Foreign exchange penalty fails where customs excess alone does not prove misuse of currency under foreign exchange law.

Foreign exchange penalty under the Foreign Exchange Regulation Act, 1973 could not stand without independent proof that the currency was used for a purpose other than that for which it was acquired. The record showed the foreign exchange was used to import the specific spare parts for which it had been obtained, and the alleged breach rested only on a customs view that the import value exceeded the licence limit. As no separate material established misuse of foreign exchange or import of prohibited goods, no contravention of Sections 8(3) and 8(4) was made out and the penalty was set aside.

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Issues: Whether the appellants had contravened Sections 8(3) and 8(4) of the Foreign Exchange Regulation Act, 1973 by utilising foreign exchange for a purpose other than that for which it was acquired, so as to justify the penalty imposed.

Analysis: The foreign exchange had been acquired for import of specific spare parts, and the record showed that it was utilised for the import of those very items. The finding of contravention was founded only on the customs view that the value of the imports exceeded the licence limit, but no independent material was shown to establish misuse of foreign exchange or import of prohibited goods. In proceedings under the foreign exchange law, a penalty cannot rest merely on a customs infraction unless the statutory contravention under the foreign exchange law itself is made out.

Conclusion: No contravention of Sections 8(3) and 8(4) of the Foreign Exchange Regulation Act, 1973 was established, and the penalty was unsustainable and set aside in favour of the appellants.

Ratio Decidendi: A penalty under foreign exchange law cannot be sustained unless the authority independently proves that foreign exchange was used for a purpose other than the one for which it was acquired; a mere customs-based excess in import value does not by itself establish contravention.

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