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Saudi Arabian Airlines' ₹71 Lakh Penalty Quashed as Supreme Court Distinguishes Delay from Non-Payment
In a significant ruling on , the allowed an appeal by , setting aside a penalty of ₹71,29,140 imposed for delayed deposit of Foreign Travel Tax (FTT). The bench, comprising Justice J.B. Pardiwala and Justice Ujjal Bhuyan, held that a mere delay in paying FTT cannot be equated with a " " so as to attract the heavy penalty under .
The Court also invoked the principle of —prohibition against making an appellant worse off—after noting that the airline's penalty was enhanced from ₹12,000 to over ₹71 lakh following its own successful appeal.
Background: Six Instances of Delayed Payment
Saudi Arabian Airlines, which operates flights to and from India, is required under the and the to collect FTT from passengers embarking on international journeys and deposit it with the within 30 days.
The dispute centered on six instances between 1994 and 1997 where the airline deposited the tax after the deadline. In five cases, the delay ranged from one to eleven days, and in one case it was 63 days. Crucially, in five of these cases, the airline had purchased demand drafts from banks before the due dates, but actual deposit was delayed due to security restrictions. The 63-day delay was attributed to an employee being on emergency leave.
The adjudicating authority initially imposed a total penalty of ₹12,000 for these six delays. However, after the airline appealed, the matter was remanded for fresh consideration. On remand, the dramatically increased the penalty to ₹71,29,140 under Section 38(3), which mandates a penalty of not less than one-fifth and up to three times the amount of tax not paid. The appellate authority, revisional authority, and the all upheld this enhanced penalty, reasoning that delayed payment is equivalent to and that the penalty was automatic.
Arguments Before the Supreme Court
Senior counsel for the airline, , argued that Section 38(3) applies only to cases of absolute non-payment of FTT, not to belated payment. He emphasized that specifically provides for interest on delayed payment, demonstrating that the legislature distinguished delay from non-payment. He further contended that the penalty was not automatic, and that the authorities had discretion under to consider explanations. The substantial enhancement after remand, he argued, violated the principle that an appellant should not be placed in a worse position by filing an appeal.
Responding for the , senior counsel argued that "fails to pay" under Section 38(3) is broad enough to include within the prescribed time. He submitted that the provision creates a , requiring no proof of or wilful default, and that the penalty was mandatory once the timeline was breached. The Revenue relied on precedents including and to argue for strict interpretation of fiscal statutes.
Legal Analysis: 'Failure to Pay' Means Non-Payment, Not Delay
The Supreme Court undertook a textual and contextual interpretation of Section 38(3). The provision uses two crucial expressions:
"fails to pay the foreign travel tax"
and
"the amount of the tax not so paid."
Reading them together, the Court concluded that the provision contemplates a scenario of complete non-payment, not mere delayed payment.
"
would mean non-payment.
would not mean and cannot be equated with delay in making payment,"
the Bench held. The Court emphasized that in fiscal statutes, courts cannot expand the meaning of words beyond their plain language.
The Court drew support from its earlier decision in U.S. Technologies International Private Limited v. Commissioner of Income Tax (2023), where it had similarly distinguished between failure to deduct tax and belated remittance of tax already deducted. Applying the same principle, the Court held that delayed deposit of FTT does not attract Section 38(3).
Instead, the Court ruled that delayed payment falls under Section 38(4) of the Finance Act, read with Rules 4 and 9 of the Foreign Travel Tax Rules. Rule 4 requires deposit within 30 days but allows the to grant additional time on sufficient cause being shown. Rule 9 similarly permits extension for filing returns. The Court noted that these timelines are not inflexible, and the power to condone delay exists.
Penalty Not Automatic Despite 'Shall'
Rejecting the Revenue's argument that penalty is automatic, the Court held that the word "shall" in a penalty provision does not by itself make the penalty mandatory.
"The
,"
the Bench observed, citing the three-Judge Bench decision in
Hindustan Steel Ltd. v. State of Orissa
(1972). The Court noted that even where a minimum penalty is prescribed, the authority may refuse to impose it if the breach is technical or venial, or flows from a
belief.
The Court further held that the adjudicatory process under Rule 12—requiring show cause notice, written representation, and hearing—would be rendered meaningless if the penalty was a foregone conclusion. The discretion to impose penalty must be exercised judicially.
: Appellant Cannot Be Worse Off
The Court also addressed the substantial enhancement of penalty from ₹12,000 to ₹71,29,140 after remand. It held that the principle of —that an appellant should not be placed in a worse position by exercising the right of appeal—was violated. The Court referred to its recent decision in Nagarajan v. State of Tamil Nadu (2025) and the 's decision in , which Justice Ujjal Bhuyan had authored. The Bench declared that the appellate authority, revisional authority, and High Court had erred in approving such "abnormal enhancement."
Key Observations
The Court made several pivotal observations:
- “ would mean non-payment. would not mean and cannot be equated with delay in making payment.”
- “The .”
- “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 of the provisions of the Act.”
- “An appellant cannot be worse off by reason of filing an appeal.”
Decision and Relief
The Supreme Court allowed the appeal, setting aside the 's judgment dated , as well as the revisional order, appellate order, and the de novo adjudication order insofar as they imposed penalty for the six delayed FTT deposits. The Court directed that any amount paid by the airline towards this penalty be refunded with interest at 9% per annum within three months. The bank guarantee furnished by the airline was also ordered to be discharged.
Implications
The ruling clarifies a critical distinction under the : delay in depositing FTT is not the same as . Carriers facing delayed deposit may now seek condonation of delay under Rule 4, and even if penalty proceedings are initiated, the adjudicating officer has discretion to consider the circumstances. The judgment also reinforces the principle that appellate remedies should not lead to punitive outcomes for the appellant. This decision will have a significant impact on similar cases involving penalties for delayed tax payments under fiscal statutes.
