TaxTMI 
TaxTMI 
2026 (9) TMI 81
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....2010 (impugned judgment and order), the High Court has dismissed the writ petition filed by the appellant seeking the following reliefs: (a) to declare the provisions of Section 38(3) of Chapter V of the Finance Act, 1979, as amended by the Finance Act, 1994, as unconstitutional and ultravires Article 14 of the Constitution of India; (b) to issue a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction, calling for the papers and proceedings pertaining to the passing of the orders dated 8th August 2001, 9th January, 2003 and 29th October, 2004 and after going into the legality, validity and propriety thereof, to quash and/or set aside the said orders; (c) to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order or direction, directing the respondents to forthwith refund the sum of Rs 17,00,000.00 deposited by the petitioners pursuant to the order dated 12th July, 2002 passed by the respondents together with interest thereon at the rate of 15% per annum from the date of deposit till payment and/or realization thereof; 3. The matter relates to imposition of pe....
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....hority after hearing the authorized representative of the appellant noted that there were total 19 cases where the appellant had contravened the provisions of the Finance Act and the 1979 Rules. In 6 cases, FTT collected by the appellant should have been deposited into the Government treasury before the expiry of 30 days, as specified under Rule 4 of the 1979 Rules. However, in these 6 cases, it was found that the FTT collected were deposited into the Government treasury after expiry of 30 days, further noting that there was delay from 1 day to 2 months in these 6 cases. The adjudicating authority also noted that interest at the rate of 20 percent per annum on such late payment of FTT as leviable under Section 35A of the Finance Act was not paid by the appellant for the period for which there was delay in payment of FTT. According to the adjudicating authority, the total interest leviable for this late payment of FTT worked out to Rs. 2,58,630.00 as on the dates of payment of the respective amount of FTT. The adjudicating authority also found that in 9 cases, the actual amount of FTT required to be deposited by the appellant under Section 35(2) of the Finance Act was Rs. 5,50,74,60....
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....t under Section 35(2), appellant was liable to pay penalty in addition to the FTT and the interest so levied. Moreover, in view of the delay in the submission of FTT returns, penal action as provided under Rule 10A(1) of the 1979 Rules were liable to be taken. Accordingly, vide the de novo order-in-original dated 08.08.2001, the adjudicating authority directed the appellant to pay the following amounts: (i) Rs. 14,000.00 on account of short payment of FTT; (ii) interest of Rs. 2,58,630.00 for late payment of FTT to the extent of Rs. 3,56,45,700.00; (iii) interest at the rate of 20 percent on the short payment of Rs. 14,000.00 till actual payment of the said amount; (iv) penalty of Rs. 71,29,140.00 was imposed under Section 38(3) of the Finance Act in respect of 6 cases of late payment of FTT; (v) penalty of Rs. 2,800.00 in respect of 7 cases of short payment of FTT; and (vi) penalty of Rs. 47,000.00 was imposed for 3 cases of late submission of monthly return. 12. Aggrieved by the aforesaid de novo order-in-original dated 08.08.2001, appellant preferred appeal before the appellate authority i.e. Commissioner of Customs (Appea....
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....nt including on the question of penalty. It opined that under Section 38(3) of the Finance Act, there is no discretion with regard to the minimum quantum of penalty which is a statutory compulsion. Once there is a delay, imposition of penalty is automatic. Insofar enhancing the quantum of penalty is concerned, Central Government was of the view that in the de novo order-in-original, the adjudicating authority had only imposed the minimum prescribed penalty under the statute which was overlooked through inadvertence in the initial order-in-original. However, on the aspect of demand of interest of Rs.2,58,630.00 on account of delayed payment of FTT amounting to Rs.3,56,45,700.00, the revisional authority remanded the case back to the adjudicating authority for the limited purpose of ascertaining whether the show cause notices for demanding interest on the delayed payment of the aforesaid amount of FTT were issued within the prescribed time limit under Rule 7 of the 1979 Rules and thereafter to decide the same in accordance with law. 14. The aforesaid revisional order dated 29.10.2004 came to be challenged before High Court by way of a writ petition being Writ Petition No. 3269 of ....
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....ne. Imposition of such penalty is irrespective of the fact whether or not the contravention made by the defaulter was with any guilty intention. 14.4. The High Court also rejected the contention advanced on behalf of the appellant that there is a distinction between 'failure to pay the tax' and 'delay in the payment of the tax'. The contention was that only when there is a 'failure to pay the tax', sub-section (3) of Section 38 would get attracted; in other words, mere delay in payment of tax would not amount to 'failure to pay the tax'; therefore, delayed payment does not attract penalty. Rejecting such contention, the High Court held that delayed payment is equivalent to non-payment i.e. 'failure to pay the tax'. According to the High Court, once the limitation period for deposit of the tax is over, then it is immaterial when the defaulter in future makes the payment. Once there is default, Section 38(3) is attracted and the prescribed authority cannot impose a penalty which is below the minimum amount of penalty prescribed by the statute. 14.5. Lastly, the High Court also repelled the contention of the appellant that it was not open to the adjudicating authority to enhance....
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....ussed by the High Court. 15.3. Submission of Mr. Dinesh is that even assuming that there is a violation of sub-section (2) of Section 35, the penalty can be imposed only in accordance with Section 38(4) of the Finance Act and not the penalty provided for in sub-section (3) of Section 38. He reiterates his contention that though sub-section (4) was introduced in Section 38 by way of an amendment in 1994, the legislature consciously did not delete Rule 11 which says that the maximum penalty can only be Rs. 5,000.00. 15.4. However, the core submission of Mr. Dinesh is that Section 38(3) deals with a situation where there is absolute non-payment of the tax i.e. failure to pay the tax. Belated payment of tax but before issuance of the show cause notice cannot be treated as non-payment of tax or failure to pay the tax. 15.5. Referring to the 6 instances where payment of tax was delayed, he submits that in respect of 5 instances, the demand drafts were issued by the concerned bank before the due dates, but the demand drafts could be deposited into the Government treasury for delays ranging from 1 day to 11 days and only in respect of one case, there is delay of 63 days in deposit....
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....and 63 days in the last case. 16.1. After referring to the Finance Act and the 1979 Rules including the amendments brought in by the 1994 amendment, more particularly to sub-section (3) of Section 38, he submits that it is the stand of the revenue that when there is a default in payment of FTT, it becomes mandatory to impose 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 so paid. 16.2. According to him, the controversy in the present appeal arises from the imposition of penalty under Section 38(3) of the Finance Act in cases involving delay in the deposit of FTT by the carrier. Admittedly, the carrier i.e. the appellant had not credited the tax on 6 instances within the specified period after having collected the tax from the passengers. 16.3. He submits that the entire foundation of the appellant's case proceeds on a fundamental misconception of the statutory scheme. Appellant has sought to invoke the limitation under Rule 7 of the 1979 Rules whereas the present proceedings are not governed by Rule 7 at all. The proceedings in question are purely penal....
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....the statutory scheme, delay in payment of the tax is equivalent to non-payment of tax. Any other interpretation would be incongruous and would do violence to the plain language of the statute. The statute does not carve out any exception for minor delays or bona fide conduct. 16.6. Referring to the decision of this Cout in Mathuram Agrawal Vs. State of Madhya Pradesh (1999) 8 SCC 667, he submits that the intention of the legislature in a fiscal statute must be governed strictly from the plain language used and where the words are clear, there is no scope for any intendment or equity. As a matter of fact, in fiscal matters, adherence to timelines is of paramount importance and the legislature has consciously adopted a strict framework. 16.7. Learned senior counsel has placed reliance on the decisions of the High Court in Iran National Airlines Vs. Union of India 2006 (202) ELT 588 (Bom.) and that of the Delhi High Court in Combatta Aviation Ltd. Vs. Union of India 2000 (115) ELT 622 (Del.). 16.8. He, therefore, submits that the High Court has correctly held that the penalty leviable under Section 38 is a penalty in case of default or failure of statutory obligation. In othe....
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....r the International Airports Authority of India or such carriers as may be authorized in this behalf by the Central Government by notification in the official gazette and paid to the credit of the Central Government. 21. By the Finance Act, 1994, to be precise by Section 97 thereof, the Finance Act was amended by way of insertion of Section 35A after Section 35. Section 35A reads as follows: 35-A. Interest for default in payment of foreign travel tax- (1) Where any carrier or other person fails to pay the foreign travel tax to the credit of the Central Government under sub-section (2) of Section 35, in accordance with the rules made under this Chapter, he shall pay an interest on the amount of tax not so paid for the entire period for which payment of such tax has been delayed, at such rate, not below twenty per cent, and not exceeding thirty per cent, per annum, as the Central Government may, by notification in the Official Gazette, specify in this behalf. (2) Where, on or before the date of commencement of Section 97 of the Finance Act, 1994, the foreign travel tax had not been paid by any carrier or other person to the credit of the Central Governme....
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....fied in the rules made under Chapter V. However, by the Finance Act, 1994, more particularly Section 97 thereof, the original sub-section (3) has been substituted by the following sub-sections: (3) Every carrier or other person who fails to pay the foreign travel tax to the credit of the Central Government under sub-section (2) of Section 35 shall, in addition to the payment of such tax and the interest leviable thereon, be liable to pay penalty which shall not be less than one-fifth but which may extend to three times of the amount of the tax not so paid to the credit of the Central Government. (4) Any rule made under this Chapter may provide that in case of breach thereof by the carrier or other person, he shall be liable to a penalty which shall not be less than five hundred rupees but which may extend to fifty thousand rupees, and where the breach is a continuing one, with further penalty which may extend to five hundred rupees for every day after the first during which such breach continues. (5) Any penalty under this section may be adjudged, collected and paid to the credit of the Central Government by such authority and in such manner as may be spe....
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....eals with a situation where the tax is not paid or underpaid or erroneously refunded. As per sub-rule (1), when any tax due has, for any reason whatsoever either not been paid or has not been paid in full into the treasury under Rule 4 or has been erroneously refunded under Rule 5, the Assistant Collector of Customs may within six months from the relevant date, serve notice upon the carrier concerned requiring it to show cause why it should not pay the amount specified in the notice. However, as per the proviso, when it is a case of collusion or wilful mis-statement or suppression of facts by the carrier, the limitation period of six months gets extended to two years. 28.1. Sub-rule (2) of Rule 7 provides that the Assistant Collector of Customs after considering the representation, if any, made by the carrier on whom notice is served under sub-rule (1), shall determine the amount of tax to be paid by such carrier, which shall not be in excess of the amount specified in the notice whereafter the carrier shall pay the amount so determined. 29. Rule 8 mandates that at each customs port or customs airport to which Chapter V of the Finance Act extends, in respect of every voyage b....
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....rein; and (c) is given a reasonable opportunity of being heard in the matter. 32.1. However, the proviso says that such a notice may at the instance of the person concerned be made orally. 33. While Rule 13 provides for appeal, Rule 14 deals with powers of revision. On the other hand, the Central Government is conferred with the power of revision under Rule 15. 34. Having surveyed the statutory framework, we may focus our attention on Section 38 which got enlarged by way of an amendment in 1994. As noticed above, Section 38 deals with penalties. Both sub-sections (1) and (2) may not be relevant for the present case but nonetheless for completion of the analysis, we may deal with these two sub-sections as well. As per sub-section (1), every passenger who embarks or attempts to embark on an international journey without paying FTT would be liable to penalty at the rate mentioned thereunder, in addition to the FTT not paid by him. So, this sub-section is specific to a passenger who does not pay FTT. On the other hand, sub-section (2) says that every carrier or person in charge of a ship or an aircraft allowing any passenger to board the ship or aircraft without payin....
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....r the other person fails to pay the same to the credit of the Central Government. In that context, the expression 'fails to pay the foreign travel tax' would mean that there is failure on the part of the carrier or the other person in paying the FTT to the credit of the Central Government. 'Failure to pay' would mean 'non-payment'. 'Failure to pay' would not mean and cannot be equated with 'delay in making payment'. The legislature has carefully used the expression 'fails to pay the foreign travel tax' to imply non-payment of FTT. If the legislative intent would have been to cover delayed payment of tax, then the legislature would have used a different expression. It is trite law of interpretation that when it comes to interpretation of taxation and fiscal statutes, we are not to import further meaning(s) to the expression used by the legislature by our own interpretative expansion which is not permissible. Now, if the expression 'fails to pay the foreign travel tax' is used in conjunction with the expression 'the amount of the tax not so paid', the legislative intent becomes crystal clear. It means sub-section (3) of Section 38 contemplates a scenario where there is failure to pay....
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....ccurring in Section 271-C(1)(a) cannot be read into the expression 'failure to deposit the tax deducted'. This Court declared that on mere delay in remittance of TDS after deducting the same by the assessee concerned there shall not be any penalty leviable under Section 271-C and held that the assessee had remitted the TDS belatedly; it is not a case of non-deduction of TDS at all. Therefore, the assessee is not liable to pay the penalty under Section 271-C of the 1961 Act. This Court declared as a proposition of law that on mere belated remitting of the TDS after deducting the same by the assessee, no penalty shall be leviable under Section 271-C of the 1961 Act. Relevant portion of the judgment in US Technologies International Private Limited are extracted hereunder: 37. Even otherwise, the words "fails to deduct" occurring in Section 271-C(1)(a) cannot be read into "failure to deposit/pay the tax deducted". 38. Therefore, on true interpretation of Section 271-C, there shall not be any penalty leviable under Section 271-C on mere delay in remittance of the TDS after deducting the same by the assessee concerned. As observed hereinabove, the consequences on non-payment/belate....
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.... deposit of the FTT collected in any month by any carrier into the Government treasury. However, as per the proviso, on sufficient cause being shown and having regard to the system of accounting adopted by any carrier, the Collector of Customs may grant a longer period beyond the period of 30 days for deposit of such tax. Coming to Rule 9, we find that as per this provision, every carrier required to pay the tax into the treasury under Rule 4 shall have to file a return in respect of every month before expiry of 30 days from the end of that month. Such return will have to be filed before the Collector of Customs or his nominee having jurisdiction providing the details as required under Rule 9. The proviso, however, gives discretion to the Collector of Customs to grant further time to such carrier to file the return beyond the period of 30 days. 37.3. Therefore, sub-section (4) of Section 38 of the Finance Act will have to be read alongwith Rules 4 and 9 of the 1979 Rules because this is the statutory scheme of sub-section (4) of Section 38. Further, it is evident that sub-section (4) of Section 38 read with Rules 4 and 9 of the 1979 Rules deal with a situation of delayed payment....
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....T or filing of return is breached, imposition of penalty is automatic is not the correct view. 38. This brings us to Rule 11 of the 1979 rules which deals with adjudication of penalties. Rule 11 is not specific to any sub-section of Section 38 but generally to Section 38 of the Finance Act. It says that in every case in which a person is liable to penalty under Section 38 of the Finance Act, such penalty may be adjudged by an officer of customs as mentioned in Section 3(c) or Section 3(d) of the Customs Act. However, the proviso puts a cap by declaring that no officer of customs as mentioned in Section 3 of the Customs Act shall be competent to impose a penalty exceeding Rs. 5,000.00 in any such case. Prima facie, there appears to be a conflict between sub-section (3) of Section 38 and Rule 11 as regards the quantum of penalty. The High Court says, and rightly so, that whenever there is a conflict between the parent statute and the subordinate legislation, the provisions of the parent statute will prevail. There cannot be any dispute with such a proposition. However, since we have held that the present case would not come within the ambit of sub-section (3) of Section 38, we nee....
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....s well as for submission of return is not inflexible. In an appropriate case the Collector of Customs on sufficient cause being shown may allow such deposit or filing of return beyond the limitation of 30 days. If such delay is condoned and allowed then stricto sensu there is no cause for imposition of penalty on the ground of delay. We have already held that delay in payment of FTT cannot be equated with non-payment of FTT which stands on a different footing altogether. For non-payment of FTT, sub-section (3) of Section 38 is attracted and for delay in deposit of payment of FTT, sub-section (4) of Section 38 would come into play. Insofar imposition of penalty is concerned, be it under any of the sub-sections of Section 38 i.e. sub-sections (2), (3) and (4), it is not automatic, notwithstanding the word 'shall' appearing therein. It is trite law of interpretation that merely because the word 'shall' appears in a particular provision, the same would not be rendered mandatory. Whether a provision is mandatory or discretionary would have to be discerned from the context and the overall scheme of the provision. It cannot be said as a thumb rule that the moment there is a breach of the ....
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....en 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 venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the Company in failing to register the Company as a dealer acted in the honest and genuine belief that the Company was not a dealer. Granting that they erred, no case for imposing penalty was made out. 42.1. Thus, this Court was of the view that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and that penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. The Bench opined that whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Importantly....
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....ome Tax Act, 1961 (already referred to as 'the 1961 Act' hereinabove) against the assessee for the assessment years under consideration. The Bench, after due analysis, held that element of mens rea was not required to be proved in a proceeding under Section 271(1)(a) of the 1961 Act against the assessee. It has been held as follows: 5. Accordingly, we hold that the element of mens rea was not required to be proved in the proceedings taken by the Income Tax Officer under Section 271(1)(a) of the Income Tax Act against the assessee for the assessment years 1965-1966 and 1966-1967. 45. J.K. Industries Ltd. is a case where a two-Judge Bench of this Court was considering the question as to whether in the context of the Factories Act, 1948 in the case of a company which owns or runs the factory, is it only a director of the company who can be notified as the occupier of the factory within the meaning of the proviso (ii) to Section 2(n) of the Factories Act, 1948 or whether the company can nominate any other employee to be the occupier by passing a resolution to the effect that the said employee shall have ultimate control over the affairs of the factory. 45.1. In that case....
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....f violation of statutory provisions for which penalty is prescribed, imposition of penalty is automatic. It will all depend on the scheme of the statute and the adjudicatory process provided for imposition of penalty. Where the adjudicatory process prior to imposition of penalty provides for show cause notice, filing of reply or representation against each of the grounds cited for imposition of penalty and hearing, to hold that imposition of penalty is mandatory or automatic or a foregone conclusion would be to render such a provision or adjudicatory process nugatory. After all, the power to impose penalty includes power not to impose penalty. As rightly held by the three-Judge Bench in Hindustan Steel Ltd, merely because the statute provides a minimum penalty it would not mean that penalty is automatic. Question of imposition of minimum penalty would arise only when the authority comes to the conclusion that penalty should be imposed. 47. Let us turn to the facts of the present case. The case of the appellant now boils down to 6 instances of delay in payment of FTT. In respect of 5 instances, the delay ranges from 1 day to 11 days. However, in each of these cases, the demand dr....
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....icer of customs to adjudicate whether penalty is imposable or not. Only if he arrives at the finding that penalty is imposable, then the quantum of penalty that may be imposed would be guided by the range provided for in sub-sections (2), (3) and (4) of Section 38, as the case may be. 49. Therefore, in the facts of the present case, we are of the view that penalty is not imposable insofar the appellant is concerned. 50. There is one more aspect which we would like to deal with before parting with the record. In the initial order-in-original dated 14.06.1999, the penalty imposed on the appellant in respect of the 6 cases of late payment of FTT was Rs. 12,000.00. By the order-in-appeal dated 24.11.1999, the appellate authority remanded the matter back to the adjudicating authority for a de novo consideration. On remand, the adjudicating authority passed de novo order-in-original dated 08.08.2001 as per which penalty of Rs. 71,29,140.00 was imposed on the appellant in respect of the 6 cases of late payment of FTT. Appellant had contended before all the authorities that such abnormal enhancement of penalty put the appellant in a worse off condition because he chose to file an app....