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of <h1>Supreme Court's Broad Interpretation of Foreign Exchange Regulation Act to Safeguard Export Earnings</h1> <h3>MG Wagh Versus Jay Engineering Works Ltd.</h3> MG Wagh Versus Jay Engineering Works Ltd. - [1987] 62 COMP. CAS. 658 (SC), 1987 AIR 670, 1987 (1) SCR 798, 1987 (1) SCC 542, 1987 (1) JT 135, 1987 (1) ... Issues Involved:1. Interpretation of Section 12(2) of the Foreign Exchange Regulation Act, 1947.2. Applicability of Section 12(2) to 'exports for sale' and 'exports on sale.'3. Jurisdictional validity of show-cause notices issued under Section 12(2).4. Relationship between Sections 10 and 12 of the Act.Issue-wise Detailed Analysis:1. Interpretation of Section 12(2) of the Foreign Exchange Regulation Act, 1947:The primary issue revolves around whether Section 12(2) of the Foreign Exchange Regulation Act, 1947, applies exclusively to the sale proceeds of goods exported 'for sale' or also to those exported 'on sale.' The appellants argued that the provision should cover both scenarios to prevent the evasion of repatriation of earnings from exports. The expression 'no person entitled to sell, or procure the sale of, the said goods' was debated, with the appellants contending that it should not be narrowly construed to limit the scope of Section 12(2). The Court agreed with this broader interpretation, emphasizing that the provision aims to identify accountable persons to prevent malpractices and ensure compliance, regardless of whether the sale was completed before or after export.2. Applicability of Section 12(2) to 'exports for sale' and 'exports on sale':The Court held that Section 12(2) is applicable to both 'exports for sale' and 'exports on sale.' The expression 'no person entitled to sell, or procure the sale of, the said goods' was deemed merely descriptive of the accountable persons under the provision. The Court rejected the respondent's narrow interpretation that would exclude transactions of completed sales from the purview of Section 12(2). The judgment emphasized that the provision's objective is to ensure that the nation does not lose foreign exchange, which is crucial for economic survival. Clauses (a) and (b) of Section 12(2) were found compatible with both types of sales, reinforcing the conclusion that the Legislature intended to cover all transactions to preserve foreign exchange.3. Jurisdictional validity of show-cause notices issued under Section 12(2):The High Court had quashed the show-cause notices on a jurisdictional issue, but the Supreme Court set aside this order. The Court directed that the matter be remitted back to the competent authority to proceed in accordance with the law. The competent authority was instructed to extend the time for the respondent-company to show cause and to pass appropriate orders after affording a reasonable opportunity of hearing. The Court clarified that the competent authority should not be influenced by the High Court's observations on the facts or merits of the case.4. Relationship between Sections 10 and 12 of the Act:The respondent's argument that completed sales should be governed by Section 10 of the Act was rejected. The Court held that Section 10, which deals with the duty of persons entitled to receive foreign exchange, does not apply to foreign exchange earnings related to the export of goods. Section 12 was deemed a complete code in itself, specifically designed to address all matters related to payments for exported goods and foreign exchange earnings therefrom. The Court emphasized that excluding completed sales from Section 12 would undermine the purpose of the legislation, as Section 12(6) provides mechanisms to ensure compliance and prevent evasion.Conclusion:The Supreme Court allowed the appeal, set aside the High Court's order quashing the show-cause notices, and dismissed the writ petition instituted by the respondents. The competent authority was directed to proceed in accordance with the law, with all contentions on facts and law remaining open, except the contention that Section 12(2) is not attracted. No order as to costs was made.
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