FEMA limitation, fair hearing, and notice discipline: proceedings fail when adverse expert material is not tested and findings exceed the notice.

Section 49(3) of FEMA is satisfied when the adjudicating officer first takes notice of the alleged contravention by issuing the initial show cause notice within two years; later service does not defeat jurisdiction. The text also states that adjudication should remain consistent with connected customs and earlier FERA findings on identical facts, and a contrary view is unsustainable. It further says refusal to allow cross-examination of relied-upon experts and officers in a civil-consequences proceeding denies a fair hearing. Findings introducing fraud, collusion, conspiracy, or other grounds not set out in the show cause notice exceed the notice and cannot stand.

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Issues: (i) Whether the adjudicating officer had jurisdiction under section 49(3) of FEMA to take notice of the alleged contravention when the show cause notice was signed on 31 May 2002 but served later; (ii) whether the FERA authorities could take a view contrary to the customs adjudication and the CESTAT findings on identical facts; (iii) whether denial of cross-examination of the experts and officers whose opinions were relied upon vitiated the proceedings; and (iv) whether the impugned order travelled beyond the scope of the show cause notice.

Issue (i): Whether the adjudicating officer had jurisdiction under section 49(3) of FEMA to take notice of the alleged contravention when the show cause notice was signed on 31 May 2002 but served later.

Analysis: The statutory bar in section 49(3) of FEMA is directed against the adjudicating officer taking notice of a contravention after the expiry of two years from the commencement of FEMA. The scheme of section 51 of FERA and Rule 3 of the Adjudication Proceedings and Appeal Rules, 1974 shows that the first stage of adjudication begins when the adjudicating officer forms a prima facie view and issues the first show cause notice. The notice need not be served within the limitation period if the officer has already taken notice within time.

Conclusion: The show cause notice dated 31 May 2002 amounted to taking notice within time, and the proceedings were not barred.

Issue (ii): Whether the FERA authorities could take a view contrary to the customs adjudication and the CESTAT findings on identical facts.

Analysis: The FERA proceedings were founded on the same investigation that had also led to customs proceedings on valuation and classification of the imported CD-ROMs. The customs appeals had been decided in favour of the assessees, and the department had accepted the earlier FERA outcome in the connected matter involving the same factual matrix. In such circumstances, judicial discipline required consistency, and the authorities could not sustain a contrary stand on identical facts and evidence.

Conclusion: The contrary FERA view was not sustainable, and this issue was answered in favour of the appellants.

Issue (iii): Whether denial of cross-examination of the experts and officers whose opinions were relied upon vitiated the proceedings.

Analysis: The authorities relied upon adverse technical opinions on the nature and value of the CD-ROMs, while the assessees relied on contrary opinions from other government bodies supporting their case. Where the decisive material consisted of conflicting expert opinions, fairness required an opportunity to test the adverse material by cross-examination. The refusal caused prejudice and amounted to denial of a reasonable opportunity in an adjudication involving civil consequences.

Conclusion: The refusal to permit cross-examination vitiated the proceedings.

Issue (iv): Whether the impugned order travelled beyond the scope of the show cause notice.

Analysis: The order under challenge introduced findings of fraud, collusion, conspiracy, and additional factual foundations not set out in the show cause notice. A person proceeded against must know the exact case to be met, and adjudication cannot rest on grounds never put to notice. Findings beyond the notice offended natural justice and could not be sustained.

Conclusion: The order exceeded the show cause notice and could not stand.

Final Conclusion: The appeals succeeded on the combined effect of limitation, consistency with the connected customs and FERA outcomes, denial of fair hearing, and enlargement of the case beyond the notice, and the penalty order was set aside.

Ratio Decidendi: For section 49(3) FEMA, limitation is met when the adjudicating officer first takes notice of the alleged FERA contravention by issuing the first show cause notice within two years, and an adjudication based on materially inconsistent findings, without fair opportunity to test adverse expert material and beyond the show cause notice, cannot be sustained.

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