2025 (11) TMI 605 - AT - FEMA

Appellant and associate found violating s.3(b) and s.3(c) of FEMA for unauthorized remittances and under-invoicing imports

Shri Nemi Chand Versus The Directorate of Enforcement, Bangalore

AT upheld findings that the appellant and an associate contravened s.3(b) and s.3(c) of FEMA by effecting and facilitating unauthorized cross-border ... Offence under FEMA - contravention of Section 3(b) and 3(c) of the Act of 1999 - Illegal remittances and receipts - transfer of Euro 40,000 to Italy against Rs. 34,80,000/- in cash HELD THAT:- The modus operandi of Shri B.M. Rakesh revealed in the investigation. He was importing the furniture making under valuation to save Customs Duty. Nemi Chand admitted that he was doing trolley bag business in Bangalore but insufficient income thus started working with one Poonam of Mumbai, who was arranging foreign exchange transfer for Hanifa of Dubai. It was admitted by B.M Rakesh that he was engaged in under invoicing of import to reduce customs duty and remitting the differential value. (approximately 40% of actual invoices value) to overseas suppliers through unauthorized channels, facilitated by individual like Mr. Zuhir (based Dubai) and Shri Nemi Chand Jain alias (Chetan) or Dharmaraj operating in Bangalore. B.M. Rakesh admitted for payment of Indian currency in cash in India to these individuals who would arrange equivalent foreign exchange remittance abroad through informal (hawala) channels, involving suppliers such as Ital Program and BGB Italia. Commission received from these suppliers abroad was allegedly remitted back to him in India using the same unauthorized methods. No RBI permission or authorized existed for any of these transactions. Hence, the remittances and receipts remain illegal under FEMA framework. Nemi Chand actively facilitated unauthorized transfer of Rs. 77,30,000/ abroad on behalf of B.M. Rakesh, in contravention of section 3(b) and 3(c), FEMA. The plea that he acted merely as a messenger is untenable, as evidence establishes his conscious role in arranging cross- border transfer. B.M. Rakesh had contravened section 3(b) of FEMA 1999 by making unauthorized payments amounting to Rs. 1,53,69,010/ to foreign suppliers through informal channels without routing them through authorized banking mechanisms. The authority found sufficient evidence in the case of Nemi Chand to establish his role in facilitating the unauthorized transfer of Rs. 77,30,000/ abroad in contravention of section 3(b) and 3(c) of FEMA. The material is available on record to show contravention of Section 3(b) and 3(c) of the Act of 1999. The statement of B.M. Rakesh is also for placing an order to M/s BGB Italia for supply of bathroom fittings which was to be given to M/s Samaavesh which had remitted Euro 5,422.34 through Canara Bank and the balance amount of Euro 3614.66 was transferred through Mr Zuhir by making a payment of Rs. 2,70,000/- to a person sent in India. At this stage, it is necessary to state that retraction from statement was not immediate and otherwise it was rejected immediately on receipt of the letter finding no substance therein and otherwise the statement of the appellant was corroborated by the statement of B.M. Rakesh and other materials which includes the details of the mobile and SMS and therefore we do not find a case to cause interference in the impugned order. ISSUES PRESENTED AND CONSIDERED 1. Whether the appellant's acts amounted to contraventions of Section 3(b) and Section 3(c) of the Foreign Exchange Management Act, 1999 (FEMA) by facilitating unauthorized outward remittances and receiving/arranging foreign exchange outside the banking channel. 2. Whether the adjudicating authority could rely on statements recorded under Section 37(3) of FEMA read with Section 132(4) of the Income Tax Act, 1961 where the appellant had later retracted his statement. 3. Whether the material on record (statements, seized documents, call/SMS records and transfer advices) constituted adequate corroboration to sustain findings of unauthorized foreign exchange transactions and to impose penalties. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework FEMA Sections 3(b) and 3(c) prohibit making payments to/non-receipt of foreign exchange outside the authorised banking channel and the transfer or dealing in foreign exchange except as permitted; contraventions attract monetary penalties under the Act. Issue 1 - Precedent treatment No prior judicial precedents were expressly relied upon, followed, distinguished or overruled in the decision; the Tribunal proceeded on statutory interpretation and fact analysis of the record before the Authority. Issue 1 - Interpretation and reasoning The Authority found that the appellant actively collected large sums of Indian currency, forwarded beneficiary details by SMS to intermediaries, and facilitated onward transmission through an informal network involving persons abroad and in other Indian cities. The recorded admissions (including commission rates accepted by the appellant), bank/transfer advices, seized business/import documents and the modus operandi (identification by ten-rupee note serial numbers, use of assumed names and change/disposal of SIMs) were held to demonstrate conscious participation beyond mere messenger activity. Issue 1 - Ratio vs. Obiter Ratio: The finding that active facilitation of foreign exchange transfers through informal channels, corroborated by documentary and electronic evidence and admissions, constitutes contravention of Sections 3(b) and 3(c) of FEMA. Obiter: Observations on the broader under-invoicing/import scheme and use of intermediaries to evade customs duty serve as contextual support but are not essential to the statutory construction of Sections 3(b) and 3(c). Issue 1 - Conclusion The Tribunal upheld the Authority's conclusion that the appellant facilitated unauthorized outward remittances totalling the identified amounts and thus contravened Sections 3(b) and 3(c) of FEMA; penalties imposed were sustained on merits. Issue 2 - Legal framework Section 37(3) of FEMA (investigative statements) read with Section 132(4) Income Tax Act allows recording of statements during investigation; legal weight of such statements depends on corroboration and circumstances of retraction. Issue 2 - Precedent treatment The judgment did not cite controlling precedent on the evidentiary value of retracted statements; instead, it applied accepted evidentiary principles that retracted confessions/statements may be relied upon if corroborated by independent material. Issue 2 - Interpretation and reasoning The Tribunal examined timing and nature of retraction: the retraction was not immediate and, in any event, the Authority rejected the retraction as without substance. Independent corroboration-co-accused statements, SMS/call logs, seized documents, transfer advices and identification of mobile numbers-was held to validate the original recorded statement. Hence the recorded statement was admissible and probative in the context of corroborative evidence. Issue 2 - Ratio vs. Obiter Ratio: A statement recorded under Section 37(3) that is retracted may still be relied upon if the retraction is not immediate or is otherwise disbelieved and there exists sufficient independent corroboration on the record. Obiter: Remarks on the procedural history of the retraction are ancillary. Issue 2 - Conclusion The Tribunal found no infirmity in reliance on the Section 37(3) statement because adequate corroborative evidence existed; the appellant's retraction did not vitiate the Authority's findings. Issue 3 - Legal framework Adjudicatory findings under FEMA must be based on material on record; corroboration of admissions and investigative statements strengthens the Authority's conclusion to impose penalties for unauthorized dealings in foreign exchange. Issue 3 - Precedent treatment No specific precedents were invoked; the Authority and Tribunal applied the standard approach of assessing the totality of evidence (documentary, electronic, and oral) to determine contravention. Issue 3 - Interpretation and reasoning The Tribunal set out the ensemble of corroborative materials: (i) printouts of SMS and call records linking the appellant's mobile number with co-actors; (ii) transfer advices and tele-fax confirmations indicating outward transfers; (iii) seized import and ledger documents evidencing patterns of under-invoicing and differential payments; (iv) admissions regarding commission structure and assumed names; and (v) confirmation by co-accused of the appellant's role. The Tribunal concluded that these materials collectively established the appellant's active role and negated the contention that findings were based on conjecture. Issue 3 - Ratio vs. Obiter Ratio: Corroborative documentary and electronic evidence, in conjunction with investigative statements, can sustain findings of unauthorized foreign exchange transactions under FEMA; mere retraction does not automatically negate such corroboration. Obiter: Detailed recounting of seized invoices and ledger items serves evidential context rather than independent legal principle. Issue 3 - Conclusion The Tribunal held that the record furnished adequate corroboration to sustain the Authority's findings of contraventions of Sections 3(b) and 3(c) and to uphold the monetary penalties imposed; the appeal was dismissed. Cross-references Reference to Issue 2 is integral to Issue 1 and Issue 3: admissibility and weight of the Section 37(3) statement (Issue 2) was decisive in assessing the appellant's role (Issue 1) and in evaluating whether the totality of evidence constituted adequate corroboration (Issue 3).