M/S. SAUDI ARABIAN AIRLINES v. UNION OF INDIA & ORS.
Civil Appeal No. 1052 of 2013 — Supreme Court of India — 2026 INSC 933
HEADNOTE
Finance Act, 1979 — Foreign Travel Tax (FTT) — Section 38(3) and (4) — Delayed payment distinguished from non-payment — “Fails to pay” means non-payment and cannot be equated with delayed payment — Section 38(3) applies to non-payment; delayed deposit is governed by Section 38(4) read with Rules 4 and 9 of the Foreign Travel Tax Rules, 1979. [Paras 35, 37.3, 40]
Penalty — Fiscal statute — Mens rea — Exclusion of mens rea and automatic imposition of penalty are distinct concepts — Even where proof of mens rea is not required, penalty does not necessarily follow automatically upon every statutory breach — Whether penalty should be imposed depends upon the statutory scheme and adjudicatory process. [Para 46]
Foreign Travel Tax Rules, 1979 — Rule 4 — Deposit within 30 days — Proviso conferring discretion upon Collector of Customs to permit extended period upon sufficient cause — Statutory timeline therefore not inflexible. [Paras 27, 37.2, 37.4]
Penalty — Rule 12 — Show-cause notice and hearing — Adjudicating authority possesses discretion whether to impose penalty — Power to impose penalty necessarily includes power not to impose penalty — Minimum penalty becomes relevant only after authority determines that penalty is imposable. [Paras 39, 40, 46]
Reformatio in peius — Appeal/remand — Appellant cannot be placed in a worse position merely because he exercised a statutory appellate remedy — Principle forms part of fair procedure, natural justice and equity. [Paras 50–54]
Held: Delay in depositing FTT, where the tax was ultimately paid before issuance of show-cause notice, could not be treated as “failure to pay” under Section 38(3). Such delay fell within Section 38(4), read with Rules 4 and 9. Penalty was not automatic, and the authorities failed to consider the statutory discretion to condone delay and the discretion inherent in the adjudicatory process. The penalty was therefore unsustainable. The Court also held that enhancement of penalty from ₹12,000 to ₹71,29,140 after the appellant exercised his appellate remedy offended the principle against reformatio in peius. [Paras 48–55]
I. ANALYSIS OF FACTS
1. Nature of appellant's obligation
Paras 4–5: Saudi Arabian Airlines was an authorised carrier operating international flights from India. It collected Foreign Travel Tax from passengers and was required to deposit the tax into the Government treasury within the statutory period under the Finance Act and the 1979 Rules.
2. Six instances of delayed payment
Para 6: There were six relevant instances of delayed payment. In five cases, the delay ranged from 1 to 11 days; in one case, the delay was 63 days. Importantly, in five of the six instances the demand drafts had already been purchased from the banks before the respective due dates, but were deposited into the treasury later.
3. Explanation for delay
The appellant explained that the five shorter delays resulted from security restrictions. The 63-day delay was attributed to the employee entrusted with depositing the demand draft being on emergency leave. [Para 47]
4. Initial penalty
The original adjudicating authority imposed comparatively modest penalties:
- ₹12,000 for six cases of late payment;
- ₹18,000 for seven cases of short payment; and
- ₹6,000 for three cases of delayed monthly returns.
[Para 9.1]
5. De novo proceedings and enormous enhancement
After remand, the adjudicating authority imposed ₹71,29,140 as penalty for the six cases of late payment. Thus, the penalty increased from ₹12,000 to more than ₹71 lakh. [Paras 11, 50]
II. ISSUES
The Supreme Court ultimately considered four important questions:
6. Whether delayed payment amounts to “failure to pay” under Section 38(3).
7. Whether delayed payment is instead governed by Section 38(4) read with Rules 4 and 9.
8. Whether imposition of penalty is automatic merely because the statutory deadline was breached.
9. Whether an appellant can be placed in a substantially worse position after exercising a statutory appellate remedy.
III. STATUTORY SCHEME
10. Section 35 — FTT
Paras 20–20.1: Section 35 imposed Foreign Travel Tax on passengers undertaking international journeys and required the tax collected by authorised carriers to be paid to the credit of the Central Government.
11. Section 35A — Interest
Para 21: Section 35A separately provided for interest where FTT was not paid within the prescribed period. Interest was calculated for the entire period of delay, at a notified rate between 20% and 30% per annum.
This distinction becomes important:
Tax → principal liability
Interest → consequence of delay
Penalty → separate statutory consequence requiring examination under Section 38
IV. SECTION 38(3) — NON-PAYMENT
12. Exact statutory language
Para 35: Section 38(3) provided penalty where a carrier or other person “fails to pay” FTT to the credit of the Central Government. The penalty was not less than one-fifth and could extend to three times the tax not so paid.
13. Meaning of “fails to pay”
Para 35.1: The Court identified two crucial expressions:
- “fails to pay the foreign travel tax”, and
- “the amount of the tax not so paid.”
Both expressions occur in the same provision.
The Court's interpretation was decisive:
“Failure to pay” means “non-payment”; it does not mean and cannot be equated with “delay in making payment.”
[Para 35.1]
14. Fiscal statute must be interpreted according to its language
The Court refused to enlarge the expression “fails to pay” so as to include delayed payment. In taxation statutes, courts cannot import additional meanings into clear statutory language through interpretative expansion. [Para 35.1]
V. SECTION 38(4) — DELAYED PAYMENT
15. Section 38(4) covers breach of Rules
Para 37: Section 38(4) provides for penalty for breach of rules made under Chapter V. Such penalty ranges from ₹500 to ₹50,000, with additional daily penalty in case of continuing breach.
16. Rule 4 specifically deals with delay
Para 37.2: Rule 4 requires the carrier to deposit the FTT collected during a month within 30 days from the end of that month. But its proviso permits the Collector of Customs, upon sufficient cause being shown and having regard to the carrier's accounting system, to allow a longer period.
17. Rule 9 similarly permits extension for returns
Rule 9 requires monthly returns within 30 days but likewise permits the Collector of Customs to grant additional time. [Para 37.2]
18. Critical statutory distinction
Para 37.3: The Supreme Court held:
Section 38(3) → non-payment
Section 38(4) + Rules 4 & 9 → delayed payment / delayed return
The two concepts cannot be conflated.
VI. WHEN DOES DELAY BECOME NON-PAYMENT?
19. Payment before show-cause notice
The Court gave a particularly useful practical distinction.
If the carrier deposits the tax after receiving the show-cause notice, that is treated as non-payment.
But if the carrier makes payment before issuance of the show-cause notice, it is a case of delayed payment. [Para 37.3]
This is a significant proposition for the interpretation of Section 38.
VII. PENALTY IS NOT AUTOMATIC
20. Rule 12 creates an adjudicatory process
Para 39: Rule 12 requires:
- written notice stating the grounds;
- opportunity to make written representation; and
- reasonable opportunity of hearing.
The Court held that Rule 12 must be read together with Rule 11 and the proviso to Section 38(5).
21. Discretion to decline penalty
Para 39.1: If the noticee demonstrates that the grounds for penalty are unjustified, the adjudicating officer may decide not to impose penalty. If the explanation is rejected and penalty is considered justified, only then does the question of the statutory range arise.
22. “Shall” does not necessarily mean automatic
Para 40: The Court emphatically held that the use of the word “shall” does not automatically convert penalty into a mandatory consequence in every case. Whether a provision is mandatory or discretionary must be determined from the context and statutory scheme.
23. Minimum penalty does not mean automatic penalty
The Court's formulation is particularly important:
The question of minimum penalty arises only after the authority reaches the conclusion that penalty should be imposed.
[Para 46]
VIII. MENs REA — IMPORTANT DISTINCTION
24. Exclusion of mens rea ≠ automatic penalty
Para 46: The Court reconciled the apparently conflicting authorities.
There may be statutory offences where mens rea is not required.
But that does not mean that penalty is automatically imposed whenever a breach occurs.
The two propositions are distinct:
Exclusion of mens rea
≠
Automatic imposition of penalty
[Para 46]
25. Hindustan Steel principle
The Court relied on Hindustan Steel Ltd. v. State of Orissa, where it was held that even where a minimum penalty exists, the authority may refuse to impose penalty in appropriate cases involving technical or venial breaches or bona fide conduct. [Paras 42–42.1]
26. Present judgment reconciles strict liability with discretion
The judgment therefore establishes:
Mens rea may not be an ingredient of liability, but penalty still requires a judicial exercise of statutory discretion.
IX. APPLICATION TO PRESENT FACTS
27. Five delays were extremely short
Para 47: In five cases the delays were only 1 to 11 days, and the demand drafts had actually been purchased before the due dates.
28. Appellant furnished an explanation
The appellant explained the five delays by security restrictions and the 63-day delay by the emergency leave of the employee responsible for depositing the draft. [Paras 47.1–47.2]
29. Authorities failed to exercise statutory discretion
The appellate authority acknowledged that the appellant's explanations “may be genuine”, yet proceeded on the basis that once the deadline was crossed, penalty automatically followed. [Para 47.3]
The Supreme Court found this approach legally erroneous.
X. THREE FUNDAMENTAL ERRORS OF THE LOWER AUTHORITIES
30. First error — wrong statutory provision
Para 48: The case did not fall under Section 38(3). It fell under Section 38(4) because it concerned delayed payment rather than non-payment.
31. Second error — failure to consider condonation
Rule 4 expressly empowered the Collector to extend the period where sufficient cause was shown. The authorities failed to consider this statutory discretion. If the appellant's explanation was genuine, the delay could have been condoned and no penalty would have arisen. [Para 48]
32. Third error — treating penalty as automatic
Penalty under Section 38(2), (3) or (4) is not automatic merely because a statutory breach occurred. The officer has discretion whether penalty is imposable. Only after deciding that penalty is warranted does the prescribed range become relevant. [Para 48]
XI. REFORMATIO IN PEIUS
33. Dramatic enhancement after appeal
The original penalty was ₹12,000.
After the appellant exercised his appellate remedy and the matter was remanded, the penalty became ₹71,29,140. [Para 50]
34. Can an appellant become worse off?
Para 51: The Court posed the fundamental question:
Can a litigant be placed in a worse position merely because he exercised his statutory right of appeal?
The answer was No.
35. Principle of no reformatio in peius
Paras 52–54: Reformatio in peius means a change for the worse. Its prohibition embodies the principle that a person should not suffer an aggravated position merely because he invokes a legal remedy. The Court treated this as part of fair procedure, natural justice and equity.
36. Endorsement by Supreme Court
The Court relied upon Nagarajan v. State of Tamil Nadu, which endorsed the principle that an appellant cannot become worse off merely by filing an appeal. [Para 54]
XII. CONCLUSION
37. Penalty not imposable
Para 49: On the facts of the case, the Supreme Court held that penalty was not imposable upon the appellant.
38. Orders imposing penalty quashed
Para 55: The Court set aside:
- High Court judgment dated 09.08.2010;
- revisional order dated 29.10.2004;
- appellate order dated 09.01.2003; and
- de novo adjudication order dated 08.08.2001,
insofar as they imposed penalty for the six delayed FTT payments.
39. Refund with interest
Any amount paid as penalty was directed to be refunded with 9% interest within three months. The bank guarantee was also discharged. [Para 55]
40. Final result
Appeal allowed. No order as to costs. [Para 56]
RATIO DECIDENDI
Primary ratio
The expression “fails to pay” in Section 38(3) of the Finance Act, 1979 means non-payment and does not include delayed payment. Delayed payment of FTT is governed by Section 38(4) read with Rules 4 and 9 of the Foreign Travel Tax Rules, 1979.
Secondary ratio
Penalty for statutory breach is not necessarily automatic merely because the statute uses the word “shall” or prescribes a minimum penalty. Where the statutory scheme provides for notice, representation and hearing, the adjudicating authority must exercise discretion whether penalty should be imposed at all.
Third ratio
Where the statute expressly permits condonation of delay upon sufficient cause, that discretion must be considered before imposing penalty.
Fourth ratio
A person exercising a statutory appellate remedy should not ordinarily be placed in a worse position merely because he appealed. The prohibition against reformatio in peius is a principle of fair procedure, natural justice and equity.
