Appeals partially allowed, penalties reduced for illegal foreign exchange activities

The Tribunal partially allowed the appeals, reducing penalties for individuals and companies involved in illegal foreign exchange issuance and export activities. The penalties were lowered for carriers and issuing entities due to procedural violations, emphasizing the importance of compliance with FEMA and Customs Act regulations. The reduction in penalties recognized the procedural lapses but underscored the necessity of following legal and regulatory requirements for foreign exchange transactions and exports.

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Issues Involved:
1. Legality of foreign exchange issuance and export under FEMA.
2. Violation of Customs Act provisions by carriers of foreign exchange.
3. Procedural lapses and adherence to RBI guidelines.

Detailed Analysis:

Legality of Foreign Exchange Issuance and Export under FEMA:
The case revolves around the interception of a passenger carrying foreign currency in the form of travellers’ cheques and cash. The investigation revealed that the currency was issued by M/s TT Forex to various individuals based on requisition letters from M/s Sohil Maklai Entertainment Pvt. Ltd. (M/s SMEPL). Statements from individuals like Shri Anand Kulkarni, Manager of M/s TT Forex, and employees of M/s SMEPL indicated that the currency was issued without proper verification, violating FEMA guidelines. The defence argued that the transactions were within permissible limits under Schedule III of FEMA, which allows up to $25,000 for business travel. However, it was established that the issuance was based on fictitious documentation, and the foreign exchange was intended to be exported illegally.

Violation of Customs Act Provisions by Carriers of Foreign Exchange:
The Customs Act, 1962, under Section 113(d), stipulates that any goods attempted to be exported contrary to any prohibition shall be liable to confiscation. The foreign exchange issued in this case was intended for export, violating the provisions of FEMA and related RBI regulations. The carriers, including Ms. Farahjaan Sheikh, Shri Shamsher Mehmood Khan, and Shri Jayesh Vyas, were found to be carrying currency without proper authorization, rendering them liable for penalties under Section 114 of the Customs Act. The Tribunal noted that the foreign exchange had no use in India and was clearly intended for export, implicating the involved parties in illegal activities.

Procedural Lapses and Adherence to RBI Guidelines:
The issuance of travellers’ cheques by M/s TT Forex was done without adhering to the Know Your Customer (KYC) norms and personal verification requirements mandated by RBI. The statements from Shri Anand Kulkarni and Shri Feroz Babu Khan of M/s SMEPL confirmed that they were aware of the violations but proceeded due to business interests and competition. The Tribunal highlighted that the appellants could have legally obtained and exported the foreign exchange by following proper procedures but chose shortcuts, resulting in violations of both FEMA and Customs Act provisions.

Penalties and Reductions:
The original penalties imposed were deemed harsh considering the procedural nature of the violations. The Tribunal reduced the penalties on Ms. Farahjaan Sheikh, Shri Shamsher Mehmood Khan, and Shri Jayesh Vyas to Rs. one lakh each. Penalties on M/s Sohil Maklai Entertainment Pvt. Ltd. and M/s TT Forex were reduced to Rs. two lakhs each, and the redemption fine was reduced to Rs. five lakhs.

Conclusion:
The appeals were partly allowed, with penalties reduced, acknowledging the procedural lapses while emphasizing the need for adherence to legal and regulatory frameworks for foreign exchange transactions and exports.

(Pronounced in Court on 30.05.2018)

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