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Informist, Tuesday, Sept. 1, 2026

 

--SC: No automatic penalty on airlines for not depositing foreign travel tax 

 

NEW DELHI – The Supreme Court Tuesday held that there is no automatic imposition of penalty on airlines for not depositing foreign travel tax with the government treasury. The court said discretion is vested in customs officers to adjudicate whether the penalty can be imposed. Once the officer concerned arrives at a finding that a penalty can be imposed, the quantum of penalty to be imposed would be guided by the range provided for in sub-sections 2, 3, and 4 of Section 38 of Chapter V of The Finance Act, 1979, the court said.

 

The court set aside penalties imposed upon Saudi Arabian Airlines for delayed payment of foreign travel tax with the treasury. Any amount paid by Saudi Arabian Airlines as part of the penalty shall be refunded by the respondents to the airline with interest at the rate of 9% per annum within three months, it said. Bank guarantees furnished by Saudi Arabian Airlines would also stand discharged, it said.

 

"We are afraid the appellate authority, the revisional authority as well as the (Bombay) high court fell in grave error in upholding the penalty imposed upon the appellant (Saudi Arabian Airlines)...," a Bench of Justice J.B. Pardiwala and Justice Ujjal Bhuyan said. The court said it was not a case under Section 38(3) of the Finance Act. Instead, it was a case which falls within the ambit of Section 38(4) of the Act. Further, it said there is a provision in Rule 4 of the Act to condone the delay in deposit of foreign travel tax, which the authorities concerned had overlooked.

 

Saudi Arabian Airlines is an airline company carrying on the business of transporting passengers between various locations in India and abroad. Under the Finance Act, airlines have to deposit foreign travel tax with the government treasury within the time stipulated thereunder as well as in terms of the Foreign Travel Tax Rules, 1979.

 

Saudi Arabian Airlines delayed depositing foreign travel tax with the government treasury in six instances. In five cases, the demand drafts could not be submitted into the concerned treasury because of security restrictions, the airline said. In one case, the employee entrusted with the task of submission of the demand draft was on emergency leave, it said.

 

The airline had argued that a fine being penal in nature can only be imposed in the case of absolute non-payment or wilful default and not where there is a mere delay in paying the tax or depositing the bank draft. The customs department had argued that when there is a default in payment of foreign travel tax, it becomes mandatory to impose a 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 paid.  End

 

Reported by Surya Tripathi

Edited by Rajeev Pai

 

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