The Supreme Court has delivered a significant ruling in favor of Saudi Arabian Airlines, setting aside a ₹71.29 lakh penalty imposed for delayed Foreign Travel Tax (FTT) deposits. According to reports from Business Standard, a bench of Justice Ujjal Bhuyan and Justice J B Pardiwala delivered the judgment on September 1, allowing the airline's appeal and establishing a clear distinction between 'failure to pay' and delayed payment under the Finance Act, 1979. The court held that Section 38(3), which provides for a penalty ranging from one-fifth to three times the amount of tax not paid, applies to cases of non-payment and cannot be extended to cases where the tax has been paid belatedly.
The dispute originated from six instances between 1994 and 1997 where Saudi Arabian Airlines deposited FTT between one and 63 days late. As reported by Business Standard, in five of the six cases, the airline had purchased demand drafts through banks before due dates but deposited them into the government treasury later. The sixth instance involved a 63-day delay, with the airline attributing delays to security restrictions and emergency leave. The airline argued that the delays were not deliberate, with security restrictions causing delays in depositing five of the drafts, while the employee responsible for the 63-day delay was on emergency leave. Initially, authorities imposed ₹12,000 in penalties for the six delayed payments, which was later enhanced dramatically to ₹71,29,140 after remand and appeals.
The Supreme Court examined the language of Section 38(3) and concluded that 'failure to pay' means non-payment and cannot be equated with delayed payment. According to the bench, as reported by Business Standard, had Parliament intended to cover delayed payment, it could have used different language. The court relied on its 2023 decision in US Technologies International Private Limited versus Commissioner of Income Tax, where it held that mere belated remittance of tax deducted at source did not attract penalty under the Income Tax Act. The court also noted that the expressions 'fails to pay' and 'the amount of the tax not so paid' must be understood together, reinforcing that delayed payment cannot be equated with failure to pay.
The court clarified that delayed payment is addressed by Section 38(4), read with Rules 4 and 9 of the Foreign Travel Tax Rules, 1979. As reported by Business Standard, Rule 4 prescribes a 30-day period for depositing FTT collected during a month, with provisions allowing Collector of Customs to grant additional time for sufficient cause. Rule 9 similarly permits extensions for filing monthly returns, and Rule 12 requires show-cause notice and hearing before penalty imposition. The bench further clarified that Rule 12 also leaves room for the adjudicating authority to decide that a penalty is not warranted if the explanation is found satisfactory. Where the Collector condones the delay on sufficient cause being shown, no question of penalty for that delay arises.
The Supreme Court directed respondents to refund any amount paid by the airline towards the penalty with 9% per annum interest within three months, and ordered discharge of the bank guarantee furnished by the airline. According to Business Standard, the court invoked the principle of no reformatio in peius, noting that the penalty had risen from ₹12,000 to ₹71.29 lakh after the airline exercised its statutory right of appeal. The court consequently quashed the Bombay High Court judgment, the revisional order, the appellate order and the de novo adjudication order insofar as they imposed a penalty for the delayed FTT payments. The ruling establishes important precedent for future cases involving delayed tax deposits under the Finance Act, 1979.
