Foreign exchange charge and evidence rules defeated the penalty where the wrong statutory provision was invoked and proof was inadequate.

A charge framed under section 8(1) read with section 64(2) of the Foreign Exchange Regulation Act, 1973 was treated as legally unsustainable where the alleged conduct, if proved, amounted to taking foreign exchange out of India, a matter specifically governed by section 13(2). The evidentiary basis was also found inadequate: statements recorded under section 108 of the Customs Act were not treated as substantive proof in the circumstances, the third-party statement was not admissible against the appellant without cross-examination, and the Hong Kong Customs letter did not sufficiently corroborate delivery of foreign exchange. The penalty order was therefore set aside and the pre-deposit refunded.

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Issues: (i) whether a charge framed under section 8(1) read with section 64(2) of the Foreign Exchange Regulation Act, 1973 was sustainable when the alleged conduct, if proved, amounted to taking foreign exchange out of India; (ii) whether the material relied upon, namely statements recorded under section 108 of the Customs Act, 1962 and the third-party statement, was admissible and sufficient to sustain the finding of contravention.

Issue (i): whether a charge framed under section 8(1) read with section 64(2) of the Foreign Exchange Regulation Act, 1973 was sustainable when the alleged conduct, if proved, amounted to taking foreign exchange out of India.

Analysis: The alleged act was the taking or sending out of India of foreign exchange. That conduct is specifically governed by section 13(2) of the Foreign Exchange Regulation Act, 1973, and not by section 8(1). On the facts as stated, even a corrected charge would have required proof that the foreign exchange was otherwise transferred in the manner alleged, namely by delivery in Hong Kong on behalf of the principal. The charge as framed therefore did not fit the statutory provision invoked, and the finding of contravention under section 8(1) could not be sustained.

Conclusion: The charge under section 8(1) read with section 64(2) was not sustainable and the finding against the appellant on that basis was set aside.

Issue (ii): whether the material relied upon, namely statements recorded under section 108 of the Customs Act, 1962 and the third-party statement, was admissible and sufficient to sustain the finding of contravention.

Analysis: The statements recorded under section 108 were not accepted as substantive evidence for the adjudication, particularly when the maker disputed their voluntariness and was denied cross-examination of the recording officer. The third-party statement was also not admissible against the appellant in the absence of cross-examination. The Hong Kong Customs letter did not establish delivery of foreign exchange to the named recipient and did not sufficiently corroborate the alleged transaction. The evidentiary basis for the charge was therefore inadequate.

Conclusion: The evidence relied upon was inadmissible or insufficient, and the contravention was not proved.

Final Conclusion: The penalty order could not stand and the appeal succeeded, with consequential refund of the pre-deposit.

Ratio Decidendi: Where the facts alleged, if true, fall within a different statutory prohibition than the one charged, and the evidence relied upon is either inadmissible or insufficient to prove the precise charge, the adjudication cannot be sustained.

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