TaxTMI 
TaxTMI 
2024 (9) TMI 120
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..... Wasay Khan, Adv. (in Appeal No. 487/2004) ORDER FPA-FE-95-97/CHN/2005, FA-FE-415-417, 484-485 & 487/CHN/2004 1. A batch of appeals have been filed under Section 17 of the Foreign Exchange Management Act, 1999 (in short 'the Act of 1999) against the order dated 05.03.2004 passed by the Special Director, Directorate of Enforcement, Chennai. By the order under challenge, the following penalties have been imposed on the appellants for contravention of Section 8(1), 8(3), 8(4) read with Section 64(2) of the Foreign Exchange Regulations Act, 1973 (in short 'the Act of 1973'): (i) Penalty of Rs.10,00,00,000/- (Rupees Ten Crores only) on M/s ORJ Electronic Oxides Ltd. (ii) Penalty of Rs.1,00,00,000/- (Rupees One Crore only) on Shri ORJ Jaffer Batcha. (iii) Penalty of Rs.1,00,00,000/- (Rupees One Crore only) on Shri V. Sundaram. (iv) Penalty of Rs.20,00,00,000/- (Rupees Twenty Crores only) on Shri N.M. Parthasarthy. (v) Penalty of Rs.10,00,000/- (Rupees Ten lakh only) on M/s Sundaram Finance Ltd. (vi) Penalty of Rs.1,00,000/- (Rupees One lakh only) on Shri K.M. Shankar. (vii) Penalty of Rs.1,00,000/- (Rupees One lakh only) on Shri S. Srinivasan. 2. So far as ....
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....r oxidation equipment and concentrating solar collections were exported by M/s ETK International Ferrites Ltd. (M/s ETKIF, Ranipet) to IPTE Inc, C/o Travindo Trading Pvt Ltd, Singapore under Shipping Bill dated 09.04.1997 for USD $ 1,71,300/-. It is to be bought forth that Shri N.M. Parthasarthy was the Chairman and Managing Director of M/s ETKIF, Ranipet. The said machineries were re-exported to India from IPTE, Singapore to M/s ORJ Electronic Oxides Ltd vide invoice dated 16.02.1997 & Bill of Entry dated 27.05.1997 and re-exported to M/s ETK Softech vide Shipping Bill dated 07.09.1998, respectively. The Bank of Madura Ltd, now known as ICICI Bank entered into a lease financing agreement with M/s ORJ Electronics Oxides Ltd and M/s Sundaram Finance Ltd entered into lease agreement with M/s ETK Softech (with the Bank of Madura as the authorized dealer) for import respectively. The value of the Bill was checked and shipment was permitted. 6. On 04.04.1997, it was informed that the export has been made against the order of IPTE with a communication to the Collector of Customs, Chennai. Since the shipment and the bill was not only for the plant and machinery but also for the Auto CAD ....
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....ns. The breakup value of Rs.1 crore for re-imported goods and Rs.24 crores for software supply, drawing and designs was given but conveniently ignored by the Respondent Directorate. 10. The learned counsel for the appellant urged that Dr.N.M. Parthasarthy was not a Director of M/s ETK Softech but was an arbitrator between IPTE and M/s ETK Softech. The import and export of M/s ETK Softech was made in similar manner as was in the case of M/s ORJ Electronic Oxide Ltd. In fact, detail of the plant and machinery apart from equipment was specified in the invoices and thereupon the invoice for computer software, auto CD, drawings and online support for 5 years was included making it an invoice of import at higher value than the export of same plant and machinery from India to Singapore on a lower price shown in the invoice. The facts aforesaid would reveal that at the first instance, plant and machinery was exported by M/s ETKIF, Ranipet to IPTE at Singapore and same plant and machinery was thereafter re-exported to M/s ORJ Electronics and M/s ETK Softech from Singapore to India on a higher invoice price and, therefore, allegation of contravention of Section 8(1), 8(3), 8(4) read with Se....
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....the show cause notice were not tenable even pursuance to the proceedings initiated by DRI. Two separate authorities could not have initiated the proceedings on the same facts and, therefore, the proceedings under the Act of 1999 should have been dropped on initiation of the proceedings by DRI but the aforesaid issue has not been considered properly though goes in the roots of the case thereof also, the impugned order deserves to be set aside. 15. It is further stated that Memorandum does not mention how the appellant gained foreign exchange by setting up the 100% export oriented unit. It is submitted that when export and import of the plant and machinery was after due permission of the authorities concerned and was under proper invoices, it could not have resulted in gain of foreign exchange by any of the appellants but ignoring the aforesaid, heavy penalty has been imposed on the appellants. 16. The specific argument in reference to the appellant deceased Dr. N.M. Parthasarthy was raised alleging that he has not gained any foreign exchange yet heavy penalty has been imposed on him. He was only an arbitrator between two companies and made introduction of the parties. The import f....
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....ceedings initiated under the Customs Act. It is stated that any statement recorded under Section 108 of the said Act cannot be used in the proceedings under the Act of 1999 for any contravention under the Act of 1973. In fact, two separate legislations operate in different fields having no over-riding mechanism of application, thus statement recorded under the Customs Act could not have been relied for passing an order under the Act of 1999. Arguments on behalf of the Respondents 21. The learned counsel for the respondent contested the case and submitted that none of the arguments raised by the counsel for the appellants are tenable on facts as well as on law. The facts narrated by the appellants are not supported by the documents, rather a different story has been painted to show it to be real and, therefore, it would be necessary to give the correct facts for proper analysis of the issues. 22. The facts available on record supported by the material would be sufficient to prove contravention of Section 8(1), 8(3), 8(4) read with Section 64(2) of the Act of 1973. The prayer was accordingly made to first refer to the facts available on record with proof and then to analyze the le....
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....iled facts in regard to it would be given further and are relevant otherwise for that we would first narrate the fact regarding re-export of the same consignment back to India. 28. The record shows that the consignment exported from India to Singapore was re-exported under the Bill of Entry dated 27.05.1997 to M/s ORJ Electronic Oxide Ltd., Puddukkotai India and the other consignment under Invoice dated 07.09.1998 to M/s ETK Softech Ltd. at Ranipet. It has already been stated that the re-export was on a higher value and, therefore, the matter was taken up by DRI. The statement of Dr. N.M. Parthasarthy was recorded and finding him to be the kingpin of the transaction in contravention of the provisions of the Act of 1973, proceedings were initiated. Dr. Parthasarthy categorically stated that when the goods were shipped to Singapore, he was aware that the Plant and Machinery would be re-shipped from Singapore to India for its delivery to M/s ORJ Electronic Oxides Ltd. and M/s ETK Softech. The export documents coupled with import document of machinery exported vide Shipping Bills dated 09.04.1997 and 07.09.1998 proves these to have been re-shipped to the Indian companies named above. ....
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....ce because the plea taken by the appellant was not accepted not only for the reasons given above but detailed reasons which have been referred in the impugned order. In fact, it was found that the import and export of the same machinery was made with the ulterior motive and for making personal gains because difference in the value of the consignments allowed release of with foreign exchange which was used for other purposes. 31. The facts need to be elaborated further in reference to the role of the banks because re-export was made through the Bank of Madura and M/s Sundaram Finance Ltd (with the Bank of Madura as the Authorised Dealer) and, therefore, their role has to be taken into consideration in the light of the fact that penalty has been imposed even on the Bank and on the financial institution for the contravention. 32. At this stage, it would be necessary to indicate that the Bank of Madura has merged with ICICI Bank. However, before narrating the facts pertaining to the financial institutions, it would be gainful to refer to the outcome of DRI investigation. 33. During the course of DRI investigation, the imported machinery installed at the factory premises of M/s ORJ E....
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....rather even during the course of inspection by their own valuer, the software was not found available. It is also a fact that the imported machinery at such exorbitant prices were worthless and not capable of manufacturing electronic grade iron oxide of even a small quantity as against the declared production target of 5000 metric tons per annum. It could not have even worked because in the factory premises of M/s ETK Softech, there was no electricity supply and so far as M/s ORJ Electronic Oxides is concerned, only 20 to 50 Kgs of iron oxide was produced and thereafter the machinery broke-down and factory was even closed. 36. Since the material on record could prove over-invoicing of the machinery while it was re-exported from Singapore to India and that too of worthless machinery manufactured at M/s ETKIF, Ranipet and, therefore, contravention of Section 8(1), 8(3) and 8(4) of the Act of 1973 was found against M/s ORJ Electronic Oxides and M/s ETK Softech, apart from others. The related person running the show of those companies were also served with show cause notice who is ORJ Jaffar Batcha who was Managing Director of M/s ORJ Electronic Oxides and Mr. V. Sundaram, Director of....
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....yanan (Assistant General ManagerBank of Madura), S Srinivasan (General Manager Leasing- Sundaram Finance) and M Shankar (Deputy General Manager Leasing- Sundaram Finance)had sought quashing of criminal proceedings before the Additional Chief Metropolitan Magistrate (EOI), Egmore. 39. The Ld. Counsel has further relied on the Madras High Court judgment in the case of M/s ORJ Electronics Oxides Ltd. & Ors. v. State by Inspector of Police, SPE, CBI, Economic Office Wing, Chennai in Cr. RC No. 348 of 2019 decided by the order dated 05.06.2020 against the dismissal of the discharge petition by the Additional Chief Metropolitan Magistrate (EOI) FAC, Egmore. 40. We have carefully gone through the judgment dated 17.10.2012 in the case of Sundaram Finance Ltd. & Ors. (supra) decided by the Madras High Court. Paras 14 and 15 of the said judgment are quoted hereunder for ready reference: "14. M/s Sundram Finance Ltd is shown as accused along with its General Manager and Deputy General Manager. The Bill of Entry pertaining to the import of plant and machinery was not signed by the Bank of Madura Ltd., but it was only A17, the Deputy General Manager of M/s Sundaram Finance Ltd. signed the w....
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.... export and import of the same material from Singapore to India and back to India. The aforesaid is only one-part reference to the first judgment of the Madras High Court in the case of M/s Sundaram Finance Ltd. & Ors. (supra) decided by the order dated 17.10.2012. The other judgement is in the case of M/s ORJ Electronics Oxides Ltd. & Ors. (supra) decided by the order dated 05.06.2020 though said to have been reserved on 26.11.2020 as the date mentioned on the top of the order. Paras 14,15 and 16 of the said judgment are quoted hereunder: "14. The petitioners herein executed a demand promissory note and letter of Guarantee towards the Lease Finance. On 27.05.1997, the Bank of Madura (importer bank) filed a Bill of Entry No.346 dated 27.05.1997 through their Custom House Agent for clearing the imported consignments of the CIF value of US $ 7.2 million and cleared the goods without payment of customs duty as per the license for EOU. It was later found by the Directorate of Revenue Intelligence (DRI) who conducted search at the factory premises of M/s. ORJ Electronic Oxides Limited/A6 on 20.05.1999 that a large scale abuse of benefits given to the company under 100% EOU scheme and ....
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....epartment was taken note of to exonerate the appellant therein from the prosecution. It was submitted by the respondent that the proceedings under three different statutes would be in reference to the provisions alleged to have been contravened or violated. The issues in different proceedings are to be decided in reference to the statutory provisions involved therein and cannot apply on different proceedings because allegation of contravention would be in reference to the statutory provisions to the particular statute. The High Court has referred to the orders passed in reference to different statute containing different provision to pass the order which would be reflected from Paras 18 and 19 and are quoted thus: "18. Further in the collateral proceedings the Customs, Excise of Service Tax Appellate tribunal in Appeal Nos.C/516/2006 & C/31/2007 has held as follows: "17. We have considered arguments from both sides on this issue. We are of the view that the impugned orders cannot be called vague in terms of fixing the duty liability in respect of both the importers in each case. Further, we find nothing wrong in fixing the duty liability jointly and severally on two persons, wh....
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....sions involved therein and cannot apply on different proceedings such as in the instant case under the provisions of the Act of 1973. The High Court has not intervened in the prosecution based on the analysis on merits, rather pursuant to the orders of Income Tax Department so as the CESTAT and thereby it cannot rule the adjudication proceedings in reference to the contravention because prosecution in reference to the same provision needs higher standard of proof which would not be in the proceedings in hand. It is now settled law that the order passed in the prosecution case may not be binding in the adjudication proceedings and vice-versa unless it is decided after considering the merit and after marshalling the same material on record. In the instant case, all the appellants have played role in contravention of the provisions designed in such a manner where the machinery exported initially from India to Singapore and was sent back even without opening the seal to get remittance of the foreign currency. We would further like to make reference of the judgment on the issue. 46. We find it prudent to bring forth that the said judgment(s) arises from the Madras High Court jurisdicti....
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.... value leading to fraudulent realization of foreign exchange. The only difference between the two was that M/s Sundaram Finance Ltd was not an authorized dealer for the foreign exchange while Bank of Madura was and, therefore, the remittance of the financial amount was through Bank of Madura. In the light of the facts given above, not only the entire issue in reference to the facts but also for the contravention of the provisions of the Act of 1973 becomes clear. It is even after taking into consideration the plea taken by the appellants to justify the invoice for re-export of the same machinery on a greater value by more than 40 per cent. 50. In fact, if the conclusions are to be drawn, the mastermind behind the transaction was Dr. N.M. Parthasarthy who played a key role with M/s ETKIF America and was having significant role to arrange for the import and export of the same machinery. It was not even worth manufacturing of electronic grade iron oxide of 5000 tons rather in one factory at Puddukotai, there was no electricity supply available and at the factory of M/s ORJ Electronic Oxides, the machines were capable of only producing 20 Kg. iron oxide. The purpose was to get release....