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The recent judgment of the Hon’ble Supreme Court in Saudi Arabian Airlines v Union of India, [2026 SCC OnLine SC 1736] is fertile with issues of substantial questions of law, which either are ambiguous and very broadly stated, as well as, also those that should not have been decided at all, and now that these have been decided they need serious reconsideration.

Saudi Arabian Airlines collected Foreign Travel Tax (FTT) from international passengers under Section 35 of the Finance Act, 1979, and was required to deposit it into the government treasury. Between 1994 and 1997, the airline delayed remitting the collected FTT on six occasions (ranging from 1 to 63 days). For five instances, demand drafts were purchased before the due date but couldn’t be deposited due to security restrictions; the sixth delay occurred because the handling employee went on emergency leave. The original authority imposed a minor penalty of ₹12,000. When the airline appealed the penalty, the matter was remanded for fresh adjudication. Upon remand, the adjudicating authority drastically and disproportionately increased the penalty to ₹71,29,140 (over 590 times the original fine) as also interest for late payment. The ruled that a mere delay in remittance does not equate to a “failure to pay” under Section 38(3) of the Finance Act, 1979, and penalty is not an automatic consequence of a delayed statutory timeline. The Court also protected the airline under the rule against No reformatio in peius (making an appellant worse off for filing an appeal) and interpreted other aspects of law as well.

No reformatio in peius is a Latin maxim meaning “change for the worse”. In its classical formulation, the doctrine restrains an appellate court from making an appellant worse off than if no appeal had been filed, where the other side has not filed an appeal or cross-appeal. The rationale is twofold: first, to protect the right of appeal from becoming illusory or chilling; and second, to respect the limits of adversarial litigation in which the court generally adjudicates only the disputes placed before it by the parties.

Applying No reformatio in peius to remand: The judgment surely reads as just one, but a closer reading raises certain questions which should have been raised and considered before the ruling was made. Whether No reformatio in peius is a part of Indian law and its extent, if it applies to remand proceedings pursuant to an appellant’s remand has never been considered in detail. The judgments specifically referring to No reformatio in peius, are of recent origin in Indian jurisprudence, including the present one; effectively now even a de novo remand or retrial carries an unwritten limitation in favor of the appellant.

Not every common law maxim has place in Indian law, no matter how appealing, when the maxim itself has not been accepted with unrestricted application in common law jurisdictions. The principle has been recognized in its application to appeals in the USA. [Greenlaw v. United States, 554 U.S. 237 (2008)] However, when it comes to remand, the concept of prejudice prevails; if remand court order is seen as a vendetta due to lack of reasons justifying the increase in retrial then the prohibition applies [North Carolina v. Pearce, 395 U.S. 711 (1969)]; if however, there is no possibility of such vendetta, then the remand court can always increase the sentence in the second round against the appellant [Stroud v. United States, 251 U.S. 15 (1919) is a landmark U.S. Supreme Court decision holding that a defendant who successfully appeals a conviction can be retried and given a harsher sentence, including the death penalty; also see, Chaffin v. Stynchcombe, 412 U.S. 17, 23 (1973) and Texas v. McCullough, 475 U.S. 134 (1986)].

A man who is retried after his first conviction has been set aside may be acquitted. If convicted, he may receive a shorter sentence, he may receive the same sentence, or he may receive a longer sentence than the one originally imposed. The result may depend upon a particular combination of infinite variables peculiar to each individual trial. It simply cannot be said that a State has invidiously “classified” those who successfully seek new trials, any more than that the State has invidiously “classified” those prisoners whose convictions are not set aside by denying the members of that group the opportunity to be acquitted. [North Carolina v. Pearce, 395 U.S. 711 (1969)] It is for this reason the maxim was never applicable as a rule, in the USA. Similarly, in US tax law the doctrine has never been applied. 26 U.S. Code Section 6214(a). The United States Tax Court has jurisdiction to determine the correct amount of a deficiency and may determine a deficiency in excess of the amount determined by the Secretary, subject to the statutory conditions, even in a petition filed by the taxpayer under Section 6213 of the US Code.

In UK in criminal matters this doctrine is regulated entirely by statute in criminal matters. Criminal Appeal Act 1968, Sch. 2, para. 2(1), prohibits sentences with greater severity on retrial in relation to remands by the Court of Appeal. How this works in practice can be seen from R v AB, [2021] EWCA Crim 692). The appellant was convicted of historic sexual offenses against two complainants (his sister and his wife) and sentenced to a total of 14 years’ imprisonment (7 years for each victim). On remand, the charges in relation to his wife were dropped and the total aggregate sentence for all offenses dropped from 14 years to 7 years and 9 months in relation to his sister. Since, the individual sentences for the remaining counts concerning his sister were higher, the appellant challenged the sentence as a sentence of “greater severity”. The Court of Appeal clarified that “greater severity” must be assessed by looking at the total effective sentence and the overall outcome for the offender, rather than micro-analyzing individual counts.

However, in taxation matters, the doctrine has never been applicable strictly. Thus, in King v Walden; Johnson v Walden [1995] STC 1246 (CA) and Nicholson v Morris [1976] STC 361 (CA), the Court of Appeal recognised that, under s.50(7) TMA 1970, the Commissioners had power to increase the assessment on the taxpayer’s appeal. Similar is the situation in respect of an appeal with respect to stamp duty [Project Blue Ltd v HMRC, [2018] UKSC 30].

Fault-lines in doctrinal approach in Saudi Arabian Airlines v Union of India: The leading judgment of Jyoti Plastics Works Pvt. Ltd. v Union of India, 2020 SCC OnLine Bom 2276 considered three reported cases, none of these cited cases had applied them to remand/retrial, they were entirely in the context of the appeal court itself. There are few reported judgment to the knowledge of the Author, such as Tansi Fabrication Works v Jt. Commr. Of CGST & Excise, 2018 SCC Online Mad 13630 which applied this maxim to a remand/retrial order enhancing penalty post appeal; however here too it was applied on the basis of Servo Packaging Limited v. CESTAT, 2016 (340) E.L.T. 6 which was considered in Jyoti Plastics case and had nothing to with remand/retrial proceeding. Similarly, the only Supreme Court judgement considered in Jyoti Plastics case, viz. Jaswal Neco Ltd. v Commissioner of Customs, (2015) 17 SCC 769 did not relate to remand/retrial. Similarly, the judgment of Nagarajan v. State of Tamil Nadu, (2025) 8 SCC 331 which approves Jyoti Plastics case has nothing to do with remand but with criminal appellate provisions. The judgment in Saudi Arabian Airlines v Union of India, is acknowledged therein to be authored by the same judge who wrote the Bombay High Court judgment. In Jyoti Plastics case, on January 17, 1992, the Collector of Central Excise issued a show cause-cum-demand notice to the petitioners alleging violations of central excise rules claiming total central excise duty demand of ₹94,90,264.00 across the petitioners, with an initial specific demand of ₹66,18,763.00 attributed to Jyoti Plastic Works Pvt. Ltd. Following subsequent proceedings, the Commissioner of Central Excise issued an Order-in-Original on March 29, 2006, significantly reducing and quantifying the total payable demand to ₹18,93,585.00. Subsequently the matter was remanded on appeal back to the adjudicating authority to decide the issue on merit apart from quantification. In the meantime, when the petitioners applied under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 which had come in the interim, the authorities attempted to calculate tax dues and estimate amounts payable based on the figures in the original 1992 show cause notice rather than the subsequently quantified and accepted amounts in the Order-in-Original.

Now one would understand that when a matter is remanded without any specific directions, i.e. open remand, it is the SCN which is being redecided by the remand court. Instead the Bombay High Court held, something on lines of a one-sided res judicata/estoppel to operate on the adjudicating authority, based on the very order which had ceased to exist completely. The Court held, –

“20.1 … However, against this reduced figure, petitioner had gone in appeal before the CESTAT. CESTAT took the view that the adjudication should not only confined to quantification but should also be on merit, limitation, etc. and therefore the matter was again remanded back to the adjudicating authority for a fresh decision on merit etc. apart from quantification after setting aside the order in original…

…

44. Reverting back to the facts of the present case, we are of the view that the initial show cause-cum-demand notice dated 17.01.1992 cannot be said to be in existence after the order in original was passed on 29.03.2006 which order has been accepted by the department. Quantification of dues had been done which was accepted by the department. On acceptance by the department, the demand raised vide the show cause-cum-demand notice stood modified (reduced) in the following manner: – …

45. These amounts would now be the tax dues of the petitioners and this position would not change because of the subsequent order of the CESTAT dated 30.10.2017 setting aside the order in original dated 29.03.2006 for the purpose of deciding afresh the whole issue on merit, limitation etc. apart from quantification. As a technicality the order in original dated 29.03.2006 had to be set aside. Since the figures i.e., demand amounts in the order in original dated 29.03.2006 have been accepted by the respondents, it is those figures which would be material and not the figures mentioned in the show cause-cum-demand notice. Petitioners cannot be put in a worse off condition or the situation faced by them cannot be aggravated because they had availed the remedy of appeal or had sought relief under the scheme which is a beneficial one.”

The reasoning is interesting and affects every remand, and every quasi-judicial authority, such as SEBI, IRDAI, PFRDA, ED, Revenue Authorities, etc. Is a remand only for the benefit of the person/appellant who sought the remand? Is the other side bound by the set-aside order- when res judicata no longer operates? Can a SCN be stood modified in this manner, in the absence of any direction of the appellate court which directed remand? These are very tricky questions which the High Court was never called to deal with. The only justification is the maxim and cases which have nothing to do with remand/retrial.

The fault-line has never been tested, no one has questioned how the wrong determination which is set aside and remanded survives qua the only respondent post a remand when clearly res judicata ceases between parties and record of the case is wiped out. The problem indeed lies with extending a maxim which has not originated in India without examining its origin and content- it has rarely been accepted, except in specific instances of legislative exercise in common law countries and has logical inconsistencies in its application to retrial/remand.

The doctrine is not of universal import in all matters. Thus, in tax matters, the Commissioner of Income Tax (Appeals) has power to enhance the assessment or penalty in an appeal filed by the assessee. In the Commissioner of Income-Tax v. Shapoorji Pallonji Mistry, AIR 1962 SC 1086 the Court dealing with an appeal under the Income Tax Act, 1922 recognised the power of enhancement but carved out an important limitation that a fresh source of income not considered by the lower authority could not be considered in the appeal, else the power of remand may be exercised. This judgment, especially in the context of remand powers was affirmed in CIT v Rai Bahadur Hardutroy Motilal Chamaria, 1967 SCC Online SC 204. Such a fresh source of income will surely add to the assessment; thus, these cases advert to the underlying principle that a remand even on appeal of the assessee can result in a higher reformulation. Thus, the fundamental principle is that, a person can’t be heard to say that enhancement is wrong if the remand reopened the assessment and a new source of income got added, even though the department never appealed. Thus, various courts have followed the principle that an open remand allows the reassessment to be higher than before. However, these line of cases were not considered.

Therefore, the extent to which the maxim applies, both to the appellate and remand proceedings, needs to be delineated. In the Author’s view, in respect of appeals- the maxim applies unless the statute says otherwise; however, in respect of remand upon appeal- the maxim applies only if the statute provides for it.

Similarly, in constitutional and administrative law, especially in writ jurisdiction under Articles 32 and 226, the doctrine of no reformatio in peius should not mechanically transplant itself. High Courts and the Supreme Court, when exercising public law jurisdiction, are often less constrained by the strict logic of adversarial appeals, as they are tasked with securing constitutional compliance, correcting jurisdictional errors, and sometimes moulding relief in the public interest.

‘Automatic’ imposition of penalty in respect of civil adjudication: The penalty in the present case was clearly stated to be under Section 38(3) of the Finance Act, 1979. It has rightly been held to be confined to the case of ‘failure’ and not ‘delay’. Once that decision was made, it was sufficient to dispose off the entire proceeding; and the various issues decided were entirely unnecessary. On its own consideration it decided that the case actually fell under Section 38(4) which had different penalty parameters and reconsideration on that ground was never sought or to use the language of the court the State had ‘accepted’ that the case was under Section 38(3).

Yet, it proceeded to then deal with the language of Section 38(4) of the Finance Act. It held that where the adjudicatory process prior to imposition of penalty provides for show cause notice, filing of reply or representation against each of the grounds cited for imposition of penalty and hearing, to hold that imposition of penalty is mandatory or automatic or a foregone conclusion would be to render such a provision or adjudicatory process nugatory. After all, the power to impose penalty includes power not to impose penalty. This issue of great relevance to adjudicatory proceedings carried on by SEBI, IRDAI, PFRDA, ED, Revenue Authorities, etc.

The court then framed the issue as follows, – “The question is whether in a given case, for such a statutory breach, imposition of penalty is automatic. Automatic imposition of penalty and exclusion of mens rea are two different things. According to us, it cannot be said as a general proposition that in all instances of violation of statutory provisions for which penalty is prescribed, imposition of penalty is automatic.” It then referred to the case of Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627 (3-judges) in this regard.

Though, the court respected the bounds of minimum penalty prescription, by declaring that, “… thirdly, for breach of Section 38 of the Finance Act, be it sub-sections (2), (3) and (4), imposition of penalty is not automatic the moment there is a breach of the aforesaid provisions. Discretion is vested on the officer of customs to adjudicate whether penalty is imposable or not. Only if he arrives at the finding that penalty is imposable, then the quantum of penalty that may be imposed would be guided by the range provided for in sub-sections (2), (3) and (4) of Section 38, as the case may be.”

The court did not directly deal with the case of Chairman, SEBI v Shriram Mutual Fund [(2006) 5 SCC 361], though the Bombay High Court had dealt with it. In that case the Securities Appellate Tribunal had eviscerated the penalties levied by the Board. The Supreme Court held that the Hindustan Steel case was in relation to criminal prosecution and had no application to civil adjudication. It further held that, ‘In our opinion, the Tribunal has miserably failed to appreciate that by setting aside the order of the Adjudicating Officer the Tribunal was setting a serious wrong precedent whereby every offender would take shelter of alleged hardships to violate the provisions of the Act.’

The judgment in Shriram Mutual Fund case has been affirmed in a specific question put to the 3-judge bench in Union of India v. Dharmendra Textiles, (2008) 13 SCC 369 and followed   SCM Solifert Ltd. v CCI, (2018) 6 SCC 631 [rejecting the argument that the violation, if any, was technical, not willful, deliberate or mala fide], Suborno Bose v Enforcement Directorate, (2020) 14 SCC 241 and State of Gujarat v Saw Pipes Ltd., 2023 SCC Online SC 428 [holding good faith irrelevant]. It is unfortunate that this ghost of Hindustan Steel case keeps popping up in civil adjudication and sometimes slips through when these cases are not bought to the notice of the court. Thus, automatic or not, in civil adjudication, technical or venial breaches or good faith are irrelevant for levy of penalty.

The judgment is surely adventurous and creates the need for clarification in quite a handful of areas. Even if these issues are considered obiter, till then the Obiter of the Supreme Court is binding on all courts under Article 142 of the Constitution [Municipal Committee, Amritsar v Hazara Singh, (1975) 1 SCC 794] and therein in lies the difficulty for legal practitioner trying to deal with this judgment when used against his client to convince the court to successfully distinguish it on lines of other judgments. Hopefully, the Supreme Court will have occasion to deal with its ruling in Saudi Arabian Airlines v Union of India sooner rather than later, while lower courts and authorities deal with the outcome of this judgment. As appellate dockets in regulatory and public law fields continue to grow, the interplay between no reformatio in peius, appellate remedial powers, and powers on remand will remain an important and contested area of Indian jurisprudence. Similarly, in regulatory litigation, especially SEBI and revenue authorities which regularly levy ‘automatic’ penalty, the authorities will have plenty of food for thought.

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-Suraj Surjit Chaudhary, Advocate, Bombay High Court.