2014 (5) TMI 824 - HC - FEMA

Court overturns Tribunal decision on export fraud due to lack of evidence

Negolice India Ltd. And Others Versus Director of Enforcement

The Court set aside the Appellate Tribunal's decision holding the Appellants liable under Section 8(1) of FERA for export fraud due to lack of evidence ... Violation of Section 8 (1) of the Foreign Exchange Regulation Act, 1973 - allegation that appellant has exported the goods 'only for availing export benefits' - levy of penalty - Held that:- From the inquiries purportedly made by CGI, Dubai, as reflected in the correspondence between it and the DRI, the consignment was probably not cleared by APL since there were legal problems regarding the copyright raised by the Dubai Customs. Interestingly, in the 'brief investigation report', enclosed with the letter dated 12th April 2002 written by DRI to the ED, it was admitted that in order to establish that money laundering was the main motive behind the whole exercise of export 'it is necessary to have on hand the export products, i.e., the cassettes.' The report noted that 'we do not have any representative sample of the export product and it is also not possible to get a representative sample of the export that is more than one and half year old.' It was, therefore, stated that it may not be possible to establish a case of export of sub-standard goods and/or goods not matching the exact description. The report concluded that the non-clearance of goods 'gives rise to doubts that the transaction may not be genuine and this indicates that there may be violations of provisions of FERA/FEMA.' What is clear from the document is that there were only doubts being expressed and there was no evidence as such to back the suspicion. The AT misdirected itself in shifting the burden of proof of suspicion to the Appellants by invoking Section 106 of the Evidence Act.The reasons for APL not lifting the consignment can, by no stretch of imagination, be said to be within the 'exclusive knowledge' of the Appellants. APL was a different legal entity based in Sharjah, UAE. Inquiries could have easily been made with APL itself as to why it did not lift the consignment. The major premise of the entire proceedings was that through non-banking channels NIL paid a sum of ₹ 35,92,512 to APL. There was absolutely no evidence of any kind to back this allegation. In the absence of proof of the above alleged transaction, it could not have been concluded by the AT that NIL had improperly received USD 83,160 and thereby contravened Section 8 (1) FERA. Suspicion in this case was allowed to replace proof and this resulted in an erroneous order being passed by the AT. - Order set aside - Decided in favour of assessee. Issues:Appeal against AT's order setting aside AO exonerating Appellants of FERA violation.Analysis:1. Factual Background: Appellant received export order, consignment abandoned, auctioned; suspicions raised by CGI Dubai.2. Allegations and SCN: SCN issued alleging export fraud, transfer of funds through non-banking channels; statements made before DOE.3. AO's Findings: SCN vague, incomplete; lack of evidence discussed; proceedings time-barred under FEMA.4. AT's Decision: Revision petition filed by DoE; AT held Appellants liable under Section 8(1) FERA; penalties imposed.5. Court's Review: Lack of evidence to prove allegations; burden of proof misapplied by AT; suspicions without backing evidence.6. Conclusion: Court sets aside AT's order, restores AO's decision; Appellants exonerated; refunds ordered; record to be sent back.This detailed analysis of the legal judgment highlights the key issues, factual background, allegations, findings of the Adjudication Officer, the decision of the Appellate Tribunal, the Court's review, and the final conclusion. It provides a comprehensive understanding of the case and the legal reasoning behind the Court's decision.