2025 (12) TMI 1198 - AT - FEMA

Failure to repatriate foreign currency within 180 days: penalty reduced, but confiscation set aside for mere cash possession.

The dominant issues were whether confiscation of foreign currency and the quantum of penalty under the Foreign Exchange Management Act, 1999 were ... Hawala transaction - non-banking channel - failed to surrender the same to an authorized person within a period of 180 days from the date of its receipt - Imposition of the penalty - contravention of Section 3(a) and 4 of the Act of 1999 followed by another contravention of Section 8 of the Act of 1999 read with Regulations 3&7 of the Regulations of 2000 - HELD THAT:- The accrual was made on 16.07.2007, as admitted by the appellant and it was not repatriated within a period of 180 days. The proceedings were caused after 180 days. Thus, contravention of aforesaid was found and has not been challenged by the appellant other than to challenge the amount of penalty which is reduced on the same analogy i.e. after considering the amount involved which is Singapore Dollars. There was no allegation that it was passed on to him or to someone for making Hawala transaction. In fact, no transaction for it took place and, therefore, challenge to the confiscation of the amount has been made. We find argument of the appellant to be tenable because confiscation of the amount could have been made if it is involved in contravention of the provisions of the Act of 1999. Mere presence of the cash without involvement of the contravention of any of the provisions of the Act would not justify confiscation of the amount. Accordingly, we cause interference in the order for confiscation of the amount, rather it is set aside to that extent. In substance, we cause interference in the order of confiscation and amount of penalty to make it appropriate. The penalty for contravention of Section 3(d) of the Act of 1999 is reduced for contravention of Section 3(a) and 4 of the Act of 1999 and for contravention of Section 8 of the Act of 1999 read with Regulations 3&7 of the Regulations of 2000. The amount aforesaid would be deposited by the appellant, however, after making adjustment of the amount already deposited to satisfy the condition of pre-deposit. Appeal is disposed of. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the penalty imposed for contravention of Section 3(d) of the Act of 1999, on admitted payment of a substantial portion of import consideration through non-banking (hawala) channels, was disproportionate and warranted reduction. (ii) Whether the penalties imposed for contravention of Section 3(a) and Section 4 of the Act of 1999, and separately for contravention of Section 8 of the Act of 1999 read with Regulations 3 & 7 of the Regulations of 2000, in relation to 50,000 Singapore Dollars held/deposited abroad and not repatriated within the prescribed period, were disproportionate and warranted reduction. (iii) Whether confiscation of the seized Indian currency was sustainable in the absence of a finding that the seized cash was involved in contravention of any provision of the Act of 1999. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Proportionality of penalty for contravention of Section 3(d) (hawala/non-banking channel payments for imports) Legal framework (as considered by the Tribunal): The Tribunal proceeded on the basis that Section 3(d) of the Act of 1999 was attracted where payment for import transactions was arranged through non-banking channels (hawala), and treated such conduct as a contravention warranting penalty. Interpretation and reasoning: The Tribunal noted that the appellant did not controvert the contravention and that the arrangement involved paying 40% through banking channels and 60% through hawala. While the Tribunal accepted that contravention of Section 3(d) stood established on the appellant's statement and material on record, it examined the quantum of penalty against the amount shown involved. The Tribunal took into account that the amount involved was stated to be about Rs. 7 crores and referred to multiple payments made through the intermediary, including foreign currency transfers and cash payments, but still concluded that the penalty imposed at Rs. 23 crores was excessive relative to the disclosed involvement. Conclusion: The Tribunal upheld the finding of contravention under Section 3(d) but held the penalty of Rs. 23 crores to be disproportionate, reducing it to Rs. 7 crores. Issue (ii): Proportionality of penalties for contravention of Sections 3(a) & 4, and Section 8 read with Regulations 3 & 7 (foreign currency deposit abroad and failure to repatriate) Legal framework (as considered by the Tribunal): The Tribunal accepted the applicability of Sections 3(a) and 4 where a resident in India was found to have dealt with foreign currency abroad. It further proceeded on the basis that Section 8 read with Regulations 3 & 7 required taking reasonable steps to realize and repatriate foreign exchange within the prescribed time (treated by the Tribunal as 180 days from accrual/receipt). Interpretation and reasoning: For Sections 3(a) and 4, the Tribunal recorded that the contravention related to 50,000 Singapore Dollars deposited abroad, and that the appellant did not press a challenge to the finding of contravention, limiting the dispute to quantum. The Tribunal found that a penalty of Rs. 50 lakhs for the stated amount was disproportionate and should be reduced to align with the amount involved. For Section 8 read with Regulations 3 & 7, the Tribunal held that the appellant failed to take all reasonable steps to realize and repatriate the 50,000 Singapore Dollars held in fixed deposits abroad within 180 days from accrual (admitted as 16.07.2007), and that the amount was not repatriated within that period. The Tribunal rejected the argument that proceedings were initiated before expiry of 180 days by recording that proceedings were taken after 180 days. Here too, the Tribunal noted that the appellant's effective challenge was only to penalty quantum and applied the same proportionality approach as for Sections 3(a) and 4. Conclusion: The Tribunal maintained the findings of contravention under Sections 3(a) and 4, and under Section 8 read with Regulations 3 & 7, but reduced each penalty from Rs. 50 lakhs to Rs. 25 lakhs, treating the earlier amounts as disproportionate to the foreign currency amount involved. Issue (iii): Sustainability of confiscation of seized cash absent linkage to contravention Legal framework (as considered by the Tribunal): The Tribunal treated confiscation as permissible only if the seized amount was shown to be involved in contravention of provisions of the Act of 1999; mere possession at the time of search was held insufficient. Interpretation and reasoning: The Tribunal found no allegation or material that the seized Indian currency was passed on, received for, or otherwise connected to any hawala transaction or other contravention. It held that confiscation could not be sustained solely because cash was found during the search, without establishing involvement in a specific contravention under the Act of 1999. Conclusion: The Tribunal set aside the confiscation order concerning the seized cash, holding that mere presence of cash without involvement in contravention does not justify confiscation.