07 Sep 2026
The Trilegal Dispute Resolution Team advising on the matter was led by Partner: Shankh Sengupta; and supported by Counsel: Sujoy Sur; and Senior Associates: Soham Banerjee and Shreyash Sharma.
The Trilegal Tax Team advising on the matter was led by Partner: Samsuddha Majumdar; and comprised Counsel: Kartikey Kulshrestha; Associate: Advetita.
Matter Overview: Trilegal successfully represented Saudi Arabian Airlines Corporation (Saudia) before the Supreme Court of India in Civil Appeal No. 1052 of 2013, arising out of the judgment and order dated 9 August 2010 of the High Court of Judicature at Bombay in Writ Petition No. 3269 of 2004. The appeal concerned the imposition of penalty of INR 71,29,140 under Section 38(3) of the Finance Act, 1979 in respect of six instances of delayed remittance, (ranging from 1 day to 63 days), of Foreign Travel Tax (FTT) collected from passengers, into the Government treasury. By its judgment dated 1 September 2026 (2026 INSC 933), a Bench of Justice J.B. Pardiwala and Justice Ujjal Bhuyan allowed the appeal and set aside the penalty, together with the impugned judgment of the High Court, the revisional order dated 29 October 2004, the order-in-appeal dated 9 January 2003 and the de novo order-in-original dated 8 August 2001 insofar as they imposed penalty on Saudia. The Court directed refund of any amount paid towards the penalty with interest at 9% per annum within three months, and discharged the bank guarantee furnished by Saudia.
Matter Significance: The judgment is the first time that the Supreme Court has directly ruled on the applicability of Section 38(3) of the Finance Act, 1979 to cases of delayed payment as opposed to non-payment of FTT by airline carriers. The Court extended and applied the ratio of U.S. Technologies International Private Limited Vs. Commissioner of Income Tax (2023) (US Technologies) to the FTT regime, thereby settling a previously contested question on which the High Courts (Bombay and Delhi) had taken a position contrary to what the Supreme Court has now held.
The judgment settles the meaning of the expression ‘fails to pay’ in Section 38(3) of the Finance Act, 1979, holding that delayed payment of FTT cannot be equated with non-payment, and that delay falls instead within Section 38(4) read with Rules 4 and 9 of the Foreign Travel Tax Rules, 1979. Applying the reasoning in the case of US Technologies, the Court held that a deposit made before issuance of a show cause notice is a case of delayed payment, and that only a deposit made thereafter would amount to non-payment. Following Hindustan Steel v. State of Orissa (1972), the Court further held that imposition of penalty is not automatic notwithstanding the use of the word ‘shall’, that the prescription of a minimum penalty does not render imposition mandatory, and that the power to impose penalty includes the power not to impose it – the adjudicatory process under Rule 12 would otherwise be rendered nugatory. The Court also applied the principle of reformatio in peius to hold that an appellant cannot be placed in a worse position by filing an appeal, the penalty here having been enhanced from INR 12,000 to INR 71,29,140 on remand. The judgment is reportable and is of precedential value across fiscal statutes which levy penalty for delayed remittance of tax already collected.
About Trilegal
Trilegal is a leading full-service law firm in India with over 25 years of experience, trusted for its in-depth expertise and client-centric approach. The firm advises a diverse set of clients, including Fortune 500 companies, global investment funds, major Indian conglomerates, domestic and international banks, technology and media giants, family offices, and high-net-worth individuals. With 161 partners operating under a distinctive lockstep model, Trilegal is the largest equity partnership in the country. The firm retains over 1,300 professionals across its Mumbai, Delhi, Gurugram, Bengaluru, Chennai, Pune, and GIFT City offices.
Trilegal has consistently been recognised among India’s top-tier firms in leading legal directories such as Chambers & Partners (Asia Pacific and Global), Legal 500 Asia Pacific, and Benchmark Litigation. It has also earned several prestigious accolades, including being named Law Firm of the Year at the ET Global Legal Awards 2026, Best Overall Law Firm by India Business Law Journal (IBLJ) 2025, Innovative Lawyers in Disputes & Crisis Management by the Financial Times (FT) Innovative Lawyers Asia-Pacific Awards in 2025, M&A Firm of the Year by IFLR Asia-Pacific in 2024.
For more information, please get in touch with Prakruti Jani | Mob: +91-9867868976 | BD@trilegal.com.
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