2017 (2) TMI 470 - HC - Customs

Inland Air Travel Tax - refund claim - refund sought contending that it was not liable to pay the said amount towards the IATT dues - Held that - the aircraft which was in possession of the carrier was first distrained and then released to the Lessor upon the deposit of an amount near equivalent of the dues then outstanding. Therefore, the deposit would represent only the aircraft and not such amounts as were to be recovered from the carrier. The Lessor was, obviously interested in release of the aircraft which had far greater value than the amount required to be paid for its release and de-registration from the authorities. Subsequently, the lessor had also sought refund of the said amount from the Government. However, the responsibility of the carrier to pay the IATT dues subsisted. The recovery is to be made from the carrier until tax, interest, penalty so determined is paid. The distrainment was only for the purpose of ensuring recovery of the monies then due. The monies deposited by a third party could not be deemed to have been adjusted against the aforesaid dues of the tax as well as the penalty. Financial constraints of the carrier do not constitute a valid reason for either waiver of any dues under Section 42 and 43-A of the Act or under Section 46 of the Act. Penalty - Held that - The deliberate withholding of monies (taxes) by the petitioner from such statutorily sanctioned collections and diversion of it by the carrier for its own private use, instead of crediting it into Government s account was in blatant disregard to statutory provisions. This omission in depositing the collections was illegal and dishonest - the non-imposition of penalty in such case would dilute and indeed render ineffective the deterrence envisaged under Section 46 of the Act. The reduction of the penalty amount from the maximum to a third was justified. Petition dismissed - decided against petitioner.

Summary

Issues Involved:
1. Legality of the Inland Air Travel Tax (IATT) demand and interest imposed.
2. Appropriation of the ?12.5 crore deposit by the lessor towards the petitioner’s IATT dues.
3. Validity of the penalty imposed on the petitioner.
4. Financial constraints as a defense for non-payment of IATT dues.

Issue-wise Detailed Analysis:

1. Legality of the Inland Air Travel Tax (IATT) demand and interest imposed:
The petitioner challenged the order dated 30.04.2001 by the Government of India, which upheld the Order-in-Appeal dated 25.08.2000 by the Commissioner of Customs (Appeals), New Delhi. The Commissioner of Customs, New Delhi, had imposed a demand of ?8,65,06,850/- for IATT for the period from March 1996 to August 1996, with interest at 20% as per Section 43A(1) of the Finance Act, 1989, read with Notification No. 4/94-IATT dated 12.08.1994. The petitioner admitted to collecting the tax but not remitting it to the Central Government, leading to the imposition of interest at the minimum rate of 20%.

2. Appropriation of the ?12.5 crore deposit by the lessor towards the petitioner’s IATT dues:
The petitioner argued that the ?12.5 crore deposited by M/s Air U.K. Leasing Limited (the lessor) should be appropriated towards the IATT dues. However, the Commissioner (Appeals) and subsequent authorities held that the deposit was made for the release of the distrained aircraft and could not be deemed as payment towards the petitioner’s tax liabilities. The Court noted that the deposit represented the value of the aircraft and not the tax dues, and there was no communication from the lessor agreeing to adjust the deposit against the petitioner’s tax dues.

3. Validity of the penalty imposed on the petitioner:
The original penalty of ?25 crores under Section 46(3) of the Act was reduced to ?10 crores by the Commissioner of Customs (Appeals). The appellate authority considered the penalty close to the upper limit as unrealistic in light of the persisting practice and reduced it to meet the ends of justice. The Court found the rationale for the reduction sound, emphasizing the need for deterrence against the deliberate withholding of tax collections. The reduction from ?25 crores to ?10 crores was deemed justified and proportionate.

4. Financial constraints as a defense for non-payment of IATT dues:
The petitioner cited financial constraints as a reason for non-payment of IATT dues. However, the Court held that financial constraints do not constitute a valid reason for waiver of dues under Sections 42, 43-A, or 46 of the Act. The statutory scheme required the carrier to pay the IATT dues, and the recovery process, including distrainment, was meant to ensure payment. The Court dismissed the petitioner’s argument, stating that the responsibility to pay the dues subsisted despite the financial situation.

Conclusion:
The Court dismissed the petition, upholding the demand for IATT and interest, the non-appropriation of the ?12.5 crore deposit towards the petitioner’s dues, and the reduced penalty of ?10 crores. The petitioner’s financial constraints were not accepted as a valid defense for non-payment of IATT dues. The judgment emphasized adherence to statutory provisions and the necessity of deterrence against non-compliance.