is acknowledged in the scheme of Rule 12
which has to be read in conjunction with the proviso to
sub-section (5) of Section 38.
39.1. If this be the position and the noticee makes out
a case that the grounds for imposition of the penalty are
not justified and that imposition of penalty is not
warranted, the officer of customs adjudicating imposition
of penalty, as provided in Rule 11, may not impose the
penalty proposed. This discretion is manifest in the very
scheme of Rule 12. But if the officer of customs is not
51
satisfied with the representation and by the explanation of
the noticee, he shall impose the penalty. If he decides to
impose the penalty, then the penalty so imposed will have
to be within the range provided for in sub-sections (2), (3)
and (4) of Section 38, as the case may be.
40. What transpires from the above discussion is
that two distinct facets are clearly discernible. Firstly, the
timeline fixed for deposit of FTT by the carrier into the
Government treasury as well as for submission of return is
not inflexible. In an appropriate case the Collector of
Customs on sufficient cause being shown may allow such
deposit or filing of return beyond the limitation of 30 days.
If such delay is condoned and allowed then stricto sensu
there is no cause for imposition of penalty on the ground of
delay. We have already held that delay in payment of FTT
cannot be equated with non-payment of FTT which stands
on a different footing altogether. For non-payment of FTT,
sub-section (3) of Section 38 is attracted and for delay in
deposit of payment of FTT, sub-section (4) of Section 38
would come into play. Insofar imposition of penalty is
concerned, be it under any of the sub-sections of Section
52
38 i.e. sub-sections (2), (3) and (4), it is not automatic,
notwithstanding the word ‘shall’ appearing therein. It is
trite law of interpretation that merely because the word
‘shall’ appears in a particular provision, the same would
not be rendered mandatory. Whether a provision is
mandatory or discretionary would have to be discerned
from the context and the overall scheme of the provision. It
cannot be said as a thumb rule that the moment there is a
breach of the timeline, imposition of penalty is automatic.
This is so, firstly, because of the very nature of the provisions
of Rule 4 and Rule 9 and, secondly, because of the
adjudicatory process contemplated under Rule 12. In an
appropriate case, the officer of customs may decide not to
impose a penalty, be it under sub-sections (2), (3) or (4), if
he is satisfied that imposition of penalty is unwarranted.
But if he decides to impose penalty, the quantum of penalty
that may be imposed would be guided by the range
provided for in each of the sub-sections.
41. Having analyzed the statutory framework as
above, we may now deal with some of the cases relied upon
by the parties.
53
8
42. Hindustan Steel Ltd. Vs. State of Orissa , is a
three-Judge Bench decision of this Court. In proceedings
for assessment of tax under the Orissa Sales Tax Act, 1947,
the Sales Tax Officer held that appellant was a dealer in
building material and had sold the material to contractors.
On that account it was liable to pay tax at the appropriate
rates under the aforesaid Act. Accordingly, the Sales Tax
Officer directed the appellant to pay the tax and also
imposed penalty in addition to the tax for failure to register
itself as a dealer. However, the Tribunal while upholding the
liability of the appellant to pay the tax, however,
substantially reduced the penalty imposed upon the
appellant. On the question of imposability of penalty, the
matter travelled to this Court. It was in that context that the
three-Judge Bench held as follows:
8. Under the Act penalty may be imposed for
failure to register as a dealer — Section 9(1) read
with Section 25(1)( a ) of the Act. But the liability to
pay penalty does not arise merely upon proof of
default in registering as a dealer. An order
imposing penalty for failure to carry out a
statutory obligation is the result of a quasi-
8
( 1972) 83 ITR 26
54
criminal proceeding, and penalty will not
ordinarily be imposed unless the party obliged
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. Whether penalty should be
imposed for failure to perform a statutory
obligation is a matter of discretion of the authority
to be exercised judicially and on a consideration
of all the relevant circumstances. Even if a
minimum penalty is prescribed, the authority
competent to impose the penalty will be justified
in refusing to impose penalty, when there is a
technical or venial breach of the provisions of the
Act or where the breach flows from a bona fide
belief that the offender is not liable to act in the
manner prescribed by the statute. Those in charge
of the affairs of the Company in failing to register
the Company as a dealer acted in the honest and
genuine belief that the Company was not a dealer.
Granting that they erred, no case for imposing
penalty was made out.
42.1. Thus, this Court was of the view that an order
imposing penalty for failure to carry out a statutory
obligation is the result of a quasi-criminal proceeding and
that penalty will not ordinarily be imposed unless the party
obliged either acted deliberately in defiance of law or was
55
guilty of conduct contumacious or dishonest, or acted in
conscious disregard of its obligation. The Bench opined that
whether penalty should be imposed for failure to perform a
statutory obligation is a matter of discretion of the authority
to be exercised judicially and on a consideration of all the
relevant circumstances. Importantly, the three-Judge Bench
held that even if a minimum penalty is prescribed, the
authority competent to impose the penalty will be justified in
refusing to impose penalty when there is a technical or venial
breach of the provisions of the Act.
43. A seven-Judge Bench of this Court in R.S. Joshi
dealt with the question as to whether it was permissible for
the State Legislature to enact, having regard to the triple
Lists of the Seventh Schedule and Articles 14 and 19, that
sums collected by dealers by way of sales tax but are not
exigible under the state law and, indeed, prohibited by it
shall be forfeited to the public exchequer punitively under
Entry 54 read with Entry 64 of List II. There were
conflicting verdicts by various high courts. We need not
enter into the intricate details of the constitutional
controversy. Suffice it to say that the seven-Judge Bench
56
considered in the aforesaid context as to what is the true
character of a forfeiture? Is it punitive in infliction, or
merely another form of exaction of money by one from the
other? If it is penal, it falls within implied powers. If it is an
act of mere transference of money from the dealer to the
State, then it falls outside the legislative entry. The Bench
noted that there was a contention that the expression
‘forfeiture’ did not denote a penalty but opined that the
same may have to be decided in the specific setting of a
statute. But, generally speaking, it took the view that
forfeiture has a punitive impact. In that context, the Bench
held as follows:
19. …………………………………………………………
This word “forfeiture” must bear the same
meaning of a penalty for breach of a prohibitory
direction. ………………Even here we may reject the
notion that a penalty or a punishment cannot be
cast in the form of an absolute or no-fault liability
but must be preceded by mens rea . The classical
view that “no mens rea , no crime” has long ago
been eroded and several laws in India and abroad,
especially regarding economic crimes and
departmental penalties, have created severe
punishments even where the offences have been
defined to exclude mens rea .
57
44. In Gujarat Travancore Agency , a two-Judge
Bench of this Court considered the question as to whether
element of mens rea was required to be proved in the
proceedings undertaken by the Income Tax Officer under
Section 271(1)(a) of the Income Tax Act, 1961 (already
referred to as ‘the 1961 Act’ hereinabove) against the
assessee for the assessment years under consideration.
The Bench, after due analysis, held that element of mens
rea was not required to be proved in a proceeding under
Section 271(1)(a) of the 1961 Act against the assessee. It
has been held as follows:
5. Accordingly, we hold that the element of mens
rea was not required to be proved in the
proceedings taken by the Income Tax Officer
under Section 271(1)( a ) of the Income Tax Act
against the assessee for the assessment years
1965-1966 and 1966-1967.
45. J.K. Industries Ltd. is a case where a two-Judge
Bench of this Court was considering the question as to
whether in the context of the Factories Act, 1948 in the
case of a company which owns or runs the factory, is it only
a director of the company who can be notified as the
58
occupier of the factory within the meaning of the proviso (ii)
to Section 2(n) of the Factories Act, 1948 or whether the
company can nominate any other employee to be the
occupier by passing a resolution to the effect that the said
employee shall have ultimate control over the affairs of the
factory.
45.1. In that case, the Chief Inspector of Factories had
called upon the appellants to file applications seeking
renewal of the registration of license of their respective
factories signed by a director of the company in his capacity
as the occupier of the factory, clarifying that a nominee of
the Board of Directors, other than a director, could not
make such an application as an occupier. It is the
correctness of such direction which came up for
consideration in J.K. Industries Ltd.
45.2. After considering various provisions of the
Factories Act, 1948, the Bench observed that the aim and
object of the aforesaid enactment is essentially to safeguard
the interest of workers, stop their exploitation and take
care of their safety, hygiene and welfare at their place of
work. The Bench noted that numerous restrictions have
59
been enacted in the public interest in the Factories Act,
1948. Observing that providing restrictions in a statute
would be a meaningless formality unless the statute
contains a provision for penalty for the same, the Bench
turned its attention to Section 92 of the aforesaid Act which
contains a general provision for penalties for offences under
the Factories Act for which no express provision has been
made elsewhere. Examining the scope and ambit of Section
92 of the aforesaid enactment, the Bench observed that the
offences under the Factories Act are not a part of the
general penal law but arise from the breach of a duty
provided in a socially beneficial legislation which creates
absolute or strict liability without proof of any mens rea .
The offences are strict statutory offences for which
establishment of mens rea is not an essential ingredient.
Referring to the decision in R.S. Joshi , the Bench observed
that absolute offences are not criminal offences but acts
which are prohibited in the interest of welfare of the public
and the prohibition is backed by sanction of penalty.
46. From an analysis of the above decisions what
can be culled out is that there are certain statutory
60
provisions for violation or breach of which penalty is
attracted for which proof of mens rea is not required. The
question is whether in a given case, for such a statutory
breach, imposition of penalty is automatic. Automatic
imposition of penalty and exclusion of mens rea are two
different things. According to us, it cannot be said as a
general proposition that in all instances of violation of
statutory provisions for which penalty is prescribed,
imposition of penalty is automatic. It will all depend on the
scheme of the statute and the adjudicatory process
provided for imposition of penalty. Where the adjudicatory
process prior to imposition of penalty provides for show
cause notice, filing of reply or representation against each
of the grounds cited for imposition of penalty and hearing,
to hold that imposition of penalty is mandatory or
automatic or a foregone conclusion would be to render
such a provision or adjudicatory process nugatory. After
all, the power to impose penalty includes power not to
impose penalty. As rightly held by the three-Judge Bench
in , merely because the statute provides
Hindustan Steel Ltd
a minimum penalty it would not mean that penalty is
61
automatic. Question of imposition of minimum penalty
would arise only when the authority comes to the
conclusion that penalty should be imposed.
47. Let us turn to the facts of the present case. The
case of the appellant now boils down to 6 instances of delay
in payment of FTT. In respect of 5 instances, the delay
ranges from 1 day to 11 days. However, in each of these
cases, the demand drafts were purchased from the
concerned bank before the due dates. But there was delay
in depositing the bank draft into the Government treasury.
The relevant particulars are furnished below in the form of
a statement:
Sl
No.
Period Date of issue of
demand draft
Due Date Delay in
payment
of FTT
Amount
1. August,
1994
29.09.1994 30.09.1994 3 days 56,09,100/-
2. July, 1995 25.08.1995 30.08.1995 1 day 48,93,600/-
3. April, 1996 27.05.1996 30.05.1996 11 days 4,41,000/-
4. December,
1996
27.01.1997 30.01.1997 1 day 55,09,200/-
5. November,
1997
29.12.1997 30.12.1997 1 day 90,61,500/-
47.1. Insofar these 5 instances are concerned,
appellant had explained before the authorities that the
62
demand drafts could not be submitted into the concerned
treasury because of security restrictions.
47.2. For the month of December, 1995, there was a
delay of 63 days in depositing the demand draft into the
treasury. This was explained by the appellant by saying
that the concerned employee entrusted with the task of
submission of demand draft was on emergency leave.
47.3. The appellate authority is on record mentioning
in its appellate order dated 09.01.2003 that all the
submissions made by the appellant may be genuine but the
fact remains that the tax was deposited in the Government
account beyond the time limit as laid down under Section
38 (3) of the Finance Act.
48. We are afraid the appellate authority, the
revisional authority as well as the High Court fell in
grave error in upholding the penalty imposed upon the
appellant for three reasons: firstly, it is not a case under
Section 38 (3) of the Finance Act, rather it is a case which
comes within the ambit of Section 38 (4) of the Finance Act;
secondly, there is a provision in Rule 4 for condoning the
delay in deposit of FTT, which the authorities below had
63
overlooked. If the submissions of the appellant were
genuine, there is no reason why the appellate authority
could not have condoned the delay in depositing the FTT in
which event there would not have arisen any cause for
imposition of penalty; thirdly, for breach of Section 38 of
the Finance Act, be it sub-sections (2), (3) and (4),
imposition of penalty is not automatic the moment there is
a breach of the aforesaid provisions. Discretion is vested on
the officer of customs to adjudicate whether penalty is
imposable or not. Only if he arrives at the finding that
penalty is imposable, then the quantum of penalty that
may be imposed would be guided by the range provided for
in sub-sections (2), (3) and (4) of Section 38, as the case
may be.
49. Therefore, in the facts of the present case, we are
of the view that penalty is not imposable insofar the
appellant is concerned.
50. There is one more aspect which we would like to
deal with before parting with the record. In the initial order-
in-original dated 14.06.1999, the penalty imposed on the
appellant in respect of the 6 cases of late payment of FTT
64
was Rs. 12,000.00. By the order-in-appeal dated
24.11.1999, the appellate authority remanded the matter
back to the adjudicating authority for a de novo
consideration. On remand, the adjudicating authority
passed de novo order-in-original dated 08.08.2001 as per
which penalty of Rs. 71,29,140.00 was imposed on the
appellant in respect of the 6 cases of late payment of FTT.
Appellant had contended before all the authorities that
such abnormal enhancement of penalty put the appellant
in a worse off condition because he chose to file an appeal.
Had he not filed the appeal, all that he would have had to
pay as penalty was Rs. 12,000.00 and not Rs.71,29,
140.00. This contention of the appellant was turned down
by the appellate authority, revisional authority and the
High Court on the ground that the initial penalty imposed
was not in accordance with law. On de novo adjudication,
correct penalty came to be imposed.
51. On this aspect also the appellate authority, the
revisional authority as well as the High Court fell in grave
error. We have already held that no penalty is liable to be
imposed on the appellant but that is besides the point. The
65
question is, whether a litigant can be worse off by
approaching the appellate forum as provided under the
law or by approaching a court of law?
52. The High Court of Judicature at Bombay (already
referred to hereinabove as ‘the High Court’) in Jyoti Plastic
9
Works Pvt. Ltd. Vs. Union of India (authored by one of us
Justice Ujjal Bhuyan) had considered this aspect in detail.
Referring to the latin maxim reformatio in peius which
means a change towards the worse, the High Court
observed that a person should not be placed in a worse
position as a result of filing an appeal. The High Court held
as follows:
40. In this connection we may refer to the maxim
reformatio in peius . It is a latin phrase meaning a
change towards the worse, i.e., a change for the
worse. As a legal expression it means that a lower
court judgment is amended by a higher court into a
worse one for those appealing it. In many
jurisdictions, this practice is forbidden ensuring that
an appellant cannot be placed in a worse position as
a result of filing an appeal. When the above phrase is
prefixed by the words ‘no’ or ‘prohibition’, which
would render the maxim as no reformatio in peius or
9
2020 SCC OnLine Bom 2276
66
prohibition of reformatio in peius , it would denote a
principle of procedure as per which using a remedy
available in law should not aggravate the situation of
the person who avails the remedy. In other words, a
person should not be placed in a worse position as a
result of filing an appeal. No reformatio in peius or
prohibition of reformatio in peius is a part of fair
procedure and, thus, by extension can also be
construed as part of natural justice. It is not only a
procedural guarantee but is also a principle of
equity.
53. The High Court referred to the decisions of the
Madras High Court as well as of this Court in Jawal Neco
10
Limited Vs. Commissioner of Customs emphasizing this
point holding that an appellant cannot be worse off by
reason of filing an appeal.
54. In a recent decision of this Court in Nagarajan
11
Vs. State of Tamil Nadu , after referring to and endorsing
the decision of the High Court in Jyoti Plastic Works Pvt.
Ltd., this Court held that no appellant by filing an appeal
can be worse off than what he was prior to filing the appeal.
10
2015 (322) E.L.T. 561
11
(2025) 8 SCC 331
67
55. Thus, having regard to the entire conspectus of
the facts of the case and the discussions made above, we
are of the view that penalty imposed on the appellant for
late deposit of FTT in 6 instances cannot be sustained. The
same is accordingly set aside. Consequently, impugned
order of the High Court dated 09.08.2010, the revisional
order dated 29.10.2004, order-in-appeal dated 09.01.2003
and the de novo order-in-original dated 08.08.2001 qua
imposition of the penalty on the appellant for late deposit of
FTT on 6 occasions are set aside and quashed. Any amount
paid by the appellant as part of the above penalty shall be
refunded by the respondents to the appellant with interest
at the rate of 9 percent per annum within 3 months from
today. Bank guarantee furnished by the appellant would
also stand discharged.
56. Appeal is accordingly allowed. However, there
shall be no order as to cost.
……………………………J.
[J. B. PARDIWALA]
……………………………J.
[UJJAL BHUYAN]
NEW DELHI;
SEPTEMBER 01, 2026.
68