The Supreme Court has quashed a penalty for delayed deposit of Foreign Travel Tax that had escalated from Rs. 12,000 in the original adjudication to Rs. 71,29,140 after Saudi Arabian Airlines successfully appealed that original order and secured a remand for de novo adjudication — a roughly 6,000-fold increase triggered by the airline's own exercise of its statutory right of appeal.
Invoking the principle against reformatio in peius — that a litigant should not be placed in a worse position for having exercised a right of appeal — the Court held that mere delay in depositing tax already collected does not amount to a 'failure to pay' attracting penalty under Section 38(3) of the Finance Act, 1979. The Court directed refund of any penalty already paid, together with 9% annual interest.
The ruling draws a sharp line between delayed remittance of tax genuinely collected and outright non-payment, a distinction with real force across indirect-tax regimes wherever remand proceedings carry the risk of an enhanced penalty. Taxpayers should not be deterred from exercising a legitimate right of appeal by the prospect that a remand could be used to dramatically inflate the original penalty.