Burden of proof in foreign exchange contravention cases shifts when appellants fail to explain funds and produce best evidence.

Where the revenue authority establishes a prima facie case from surrounding circumstances, the burden shifts to the appellants to explain the source of foreign funds and rebut the presumption of contravention under foreign exchange law. Here, the offshore entity's investment pattern, its negligible capital base, and the failure of the key person to appear or produce records were sufficient to call for an explanation. Because the appellants did not produce bank records or other best evidence within their control, an adverse inference was justified and the penalty for foreign exchange contravention was upheld.

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Issues: Whether the appellants had discharged the burden of proving the source of the foreign funds and rebutting the presumption of contravention under the foreign exchange law, and whether the penalty imposed for routing the funds through an offshore entity was sustainable.

Analysis: The Tribunal noted that investment of about Rs. 208 crores by the offshore company in the appellant group was not in dispute, and the offshore entity had negligible paid-up capital. The respondents had gathered material showing the investment pattern and had summoned the key person connected with both entities to explain the source of funds, but he did not appear or produce the relevant records. Relying on the statutory power to summon documents and witnesses and on the principle that facts specially within a party's knowledge must be explained by that party, the Tribunal held that the initial material collected by the respondents was sufficient to shift the onus. Since the appellants failed to produce bank records or other evidence to explain the source of the funds, an adverse inference was justified.

Conclusion: The appellants failed to rebut the case made out against them, and the penalty for contravention of the foreign exchange law was upheld.

Ratio Decidendi: Where the revenue authority establishes a prima facie case from surrounding circumstances and the relevant facts lie especially within the knowledge and control of the appellants, failure to produce the best evidence permits an adverse inference and shifts the burden to the appellants to disprove contravention.

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