Legal principle

Imposition of penalty under Section 38 of the Finance Act, 1979 is discretionary and not automatic upon breach, and no litigant can be placed in a worse position (no reformatio in peius) as a result of filing an appeal.

Court decision

The Supreme Court allowed the appeal and held that no penalty was imposable on the appellant for the late deposit of FTT in the 6 instances, setting aside and quashing the High Court judgment dated 09.08.2010, the revisional order dated 29.10.2004, the order-in-appeal dated 09.01.2003, and the de novo order-in-original dated 08.08.2001 to that extent. It held the case fell under Section 38(4), not Section 38(3), of the Finance Act, that Rule 4 provided for condonation of delay which the authorities overlooked, and that penalty is not automatic since discretion vests in the officer of customs. Any penalty amount paid is to be refunded with 9% interest per annum within 3 months and the bank guarantee furnished stands discharged; no order as to costs.

Facts

M/s Saudi Arabian Airlines, an international carrier, collected Foreign Travel Tax (FTT) from passengers flying abroad and was required under the Finance Act, 1979 and the Foreign Travel Tax Rules, 1979 to deposit it in the Government treasury within the stipulated time. There were delays of 1 to 63 days in depositing FTT for six months, a total short payment of Rs 14,000 (of which only Rs 2,000 survived limitation), and belated monthly returns in 13 cases. Customs authorities issued 14 show cause notices, and the Deputy Commissioner of Customs confirmed the FTT shortfall, 20% interest under Section 35A, and penalties under Section 38(3) of the Finance Act. In the initial order-in-original dated 14.06.1999 the penalty for the 6 late-payment cases was Rs 12,000, but after remand the de novo order dated 08.08.2001 enhanced it to Rs 71,29,140, and the appellate authority, the revisional authority under Section 129 of the Customs Act, 1962, and the Bombay High Court upheld these demands.

Key provisions

• Section 3, Customs Act, 1962 — Classes of officers of customs
• Section 129, Customs Act, 1962 — Appellate Tribunal