1 wp-17.04-- IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL JURISDICTION WRIT PETITION NO. 17 OF 2004 (ORIGINAL SIDE MATTER) M/s.Malaysian Airlines. ... Petitioner. V/s. 1. The Union of India. 2. The Joint Secretary (Camp Mumbai) Government of India. 3. The Commissioner of Customs (Appeals). 4. Deputy Commissioner of Customs. ... Respondents. WITH WRIT PETITION NO. 3269 OF 2004 (ORIGINAL SIDE MATTER) M/s.Saudi Arabian Airlines. ... Petitioner. V/s. 1. The Union of India. 2. The Joint Secretary (Camp Mumbai) Government of India. 3. The Commissioner of Customs (Appeals). 4. Deputy Commissioner of Customs. ... Respondents. WITH WRIT PETITION NO. 3918 OF 2005 (APPELLATE SIDE) M/s.North West Airlines. ... Petitioner. V/s. 1. The Union of India. 2. The Joint Secretary (Camp Mumbai) Government of India. 3. The Commissioner of Customs. 4. Deputy Commissioner of Customs. ... Respondents. 2 wp-17.04-- WITH WRIT PETITION NO. 2552 OF 2006 (ORIGINAL SIDE MATTER) Kenya Airways Ltd. ... Petitioner. V/s. 1. Union of India. 2. Mr.K.P.P.Nair, Deputy Commissioner of Customs. 3. Mr.D.S.Negi, The Commissioner of Customs (Appeals) 4. Dinesh Thakkar, Joint Secretary, Government of India. ... Respondents. D.P.Merchant, senior counsel i/b. Shah & Sanghi for the petitioner (in W.P.No.17/04) Vikram Nankani with Madhur Baya i/b. N.S.Thacker for the petitioner (in W.P.No.3269/04) V.Sridharan with Prakash Shah i/b. PDS Legal for the petitioner (in W.P.No.3918/05). Manoj Sanklecha with Sandeep Goyal and Ms.Khushanama Gazdar i/b. Mulla & Mulla & Craigie Blunt & Caroe for the petitioner (in W.P.No.2552/06). Vijay Kantharia with J.B.Mishra and Rutuja Ambekar for the respondents (in W.P.No.2552/06). Vijay Kantharia with Suresh Kumar for the respondents (in W.P.Nos.17/04). A.S.Rao with Rutuja Ambekar for the respondents (in W.P.Nos.3269/04 and AS-W.P.No.3918/05). CORAM : V.C.DAGA AND K.K.TATED, JJ. DATED : 9th August 2010. 3 wp-17.04-- JUDGMENT : (Per V.C.Daga, J.) All these petitions filed by the petitioners under Article 226 of the Constitution of India are challenging imposition of penalty under section 38(3) of the Finance Act, 1979 (“Finance Act” or “Act” for short) for delay in payment of Foreign Travel Tax (“FTT” for short) to the Government. The facts involved in all these petitions are more or less common and issues involved are identical. Hence all these petitions were heard together and are being disposed of by this common judgment. Facts of W.P.No.17/2004 : 2. The petitioner in this petition is a Airline Company engaged in the business of carrying passengers between various locations in India and abroad. The petitioner in the course of its business collected FTT from passengers going abroad in accordance with the Finance Act and Foreign Travel Tax Rules, 1979 framed thereunder (“FTT Rules” for short). The petitioner for the months of April, August, September and December, 2001 failed to pay the FTT within the stipulated period. In view of its failure, four separate show-cause notices were issued to the petitioner. The adjudicating authority vide its order dated 29th May, 2002 imposed penalty of Rs.4,19,700/- on the petitioner for late payment of FTT for the months of April, August and September, 2001, whereas vide order dated 18th July, 2002 imposed penalty for the month of December, 2001. 4 wp-17.04-- 3. Aggrieved by the aforesaid order, petitioner filed two separate appeals before the Commissioner (Appeals). Pursuant to the interim order dated 16th September, 2002, passed by the Commissioner (Appeals), the petitioner furnished bank guarantees for the amounts involved. The Commissioner (Appeals), vide his order dated 15th January, 2003, dismissed these appeals of the petitioner and upheld the order-in-original. 4. Aggrieved by the order-in-appeal, the petitioner invoked revisional jurisdiction; wherein the revisional authority dismissed the revision applications and upheld the order-in-appeal. 5. Being aggrieved by the said order, the petitioner has invoked writ jurisdiction of this Court. Facts of W.P.No.3269/2004 : 6. The petitioner in this petition is also carrying on business as Carriers through Airlines under the name and style M/s.Audi Arabian Airlines. They have a licence to operate flights to and from India. As required under the Finance Act, the petitioner has paid FTT in the Government treasury. For the months of July, 1995; December, 1996; and November, 1997, there was delay in payment of FTT of only one day. The total tax involved for these three months was approximately Rs. 1,95,00,000/-. There was a delay of eleven days in case of April, 1996. Also, there was a delay of two months and three days in making payment of FTT for the month of 5 wp-17.04-- December, 1995. However, in five out of these six instances of delay in delivering the payment by demand drafts purchased by the petitioner through the concerned bank well before the due date for making the payment, but there was a delay in depositing the subject demand drafts as mentioned above. The total short payment of tax in these seven cases was an aggregate amount of Rs. 14,000/-, out of which Rs.12,000/- was held to be barred by limitation as such only Rs.2,000/- was payable by the petitioner. Fourteen separate show-cause-notices were issued on different dates to the petitioner after receipt of monthly returns and they were called upon to show cause why the FTT short/late paid by them should not be recovered from them and why penalty should not be imposed on them under section 38 of the Finance Act. The petitioner by their reply dated 22nd July, 1998, replied said show-cause-notices, inter alia; submitting that on account inordinate delay in issuing the notices, the petitioner is handicapped in not being able to defend their case for want of records and documents. 7. The adjudicating authority, vide its order dated 31st August, 1999 confirmed the demand of FTT of Rs.87,700/- and further ordered the petitioner to pay interest @ 20% on the amount late paid, which worked out to Rs.2,58,630 and Rs.45,632/- on the amount which was short paid. The adjudicating authority also imposed penalty of Rs.24,000/- on the petitioner for late and short payment under section 38(3) of the Finance Act and separate penalty of Rs.6,000/- under rule 10A of the Rule of 1979 for late submission of the monthly return. 6 wp-17.04-- 8. Aggrieved by the said order, petitioner filed appeal before the Commissioners (Appeal), who, vide his order dated 24th November, 1999 set aside the said order dated 31st August, 1999 and remanded case for de-novo consideration. 9. On remand, the adjudicating authority vide its order dated 8th August, 2001 reduced the demand of Rs. 14,000/- and confirmed the amount of interest as held payable earlier and imposed penalty of Rs.71,29,140/- in respect of six case of late payment of FTT and Rs. 2,800/- in respect of seventh case of short payment of FTT. 10. Aggrieved by the said order, petitioner filed appeal before the Commissioner (Appeals); wherein the Commissioner (Appeals), vide his order dated 17th January, 2001 directed the petitioner to deposit the entire amount of interest/ short payment and penalty which was reduced by the second respondent vide his order dated 12th July, 2002 to Rs.17,00,000/-. The petitioner has since then deposited the amount of Rs. 17,00,000/- as per the above order. On 9th January, 2003, Commissioner (Appeals) heard the case on merits and dismissed the appeal upholding the order-in-original in toto. 11. Aggrieved by the said order, petitioner invoked revisional jurisdiction by preferring revision application before the Joint Secretary, Government of India, Ministry of Finance. During the pendency of the revision application, a show-cause-notice was served on 7 wp-17.04-- the petitioner calling upon them to show cause as to why penalty should not be enhanced under sub-rule (4) of rule 15 of the FTT Rules. 12. The petitioner replied to the above show cause notice vide its reply dated 2nd December, 2003. The revisional authority vide its order dated 29th October, 2004 held that the demand for FTT in five out of seven cases was barred by limitation and that only an amount of Rs.2,000/- was payable by the petitioner. It was also held that the issue regarding limitation for demand of interest on the late payment of FTT needed reconsideration. Accordingly matter was remitted back to the original authority for the limited purpose of ascertaining whether the show-cause-notice demanding interest on the delayed payment of FTT amount to Rs. 3,56,45,700/- was issued within the prescribed time limit under rule 7 of the said FTT Rules. The revisional authority, however, upheld the penalty of Rs. 71,29,140/-. The said order is a subject matter of challenge in this petition. Facts of W.P.No.3918/2005 : 13. The petitioner is carrier engaged in the business of carrying passengers on international routes by air from India and into India. In terms of the Finance Act, the petitioner was required to collect and pay into the treasury within the specified period of 15 days, the amount of FTT collected by the petitioner from the passengers flying outside India in their flights pursuant to the provisions of the FTT Rules. The 8 wp-17.04-- petitioner was regularly collecting the FTT from the passengers and paying the same to the treasury. In respect of FTT collected during the month of July, 2002 amounting to Rs.48,11,500/-, the petitioner was required to pay the same to the treasury by 15th August, 2002. The last date being the Independence Day of India was a national holiday. The petitioner’s office at Mumbai received the cheque from its Delhi office in the evening of 16th August, 2002 and, thereafter, petitioner duly paid the tax collected, to the treasury in the early hours on the next day i.e. 17th August, 2002. In the circumstances, there was a delay of about two days in payment of FTT. On 2nd September, 2002, a show-cause- notice was issued to the petitioner proposing to levy interest of Rs.5,273/- under section 35A and penalty under section 38(3) of the Finance Act. They replied the same vide their reply dated 16th September, 2002 and explained the reasons for delayed payment. The Deputy Commissioner of Customs, the adjudicating authority, after offering opportunity of hearing to the petitioner, vide its order-in-original dated 12th November 2002 confirmed interest of Rs.5,273/- under section 35A and imposed penalty of Rs.9,62,300/- on the petitioner under section 38(3) read with Notification No.2/94 of the Finance Act. 14. Not satisfied with the aforesaid order, petitioner filed appeal before the Commissioner of Customs (Appeals) on 27th January, 2003 and paid an amount of Rs.4,81,150/- towards interest and penalty on 4th September, 2003. The Commissioner (Appeals) vide his order dated 28th October, 2003 dismissed appeal of the 9 wp-17.04-- petitioner and upheld the order-in-original. Aggrieved by the aforesaid order dated 28th October, 2003, petitioner invoked revision jurisdiction under section 129DD of the Customs Act, 1962 (“Customs Act” for short) before the Joint Secretary to the Government of India, Department of Revenue, New Delhi on 31st December, 2003, which came to be dismissed vide order dated 30th November, 2004. 15. Being aggrieved by the aforesaid, petitioner has invoked writ jurisdiction of this Court. Facts of W.P.No.2552/2006 : 16. The petitioner in this petition is engaged in the business of transporting people by air on international routs, inter alia; from and to Mumbai. The petitioner was required to collect FTT from every passengers and deposit the same with Government treasury. For the months of January, April and May, 2002, the petitioner though collected FTT from the passengers, however, committed delay in making deposit in the Government treasury. Three different show-cause notices were issued to the petitioner to which the petitioner filed their three separate replies. The adjudicating authority vide its order dated 18th July, 2002 confirmed the show cause notices and imposed an aggregate penalty of Rs.11,71,100/- as also interest of Rs.14,809/- on delayed deposit of FTT. 17. Aggrieved by the aforesaid order, petitioner filed appeal before the respondent No.3- Commissioner 10 wp-17.04-- (Appeals) along with application for dispensing with pre-deposit of penalty. Respondent No.3 vide its order dated 20th April, 2003 directed pre-deposit of entire amount of penalty. The petitioner did not make payment of the pre-deposit. According, respondent No.3, vide its order dated 2nd July, 2003 dismissed the appeal for non-compliance of order dated 20th April, 2003. 18. Aggrieved by the aforesaid order, petitioner invoked revisional jurisdiction before respondent No.4. The respondent No.4 set aside the order dated 2nd July, 2003 passed by respondent No.3 and directed the petitioner to deposit Rs.5,50,000/- towards the penalty and remanded the matter to respondent No.3 for decision on merits. The petitioner deposited Rs.5,50,000/- as directed by respondent No.4. 19. On remand, vide its order dated 14th June, 2005, the respondent No.2 set aside the order-in- original passed by respondent dated 18th July, 2002 and remanded the matter for re-adjudication of show cause notices in terms of the amendment made to rule 11 of the FTT Rules. 20. Aggrieved by the said order petitioner filed revision application before respondent No.4. The respondent No.4 vide his order dated 31st July, 2006 upheld the imposition of penalty of Rs.11,71,100/- as imposed by respondent No.2 on the basis of retrospective effect given to the amendment made to rule 11 of the FTT Rules. 11 wp-17.04-- 21. Aggrieved by the said order, the petitioner has invoked writ jurisdiction of this Court. 22. All these petitions as stated hereinbefore were heard together involving common issues. Rival Submissions : 23. Mr.Nankani, learned counsel for the petitioners through his oral and reiterated in the written submissions dated 7th July, 2010 would submit that the impugned orders are liable to be set aside being ex-facie illegal and arbitrary. That the Power to impose the penalty under section 38(3) of the Finance Act is exercisable only in case of “failure to pay the tax” and not where there is only a delay in the payment of the tax. That a “failure to pay” arises only where no payment has at all been made prior to the issuance of the demand notice and not where a payment has been made, albeit belatedly. He submits that the Act provides for the consequences of a belated payment separately in the form of a liability to pay interest under section 35A of the Act. According to him, a mere delay does not attract penalty. 24. Without prejudice to the above, he would, alternatively, submit that even assuming that a penalty is attracted for delayed payment, the same could only be adjudicated and imposed under proviso to rule 11 of the FTT Rules, wherein the maximum prescribed amount of penalty is Rs.5,000/-. No penalty in excess of the said amount could be imposed by the Respondents. That the provisions of section 38(3) will have to be read down to 12 wp-17.04-- cover only those cases where there is an absolute failure to pay, otherwise it would amount to conferring arbitrary, uncontrolled, unguided and unchecked powers in favour of the respondents in violation of Article 14 of the Constitution of India. 25. Mr.Nankani would, alternatively, submit that, in any event, the provision of section 38(3) was never invoked in the show-cause notices. No penalty under section 38(3) could, therefore, be imposed in relation to the subject show cause notices. He further submits that the scope of adjudication by the adjudicating authority was limited only to the aspect of determining the true and correct liability, after considering the legality of the notices issued to the petitioners. 26. Mr.Nankani would submit that in the appeal filed by the petitioner, the order in original dated 14th June, 1999 was set aside and the order under which the case was remanded to the adjudicating authority was not an “open remand” or “a full remand”. As a corollary, the order of the respondent No.4, dated 14th June, 1999 imposing penalty of Rs.24,000/- on the petitioners (in W.P.No.3269/2004), for want of challenge at the instance of Revenue has become final and binding. Therefore, higher penalty of Rs.71,29,140/- could not have been imposed by the respondent No.4, as such it is liable to be set aside. 27. Mr.Nankani submits that in 5 cases, the demand drafts in favour of the Respondents had been ready prior to the due date for the payment of tax but the 13 wp-17.04-- same could not be deposited within prescribed time on account of reasons beyond the control of the petitioner. That there was no intention on the part of the petitioner to cause delay in depositing the amount of tax which is apparent from the very fact that the demand drafts were got prepared well before the due date. Thus, having already parted with the amounts towards the value of the demand drafts, the petitioner did not stand to gain by a delayed deposit of the demand drafts with the respondents, unlike cases where a cheque may be issued but not paid. According to him, the said 5 cases cover a tax liability of Rs.2,94,83,400. In the 6th case, the notice had been issued after almost 2 years, much beyond the prescribed limitation, as such, no penalty under section 38(3) was warranted in respect of the said show cause notice. 28. According to Mr.Nankani, seven other notices covered a short payment of FTT foreign amounting to Rs.14,000/-. Of the said short paid tax, the demand in respect of a sum of Rs.12,000/- was barred by limitation and that the amount short paid was only Rs. 2,000/-. He, thus, submits that the impugned order suffers from non-application of mind and perverse approach. 29. Mr.Sridharan, learned counsel for the petitioners submits that failure to delete proviso to rule 11 after amendment of section 38(3) is an instance of legislative casus omissus which cannot be filled by the Court. That sub-section (1) of section 38 as originally introduced by Finance Act provided for imposition of penalty on the passenger who embarks or 14 wp-17.04-- attempts to embark on an international journey without paying the tax payable by him a penalty not exceeding Rs.200.00. Sub-section (2) of section 38 provided for penalty on every carrier or other person in charge of ship or aircraft, who in contravention of section 37, allows any passenger to board a ship or aircraft not exceeding three times the amount or aggregate of the amount of the tax payable by passenger(s) so allowed to board the ship or aircraft. Sub-section (3) of section 38 provided that any penalty under this section may be adjudged by such authority and in such manner as may be specified. Proviso to Rule 11 provided for ceiling of Rs. 5,000/-. It is, thus, obvious that having regard to language of section 38(1) and 38(2), penalty was unlikely to be substantial amount and because of this perhaps, proviso to Rule 11 put a ceiling of Rs.5,000/-. Sub-section (3) of section 38, in effect, provided for penalty on the Carrier who fails to pay the foreign travel tax to the credit of Central Government under section 35(2) not less than one-fifth, which may extend to three times the amount of tax not paid to Central Government. This penalty under new sub-section (3) is apart from sub-section (1) and (2). Also, quantum of penalty now proposed by new sub-section (3) can be much higher than section 38(1) and section 38(2).Old sub- section (3) is practically repeated in new sub-section (5). However, simultaneously, with the insertion of new sub-section (3) of section 38, proviso to rule 11 was not amended. Proviso to rule 11 continued as it is. It provided that no customs officers shall be competent to impose penalty exceeding Rs.5,000/-. He, thus, submits that this is a clear case of legislative casus omissus. 15 wp-17.04-- 30. Mr.Sridharan pressed into service Apex Court judgment in the case of Smt. Hiradevi & Others v. District Board Shajahanpur District Collector, AIR 1952 SC 362. (page 69 to 74 of Volume I at page 73 before para 12) to urge that it is, no doubt, the duty of the court to try to harmonize various provisions of the Act passed by the legislature, but it is certainly not the duty of the court to stretch the words used by the legislature to fill-in-the gaps or omissions in the provisions of the Act. According to Mr.Sridharan, the case of Smt.Hiradevi & others (supra) applies to the present case. The failure to amend proviso to Rule 11 is a clear case of casus omissus by legislature which cannot be filled up or supplied by court through a process of interpretation or otherwise. 31. Mr.Sridharan further submits that the respondents cannot challenge proviso to rule 11. Proviso to Rule 11, as it stood on the date of default by the Petitioners, did not allow the customs officer to impose penalty in excess of Rs. 5,000/-. That the Respondents are bound by the Rule. It is not open for them to challenge the validity of Rule either on the ground of being inconsistent with section 38(3) or otherwise. That privilege is available to the assessee and not to the State itself. Admittedly, the custom officer exercised the power of imposition of penalty under Rule 11. It is not open to the officer to challenge the validity of Rule under which he exercised the jurisdiction. In support of his submissions he relied upon (i) Indian Leaf Tobacco v. UIO, 1984 (16) 16 wp-17.04-- ELT 234; (ii) Asstt. Commr. v. Dharmendra Trading, (1988) 3 SCC 570; (iii) JK Synthetics v. Commercial Tax Officer, (1997) 3 SCC 161. 32. Mr.Sridharan further submitted that subsequent deletion of proviso to rule 11 is of no consequence for the past period. That the revisional authority erroneously sustained the penalty on the ground that inconsistency between rule 11 and section 38(3) is removed later on 13th October, 2003 by deleting proviso and amended rule 11 will apply. He submits that it is settled position in law that the provision, as in force on the date of alleged contravention, can only be applied. In Varkey Chacko v. C.I.T., 1994 supp (1) SCC 264, Supreme Court held as under:- “11. ...... A penalty proceeding, therefore, can be initiated only after an assessment order has been made which finds such concealment or furnishing of inaccurate particulars. Who at this point of time has the authority to impose the penalty is what is relevant. Whoever this authority may be, he is obliged to impose such penalty as was permissible under the law in that behalf on the date on which the offence of concealment of income was committed, that is to say, on the date of offending return. The two aspects must firmly be borne in mind, namely, who may impose the penalty and in what measure.” 33. Mr.Sridharan while adopting submission made by Mr.Nankani submits that section 38(3) is not applicable for delay in payment of tax by due date and went on to develop the very same contention and urged that the 17 wp-17.04-- Parliament/ Legislature can certainly provide for penalty for non payment of tax by due date by employing appropriate language in the concerned stature. That in many taxing Statues penalty for non payment of tax on due date is expressly provided. However, language of section 38(3) does not cover the contingency of a delay in payment of tax. It is submitted that section 38(3) is a charging section by which penalty is imposed. Section 38(3) is not a machinery provision. He submits that it is a settled position in law that provisions of taxing statue are to be construed strictly. Charging provision providing for imposition of penalty is to be construed even more strictly. Therefore, section 38(3) is to be strictly constructed. This is more so when Act provides for payment of interest @ 20 per cent, which rate itself has inbuilt with element of penalty in it. He placed reliance on the judgment of the Supreme Court in the case of Maruti Wire Industries (P) Ltd. v. Sales Tax Officer, 2001 (3) SCC 735; wherein the assessee did not even file a return as provided in the Rules and did not therefore pay any tax at all. Rule 27 (7A) of Kerala General Sales Tax Rules, 1963 mandates filing of return along with proof of payment of tax within 20 days of