1996 (2) TMI 607 - AT - FEMA

Tribunal Overturns Rs. 1,98,000 Confiscation, Upholds Rs. 32,000 Penalty for Foreign Exchange Violation.

The tribunal partially allowed the appeal, overturning the confiscation of Rs. 1,98,000 and dismissing the contravention of Section 8(2) of the Foreign ... Confessional statement voluntariness - corroboration of confession by independent material particulars - confiscation of seized currency and requirement of nexus - burden to prove lawful possession under section 71(3) - distinction between sale/purchase and otherwise acquiring foreign exchange - possession, bona fides and custody of travellers cheques - modification of chargeConfessional statement voluntariness - corroboration of confession by independent material particulars - Admissibility and evidentiary weight of the appellant's statement recorded under section 40 and whether it alone sustains the finding of sale and purchase of foreign exchange. - HELD THAT: - The Tribunal found that the statement recorded under section 40 was retracted and was recorded while the appellant was in custody; if a confessional statement is involuntary it cannot be taken into evidence and cannot be the basis of further inquiry. Corroboration must be of material particulars (i.e., corroboration of the sale/purchase allegation) and mere recovery of currency does not constitute such corroboration where the information as to sale emerged only from the purported statement. The Tribunal therefore held that there was no reliable evidence of sale and purchase based solely on the appellant's section 40 statement. [Paras 4, 5, 11]The confessional statement cannot be given decisive evidentiary weight; sale and purchase is not established by that statement alone.Confiscation of seized currency and requirement of nexus - possession, bona fides and custody of travellers cheques - Validity of confiscation of the seized Indian currency of Rs. 1,98,000 and whether there was nexus between that currency and the alleged contravention. - HELD THAT: - At the time of seizure respondents had no information linking the seized Indian currency to the alleged sale of foreign exchange; the nexus relied upon flowed from the appellant's later statement. The appellant ran a PCO/STD business and records existed which could have been examined to establish lawful receipt of Indian currency; absence of such inquiry and lack of independent material linking the seized Indian currency to the contravention made the confiscation unsustainable. Rejection of the appellant's loan explanation does not itself establish that the seized Indian currency were proceeds of sale of foreign exchange. [Paras 5, 6, 7]Order of confiscation of the Indian currency of Rs. 1,98,000 is set aside.Distinction between sale/purchase and otherwise acquiring foreign exchange - burden to prove lawful possession under section 71(3) - Whether, in the absence of proof of sale and purchase, the appellant was guilty of otherwise acquiring foreign exchange in violation of section 8(1). - HELD THAT: - Although sale and purchase was not proved (the section 40 statement being unreliable), the appellant failed to discharge the burden under section 71(3) to show that the seized foreign currency was lawfully acquired or permitted by RBI. The appellant's explanation that foreign currency had been left with him by customers for safe custody was unsubstantiated and merely a possibility. Concealment of the foreign currency and absence of evidence of lawful acquisition justified treating the conduct as otherwise acquiring foreign exchange in contravention of section 8(1). The Tribunal therefore modified the charge accordingly with the consent of parties. [Paras 8, 10, 11, 12]Charge modified to otherwise acquiring foreign exchange in violation of section 8(1), and that modified charge is upheld.Possession, bona fides and custody of travellers cheques - Whether unsigned travellers cheques and those not signed at both places qualify as 'foreign exchange' and whether possession of such cheques establishes contravention. - HELD THAT: - Travellers cheques not signed at both required places would not be treated as foreign exchange within the statutory definition, and so the appellant cannot be held guilty of contravention in respect of those particular cheques. However, even for unsigned cheques, keeping them for 'safe custody' without evidence of the true owner lacked bona fides; cheques signed at both places pointed to lawful character and heightened culpability when possessed concealed by the appellant. [Paras 8, 10]Unsigned travellers cheques not signed at both places are not foreign exchange for the purpose of contravention; lack of bona fides was noted but those specific cheques do not sustain an offence under section 8(1).Confiscation of seized currency and requirement of nexus - Validity of confiscation of the seized foreign currency (including encashment of TCs of US $800) recovered from the appellant's premises. - HELD THAT: - The appellant failed to establish lawful possession of the foreign currency recovered from the concealed cavity; concealment and absence of evidence of lawful acquisition justified confiscation. The Tribunal upheld confiscation of the foreign currency and the encashed travellers cheques to the extent shown in the record. [Paras 10, 12, 13]Confiscation of the foreign currency (including encashed TCs) is upheld.Modification of charge - Validity of the finding of contravention of section 8(2) and the penalty quantum imposed under the adjudication order. - HELD THAT: - The Tribunal set aside the finding of contravention of section 8(2) and also set aside the finding and penalty in respect of the amount of US $6,000 charged in SCN II. The penalty of Rs. 32,000 imposed under SCN I (originally for contravention of sections 8(1) and 8(2)) was, however, not interfered with despite setting aside contravention of section 8(2), the Tribunal considering the quantum judicious for the modified charge of contravention of section 8(1). The respondent was permitted to recover the penalty from the seized amount and ordered to refund the balance to the appellant within a specified period. [Paras 13]Contravention of section 8(2) set aside; penalty of Rs. 32,000 upheld and may be recovered from seized amount with balance to be refunded to the appellant.Final Conclusion: Appeal partly allowed: confiscation of Indian currency of Rs. 1,98,000 set aside; confiscation of foreign currency (including encashed TCs) upheld; original finding of sale/purchase is not sustained but charge is modified and upheld as otherwise acquiring foreign exchange in violation of section 8(1); contravention of section 8(2) and the SCN II finding are set aside; penalty imposed under SCN I is upheld and recoverable from seized amounts with direction to refund the balance to the appellant. Issues Involved:1. Confiscation of Indian currency of Rs. 1,98,000.2. Contravention of Section 8(1) read with Section 8(2) of the Foreign Exchange Regulation Act, 1973.3. Voluntariness of the appellant's confessional statement.4. Nexus between seized Indian currency and alleged contravention.5. Lawful possession and acquisition of foreign currency.Issue-Wise Detailed Analysis:1. Confiscation of Indian Currency of Rs. 1,98,000:The appellant contested the confiscation of Rs. 1,98,000, claiming it was from his PCO-STD business. The tribunal found no evidence linking the seized Indian currency to the alleged contravention, noting that the only evidence was the appellant's retracted statement. The tribunal emphasized that the respondent did not verify the appellant's business records during the search. Consequently, the order of confiscation of the Indian currency was deemed unsustainable and set aside.2. Contravention of Section 8(1) read with Section 8(2) of the Foreign Exchange Regulation Act, 1973:The appellant was charged with purchasing foreign exchange of US $10,100 and selling US $6,000. The tribunal found no corroborative evidence of sale and purchase except the appellant's retracted statement. The tribunal modified the charge to 'otherwise acquiring foreign exchange in violation of Section 8(1)' due to lack of evidence for sale and purchase. The finding of contravention of Section 8(2) was set aside.3. Voluntariness of the Appellant's Confessional Statement:The appellant argued that his statement was involuntary, recorded while in custody, and retracted at the first opportunity. The tribunal noted alterations in dates on the panchanama and the appellant's statement, supporting the claim of involuntariness. The tribunal held that an involuntary statement cannot be taken into evidence, thus undermining the basis for the alleged contraventions.4. Nexus Between Seized Indian Currency and Alleged Contravention:The appellant claimed the seized Indian currency was from his PCO-STD business, supported by account statements and computer printouts. The tribunal found no nexus between the seized Indian currency and the alleged contravention, as the respondent did not have any information about the alleged sale of US $6,000 at the time of seizure. The tribunal concluded that the confiscation of the Indian currency was unjustified.5. Lawful Possession and Acquisition of Foreign Currency:The appellant did not deny the recovery of foreign currency but claimed it was left by a customer for safe custody. The tribunal found the appellant's explanation unsubstantiated and noted that the foreign currency was concealed, adding to the appellant's culpability. The tribunal concluded that the appellant failed to establish lawful possession of the foreign currency, thus upholding the finding of contravention of Section 8(1) for otherwise acquiring foreign exchange.Conclusion:The tribunal partly allowed the appeal, setting aside the order of confiscation of Indian currency of Rs. 1,98,000 and the finding of contravention of Section 8(2). The finding of contravention of Section 8(1) was upheld, but modified to 'otherwise acquiring foreign exchange in violation of Section 8(1).' The penalty of Rs. 32,000 was upheld, and the respondent was directed to refund the balance amount of Rs. 1,68,000 to the appellant within 45 days.