Third-party aircraft deposit cannot extinguish carrier tax dues; moderated penalty upheld for deliberate non-compliance.

A third-party deposit made to secure release of a distrained aircraft did not discharge the carrier's inland air travel tax liability because the statutory liability rested on the carrier and there was no clear appropriation or consent to treat the deposit as payment of tax and interest. The demand therefore remained enforceable. The reduction of penalty from a higher amount to a moderated sum was also upheld because the appellate authority had exercised discretion judicially, having regard to deliberate non-compliance and the need to preserve deterrence. The statutory demand and modified penalty order were affirmed, and the writ petition was dismissed.

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Issues: (i) Whether the amount deposited by the lessor for release of the distrained aircraft could be treated as payment or adjustment of the carrier's inland air travel tax dues and interest; and (ii) whether the reduction of penalty from Rs. 25 crores to Rs. 10 crores called for interference.

Issue (i): Whether the amount deposited by the lessor for release of the distrained aircraft could be treated as payment or adjustment of the carrier's inland air travel tax dues and interest.

Analysis: The statutory scheme fixed liability for inland air travel tax on the carrier and provided recovery of unpaid tax, interest and penalty by distraint and sale of the aircraft or other property under the control of the carrier. The deposit made by the lessor was for release of the aircraft and represented the security for that purpose. There was no clear communication from the lessor agreeing that the amount was to be appropriated towards the carrier's tax liability. The carrier's liability therefore continued, and the third-party deposit could not be treated as satisfaction of the carrier's dues.

Conclusion: The plea of adjustment or appropriation was rejected and the demand was upheld.

Issue (ii): Whether the reduction of penalty from Rs. 25 crores to Rs. 10 crores called for interference.

Analysis: Penalty under the Act was intended to meet deliberate non-compliance and to preserve the deterrent effect of the statute. The carrier had collected the tax but failed to credit it to the Government, and the appellate authority had considered the extent of default and moderated the penalty. The reduction was found to be a judicious exercise of discretion and not disproportionate in the circumstances.

Conclusion: The reduced penalty was sustained and no interference was warranted.

Final Conclusion: The statutory demand and the modified penalty order were both affirmed, and the writ petition was dismissed.

Ratio Decidendi: A deposit made by a third party for release of distrained property does not, without clear appropriation or consent, discharge the carrier's statutory tax liability; recovery and penalty under the charging and recovery provisions remain enforceable against the liable carrier.

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