Court rules in favor of Golden Machinery Corp in Foreign Exchange Regulation Act case, orders refund of penalties.

Golden Machinery Corporation Versus Union of India

Golden Machinery Corporation Versus Union of India - [1995] 82 COMP. CAS. 460 (CAL.) Issues Involved:
1. Contravention of sections 18(2) and 18(3) of the Foreign Exchange Regulation Act, 1973.
2. Jurisdiction of the Enforcement Directorate to issue show-cause notices under the Foreign Exchange Regulation Act.

Issue-wise Detailed Analysis:

1. Contravention of Sections 18(2) and 18(3) of the Foreign Exchange Regulation Act, 1973:

The primary allegation against the appellant, Golden Machinery Corporation, was that it engaged in under-invoicing exports to Bangladesh, thereby failing to declare the true value of the goods on the GRI Forms and invoices. The appellant was accused of not realizing the full export value as required by sections 18(2) and 18(3) of the Act. The adjudicating authority found the appellant guilty and imposed penalties, which were later confirmed by the Foreign Exchange Regulation Appellate Board.

The court analyzed the requirements under section 18(1) of the Act, which mandates exporters to declare the full export value of goods. This declaration must be true and supported by evidence. The court referred to several precedents, including the Supreme Court decisions in Toolsidass Jewraj v. Additional Collector of Customs and Director, Enforcement Directorate, Ministry of Finance v. K.O. Krishnaswamy, which emphasized the necessity of true declarations.

The court noted that under section 18(2), an exporter must ensure prompt sale and repatriation of the full export value. The court found that the appellant had indeed realized the full declared value of the goods, as evidenced by the statements of account from the appellant's banker. The customs authorities did not initiate any proceedings for under-invoicing, indicating that the declared values were accepted.

2. Jurisdiction of the Enforcement Directorate to Issue Show-Cause Notices:

The appellant contended that the show-cause notices issued by the Enforcement Directorate were without jurisdiction. The court examined section 67 of the Foreign Exchange Regulation Act, 1973, which states that restrictions imposed under section 18(1) shall be deemed to have been imposed under section 11 of the Customs Act, 1962. Consequently, any contravention of section 18(1) should be dealt with by the customs authorities, not the Enforcement Directorate.

The court concluded that the allegations in the show-cause notices, even if true, could only constitute a contravention of section 18(1). Since the customs authorities did not take any action, the Enforcement Directorate had no jurisdiction to initiate proceedings. The court held that there was no contravention of sections 18(2) and 18(3) as the full export value was realized in the prescribed manner and within the prescribed period.

Conclusion:

The court quashed the orders of the Foreign Exchange Regulation Appellate Board and the adjudicating authority, ruling that the show-cause notices were without jurisdiction. The penalties imposed were to be refunded by the Enforcement Directorate within four weeks.