Foreign exchange for import purpose must be used accordingly; failure to import can still attract penalty despite absence of mens rea.

Where foreign exchange is acquired for importing machinery, failure to import the intended goods constitutes contravention of Sections 8(3) and 8(4) of the Foreign Exchange Regulation Act, 1973, and liability to penalty under Section 50 is attracted even without mens rea. The rebuttable presumption under Section 8(4) does not excuse total non-import merely because the bank did not finance the purchase or the foreign supplier did not refund the advance. Section 50 was treated as fixing only an outer limit on penalty, so the penalty could be interfered with on proportionality grounds and was reduced by half.

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Issues: (i) Whether failure to import the machinery after acquiring foreign exchange for that purpose amounted to contravention of Section 8(3) and Section 8(4) of the Foreign Exchange Regulation Act, 1973, attracting penalty under Section 50. (ii) Whether the penalty imposed was excessive and liable to be reduced.

Issue (i): Whether failure to import the machinery after acquiring foreign exchange for that purpose amounted to contravention of Section 8(3) and Section 8(4) of the Foreign Exchange Regulation Act, 1973, attracting penalty under Section 50.

Analysis: The statutory scheme required foreign exchange acquired for a particular purpose to be used only for that purpose, and failure to bring in the intended goods fell within the mischief of the provision. The presumption under Section 8(4) was held to be rebuttable, but the explanation that the bank did not extend finance and the foreign supplier did not refund the advance did not negative the contravention. The absence of deliberate misuse or mens rea did not exonerate the appellants, since the provisions were treated as covering non-import of goods for whatever reason.

Conclusion: The contravention was established and liability to penalty was upheld against the appellant.

Issue (ii): Whether the penalty imposed was excessive and liable to be reduced.

Analysis: Section 50 was construed as prescribing only an outer limit for penalty, not a mandatory maximum. Since the appellants had in fact remitted the advance amount and the authorities had not imposed the maximum permissible penalty, the quantum was found to be disproportionate on the facts. The court therefore exercised its power to interfere only with the amount of penalty.

Conclusion: The penalty was reduced by 50% from Rs. 3,00,000/- to Rs. 1,50,000/-.

Final Conclusion: The liability finding was sustained, but the monetary penalty was scaled down, resulting in only a limited modification of the impugned order in the appellant's favour.

Ratio Decidendi: Where foreign exchange is acquired for importing goods, failure to import the goods attracts Section 8(3) and Section 8(4) notwithstanding absence of mens rea, and the rebuttable presumption under Section 8(4) does not extend to cases of total non-import for any reason.

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