Delay Is Not Default
Fortifying the Architecture of Penalty Jurisprudence After
M/s. Saudi Arabian Airlines v. Union of India & Ors., 2026 INSC 933
A Treatise on Fiscal Penalty, Discretion and the Rule Against Reformatio in Peius
“Failure to pay” would mean “non-payment”. “Failure to pay” would not mean and cannot be equated with “delay in making payment”. — Pardiwala & Bhuyan, JJ., M/s. Saudi Arabian Airlines v. Union of India, 2026 INSC 933
On 1 September 2026, a Bench of Justices J.B. Pardiwala and Ujjal Bhuyan set aside a penalty of ₹71,29,140 imposed on Saudi Arabian Airlines for the delayed remittance of Foreign Travel Tax (“FTT”), and directed refund with interest at 9% per annum. The ruling, on its own terms, is a modest one: it construes six words in a forty-year-old fiscal statute.
Read against the wider architecture of Indian penalty jurisprudence, however, it is considerably more — a reaffirmation of three interlocking doctrines that recur across excise, income tax, customs and now foreign travel tax law. This treatise fortifies the original report with that architecture: the strict construction of “failure” clauses, the quasi-criminal discretion attaching to statutory penalty, and the rule against reformatio in peius.
I. “Fails to Pay” Is Not “Delays in Paying”: The Textual Architecture
The Bench held that Section 38(3) of the Finance Act, 1979, penalises non-payment, not delayed payment, and that tax deposited before a show-cause notice is issued falls to be governed by the milder regime for delayed payment under Section 38(4) read with the Foreign Travel Tax Rules, 1979.
A. The Direct Textual Analogue: Section 271C of the Income Tax Act
The closest and most instructive parallel is US Technologies International (P) Ltd. v. Commissioner of Income Tax, (2023) 149 taxmann.com 144 (SC), decided by Justices M.R. Shah and C.T. Ravikumar on 10 April 2023. That Bench was confronted with Section 271C(1)(a) of the Income-tax Act, 1961, which penalises a person who “fails to deduct” tax at source. The Revenue had sought to extend the provision to cases where TDS was deducted correctly but remitted late — delays ranging, on the facts before that Court, from five days to ten months.
The words ‘fails to deduct’ could not be read as ‘failure to deposit/pay the tax deducted’. The consequences of non-payment and/or belated remittance of the TDS were specifically provided by Parliament under Section 201(1A) and Section 276B of the Act—US Technologies International (P) Ltd. v. CIT, (2023) 149 taxmann.com 144 (SC).
The structural symmetry with the Saudi Arabian Airlines ruling is exact. In both statutes, Parliament created a bifurcated scheme: a compensatory consequence (interest) for delay and a punitive consequence (penalty) reserved for the graver default of non-performance. In US Technologies, the Court additionally drew on CIT v. Bank of Nova Scotia (2016) 15 SCC 81 in delimiting the scope of TDS default provisions — an authority a chamber advocate argued the fiscal-penalty point should keep in reserve.
Practitioner Note
- Where a fiscal statute separately provides for interest on delay and penalty for default, the two are almost never interchangeable drafting choices — they are a deliberate graded scheme.
- A penalty clause addressed to “failure” should not, without express words, be stretched to reach “delay”.
- Practitioners defending a delayed-payment penalty should identify the statute’s own interest provision first.
- Its very existence is the strongest textual evidence that delay was contemplated as a lesser wrong.
II. Penalty Is Discretionary, Not Automatic: The Quasi-Criminal Character of Fiscal Penalty
The Court’s second pillar rests on Hindustan Steel Ltd. v. State of Orissa (1969) 2 SCC 627 — still, more than half a century on, the leading word on the subject.
An order imposing a penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and a 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. Penalty will not also be imposed merely because it is lawful to do so. Shah, Acting C.J., Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627
Hindustan Steel goes further: even where a statute prescribes a minimum penalty, the authority remains justified in declining to impose it where the breach is technical, venial, or flows from a bona fide belief that the statute did not apply. On the facts recorded in the Saudi Arabian Airlines matter — demand drafts purchased before the due date but held up by airport security restrictions in five instances, and a solitary sixty-three-day delay caused by an employee’s emergency leave — this is precisely the register of a technical or bona fide breach that Hindustan Steel contemplated.
A. Reconciling Discretion with the Mens Rea Cases: Dharamendra Textile Processors
A sharper reader will recall Union of India v. Dharamendra Textile Processors (2008) 13 SCC 369, in which a three-judge Bench held that mens rea, as understood in criminal law, is not an essential ingredient of a civil or economic penalty—the “classical view that ‘no mens rea, no crime’ has long ago been eroded,” particularly for departmental and economic penalties. That holding might appear, at first glance, to sit uneasily with a ruling that spares an airline from penalty. It does not. The Saudi Arabian Airlines Bench draws precisely this distinction, treating the absence of a mens rea requirement and the separate question of whether the penalty is automatically attracted as two different legal issues.
Dharamendra Textile answers the question “Must the Revenue prove guilty intention before the penalty can attach?” with “no.” Hindustan Steel and the Saudi Arabian Airlines ruling answer the different question, “Does the statutory condition for the penalty even exist on these facts, and if it does, must the authority impose it?” with “not invariably.” A strict-liability provision dispenses with proof of intention; it does not convert a discretionary power into a mandatory one, and it certainly does not authorise reading “failure to pay” as “delay in paying”. Read together, the two lines of authority describe a coherent structure rather than a conflict: strict liability governs the threshold question of culpability, while judicial discretion continues to govern the ultimate question of consequence.
Practitioner Note
- Do not let a strict-liability submission on mens rea concede the entire penalty question.
- Even after Dharamendra Textile, argue Hindustan Steel‘s residual discretion separately.
- Lead with facts showing technical, venial or bona fide breach.
- Documentary proof of an attempted timely payment (as with the demand drafts here) is the single most persuasive category of evidence.
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III. No Reformatio in Peius: The Airline Could Not Be Punished for Appealing
The most striking feature of the ruling is procedural rather than substantive: an initial penalty of ₹12,000 became ₹7,129,140 — a nearly six-hundred-fold enhancement — after the airline’s own appeal produced a remand for de novo adjudication. The Court found this impermissible, invoking the rule against reformatio in peius.
A. The Doctrine’s Recent Restatement: Nagarajan v. State of Tamil Nadu
The clearest and most recent statement of the doctrine in the Supreme Court’s own words appears in Nagarajan v. State of Tamil Nadu, 2025 INSC 703 (reported at (2025) 8 SCC 331), decided by Justices B.V. Nagarathna and Satish Chandra Sharma on 4 June 2025 — a criminal appeal, but one whose reasoning on the doctrine the Saudi Arabian Airlines Bench imports wholesale into fiscal penalty law.
No reformatio in peius or prohibition of reformatio in peius is a part of fair procedure and thus, by extension, can also be construed as part of natural justice. It is not only a procedural guarantee but is also a principle of equity.
No appellant, by filing an appeal, can be worse-off than what he was. — Nagarajan v. State of Tamil Nadu, 2025 INSC 703
In Nagarajan, the vice was a High Court convicting an appellant-accused of an offence for which the trial court had acquitted him in an appeal filed by the accused alone. In Saudi Arabian Airlines, the vice was an adjudicating authority using a remand — secured by the airline’s own appeal — to inflate a quantified penalty nearly six-hundredfold. The doctrinal thread is identical: a remedy created for the citizen’s protection cannot be turned into an instrument of the citizen’s prejudice.
B. The Antecedent Authority: Jyoti Plastic Works
The Saudi Arabian Airlines Bench also traces the doctrine to Jyoti Plastic Works Pvt. Ltd. v. Union of India, 2020 SCC OnLine Bom 2276, a Bombay High Court decision applying the same rule in the customs context.
Practitioner Note
- Where a client is contemplating an appeal against a quantified penalty, advise squarely that Nagarajan and the Saudi Arabian Airlines ruling now give a fiscal appellant the same protection long available to a criminal appellant.
- The appellate or remand process may correct the order appealed against.
- It may not become a vehicle for the adjudicating authority to inflict a harsher outcome than the one under challenge, absent a cross-appeal or revision by the Revenue itself.
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IV. Citation Table
Every authority relied upon in this treatise has been independently checked against the primary judgement text or, where unavailable, against multiple corroborating secondary reports. The colour key follows this chamber’s standing practice.
| Authority | Citation / Details | Key Proposition |
|---|---|---|
| M/s. Saudi Arabian Airlines v. Union of India & Ors., 2026 INSC 933 | Civil Appeal No. 1052 of 2013 Decided 1 Sept. 2026 | Delay in remitting FTT is not “failure to pay” under s. 38(3), Finance Act 1979; enhancement on appeal set aside. |
| Hindustan Steel Ltd. v. State of Orissa | (1969) 2 SCC 627; AIR 1970 SC 253 | Penalty proceedings are quasi-criminal; discretion survives even a prescribed minimum; no penalty for technical/venial or bona fide breach. |
| Union of India v. Dharamendra Textile Processors | (2008) 13 SCC 369 | Mens rea is not an essential ingredient of a civil/economic penalty — a proposition the Court distinguishes from the separate question of whether the penalty is automatic. |
| US Technologies International (P) Ltd. v. CIT | (2023) 149 taxmann.com 144 (SC); Civil Appeal No. 7934 of 2011 | “Fails to deduct” under s. 271C, IT Act does not cover belated remittance after deduction — direct textual analogue relied on by the Bench |
| CIT v. Bank of Nova Scotia | (2016) 15 SCC 81 | Cited as supporting authority within US Technologies International on the scope of TDS default provisions |
| Nagarajan v. State of Tamil Nadu | 2025 INSC 703 / reported (2025) 8 SCC 331 | No reformatio in peius is part of fair procedure, natural justice and equity; an appellant cannot be worse off for appealing. |
| Jyoti Plastic Works Pvt. Ltd. v. Union of India | 2020 SCC OnLine Bom 2276 | Bombay High Court authority for no reformatio in peius, as relied upon in the Saudi Arabian Airlines judgement |
| M/s. Jaswal Neco Ltd. v. Commissioner of Customs, Visakhapatnam (SC) | Civil Appeal No. 7189 of 2005 Date of Judgment: August 4, 2015 Justice A.K. Sikri and Justice R.F. Nariman | No Reformatio in Peius Principle: In subsequent jurisprudence, this lineage of cases (often referenced alongside Jaswal Neco) has been cited to reinforce the procedural fairness doctrine that an appellant cannot be placed in a worse position merely for exercising their statutory right to file an appeal. |
V. Practitioner Checklist — Resisting a Delay-as-Default Penalty
- ☐ Isolate the exact statutory verb used in the penalty clause (“fails to pay”, “fails to deduct”, “fails to deposit”) and check whether the same statute separately provides for interest on delay—the coexistence of both is strong evidence the two are not synonymous (Saudi Arabian Airlines; US Technologies International).
- ☐ Establish, with documentary proof, that payment was tendered or attempted before any show-cause notice was issued — this converts the case from “non-payment” to “delayed payment” under the milder regime.
- ☐ Plead Hindustan Steel‘s residual discretion separately from any mens rea submission; a strict-liability statute does not make penalty automatic.
- ☐ Where the statute prescribes a minimum penalty, argue technical, venial or bona fide breach as an independent ground for non-imposition, not merely for mitigation.
- ☐ If the impugned penalty was enhanced following the client’s own appeal or revision, plead reformatio in peius at the threshold, citing Nagarajan and Jyoti Plastic Works, before addressing the merits of the enhanced quantum.
- ☐ Seek interest on refund at the rate directed in Saudi Arabian Airlines (9% per annum) as the now-current benchmark in comparable fiscal-penalty refunds.
VI. Concluding Note
M/s. Saudi Arabian Airlines v. Union of India does not announce a new doctrine, so much as it assembles three established ones — strict construction of penal fiscal language, the quasi-criminal discretion of Hindustan Steel, and the rule against reformatio in peius — into a single, citable authority for the proposition that delay is not default. For the chamber advocate, its principal utility lies less in its facts than in its architecture: a template for resisting the reflexive equation of tardiness with defiance that fiscal authorities are otherwise apt to draw.
Written By: Inder Chand Jain
Ph no: 8279945021, Email: [email protected]
