Foreign exchange misuse and debt acknowledgement under FERA: tribunal upheld one contravention, but rejected the other charge.

Foreign exchange acquired for a specific import purpose is treated as contravened when the contracted goods or component are not supplied and the exchange is not used for that purpose, bringing the matter within section 8(3) read with section 8(4) of FERA; on that charge, contravention was found but the penalty was reduced. A mere diary entry recording "amount to be paid" does not, by itself, create an enforceable right to receive payment in favour of a person resident outside India, so section 9(1)(c) is not attracted unless such a right is shown; on that charge, contravention was not proved and the penalty was set aside.

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Issues: (i) Whether the failure to obtain and use the contracted silvering unit, and the later partial remittance from the foreign supplier, amounted to contravention of section 8(3) read with section 8(4) of the Foreign Exchange Regulation Act, 1973; (ii) whether the diary entry stating 'amount to be paid' constituted acknowledgement of debt creating a right to receive payment in favour of the foreign supplier so as to attract section 9(1)(c) of the Foreign Exchange Regulation Act, 1973.

Issue (i): Whether the failure to obtain and use the contracted silvering unit, and the later partial remittance from the foreign supplier, amounted to contravention of section 8(3) read with section 8(4) of the Foreign Exchange Regulation Act, 1973.

Analysis: Foreign exchange was acquired for procurement of a ceramic capacitor plant including an internal and external silvering unit. The unit of the contracted plant was not supplied, and the foreign exchange was therefore not used for the purpose for which it had been acquired. Section 8(3) prohibits use of foreign exchange for a different purpose, while section 8(4) operates where goods of the kind, quality, or quantity contracted for are not supplied. The later receipt of a substantial amount from the foreign supplier was established and could be considered only on penalty.

Conclusion: Contravention of section 8(3) read with section 8(4) was established, but the penalty was reduced in favour of the assessee.

Issue (ii): Whether the diary entry stating 'amount to be paid' constituted acknowledgement of debt creating a right to receive payment in favour of the foreign supplier so as to attract section 9(1)(c) of the Foreign Exchange Regulation Act, 1973.

Analysis: A mere acknowledgement does not by itself attract section 9(1)(c) unless it results in the creation of a right to receive payment in favour of a person resident outside India. The solitary diary entry did not establish that any enforceable right arose in favour of the foreign supplier, and no material showed that the supplier acted on such entry. On that basis, the statutory requirement for contravention was not proved.

Conclusion: Contravention of section 9(1)(c) was not established and the penalty on this count was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded only to the extent of setting aside one penalty and reducing the other, leaving the assessee liable only to the reduced penalty on the first charge.

Ratio Decidendi: Under section 8, foreign exchange acquired for a specified import purpose is deemed contravened when the contracted goods or component are not supplied and the exchange is not used for that purpose; under section 9(1)(c), a mere acknowledgement of debt is insufficient unless it creates an enforceable right to payment in favour of a person resident outside India.

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