TaxTMI 
TaxTMI 
2024 (11) TMI 834
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....ring the investigation, DRI recorded the statement of Shri Jariwala u/s 108 of Customs Act, 1962 wherein he admitted that he was importing polyster metallic yarn at $ 8 to $9 per kg., whereas its actual value was $ 35 to $ 37 per kg. (statement dated. 26.9.2007). He further stated that the documents seized by DRI on 22.09.07 contained all other documents but did not contain insurance certificates as he had destroyed them because the sum insured was the actual value of the goods whereas invoices were raised at lower value (statement dtd. 28.9.07). He further stated that all imports of polyster metallic yarn from M/s. Brightex, Japan and M/s. Sanwa, Japan were under-invoiced. Regarding payment of outstanding amount for the imported goods, he stated that Mr. Shimezu, Sales Manager of M/s. Brightex used to make a phone call to their person in India and such representative used to collect differential amount. He stated that different persons came to take the payment and that they were 30 to 35 years old and refused to give their names, addresses or telephone numbers. He stated that they would get him to talk to Mr. Shimezu on their phone and confirm the payment. He further stated that h....
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....ential amount of Rs. 4,30,20,224/- in cash to the supplier in Japan in Indian Rupees in contravention of Sec. 3(b) of FEMA, 1999. Accordingly, a show cause notice (SCN) dtd. 28.12.2011 was issued to M/s Shree Laxmi Trading Co. proposing imposition of penalty under Sec. 13 of FEMA, 1999. The proceeding culminated in the impugned order passed on 30.01.2013 by the Ld. Addl. Director of Enforcement wherein he has held that the appellant has contravened the provisions of Section 3(b) of FEMA, 1999 to the extent of Rs. 4, 30,20,224/- and is liable for penalty under Section 13 of FEMA, 1999. Accordingly, he imposed a penalty of Rs. 1,00,00,000 on Sh. Devendra M. Jariwala, Karta/ Proprietor of M/s Shree Laxmi Trading Company, Surat. Aggrieved by the said order, the appellant has filed this appeal challenging the impugned order on various factual and legal grounds. Arguments on behalf of the Appellants: 7. Referring to the background of the case, it is submitted that M/s Laxmi Trading Co.-Surat (the importer), is an HUF wherein Shri Devendra Mulchand das Jariwala is its Karta/Proprietor. The importer is a manufacturer of "KASAB/ZARI" and they import among other goods, polyester met....
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....s, and other related matters in India. The act was enacted to consolidate and amend the laws relating to customs. The act provides the legal framework for the levy, collection, and regulation of customs duties. It outlines procedures for the clearance of goods at customs ports and airports. It empowers customs authorities to control the movement of goods across borders, prevent smuggling, and ensure compliance with international trade agreements. 10. From the above it is contended by the appellant that, it is clear that the ambit, scope, and intendment of these two Acts, i.e. Customs Act and FEMA are entirely different and dissimilar, therefore significance of a statement recorded under Customs Act during the investigation or proceedings under the said Act must be examined only quo provisions of customs Act, and not with reference to any other Act such as FEMA. 11. It is next contended that as per para 6 of the impugned show cause notice dated 28- 12-2011, the same is based on DRI Show Cause Notice F. No. DRI/SRU/INV-II/2007 dated 13-03-2008 issued under section 124 of the Customs Act 1962. By now, the law is well settled that the officers of DRI are not competent to issued s....
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....Accordingly the Principal Commissioner of Customs (NS-III) has kept the relevant show cause notice in abeyance. 14. Similarly the Hon'ble Supreme Court in the case Commissioner of Customs, Kandla VS AGARWAL METALS AND ALLOYS, in CIVIL APPEAL NO.3411 of 2020, decided on 31-8-2021, wherein the show cause notices were issued by the Additional Director General (ADG), Directorate of Revenue Intelligence (DRI), has held that the Additional Director General (ADG), DRI is not the proper officer to issue the said show cause notices; 15. It is contended by the appellant that in view of the settled legal position the Show Cause Notice F. No. DRI/SRU/INV- 11/2007 dated 13-03-2008 issued by DRI is non est in the eyes of law. The impugned complaint and the impugned show cause notice dated 28-12-2011 under FEMA, 1999 are mainly or principally based on an illegal /tainted document could have not been acted upon and, therefore, the proceedings initiated vide impugned show cause notice and culminated into the impugned order are erroneous and unsustainable in the eye of law. 16. The next contention of the appellant is that the statement which is the focal point of the allegations and con....
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....gro Industries Ltd. 2000 CrilJ 4035, this Court is also cited wherein it was held: "...The inculpatory statement made by any person under Section 108 the court has to be satisfied in such cases, that any inculpatory statement made by an accused person to a gazetted officer must also pass the tests prescribed in Section 24 of the Evidence Act. If such a statement is impaired by any of the vitiating premises enumerated in Section 24 that statement becomes useless in any criminal proceedings." 19. It is contended that in view of law laid down in Vinod Solanki's case, the Appellant is not required to prove that his statement was obtained on account of coercion, threat, or some other unfair means and that burden is on the respondent. 20. It is next contended that both the complainant in its complaint as well as the respondent used the statements recorded by DRI officers under section 108 of the Customs Act 1962. It is submitted that the Ld. Respondent erred in using the statements recorded under Section 108 of the Customs Act 1962 because; * the provisions of the Customs Act 1962 in general and section 108 in particular are not made applicable to Foreign Exchange....
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....ure exempted only in a case in which one or more of handicaps referred to in clause (a) of Section 90(1) (bid would apply Section 9D of Central Excise Act, 1944." [para 19] 24. It is further pointed out that the Supreme Court, in A. Tajudeen v. Union of India held that if an accused made a statement before the ED, such statement shall not be the sole basis of establishing the guilt of the accused. 25. It is next contended that the statements are not supported by any independent, valid, conclusive and positive evidence whatsoever and the case solely rests on the statement of the appellant before DRI or ED, there is no independent corroborative evidence in support of allegations and conclusions. It is contended that it is settled law that statement without corroboration from independent source cannot be the sole basis for levy penalty. Mere confessionary statement without corroboration, is very weak evidence, and cannot form the sole basis for proving the case of levy of penalty. Further, in the present case, the statements are involuntary and same are unreliable, there is no evidence to substantiate that in respect of the said import appellant mis- declared the description of ....
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....the knowledge of noticee, then the noticee should not face charges by any order passed beyond the facts contained in the show cause notice. 31. It is submitted that the Hon'ble Supreme Court in the case of B.K. INDUSTRIES reported vide 1993 (65) E.L.T. 465 (S.C.) has held: "A vague allegation cannot merit any credence". Further, the Hon'ble Supreme Court in the case of Commissioner of Central Excise, Bangalore VS Brindavan Beverages (P) Limited [2007 (213) E.LT. 487 (S.C.)], in Para 10, held as: The show cause notice is the foundation on which the department has to build up its case. If the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold that the noticee was not given proper opportunity to meet the allegations indicated in the show cause notice. In the instant case, what the appellant has tried to highlight is the alleged connection between the various concerns. That is not sufficient to proceed against the respondents unless it is shown that they were parties to the arrangements, if any. As no sufficient material much less any material has been placed on record to sub....
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....jurisdiction to entertain the adjudication of the impugned show cause notice impugned order is passed by an officer who was not so authorized by law and was without power and authority to adjudicate the impugned show cause notice, hence, its order is "null and void" in eye of law. 35. It is next contended that the manner, method and procedure for adjudication of cases under Foreign Exchange Management Act is prescribed in "The Foreign Exchange Management (Adjudication Proceedings And Appeal) Rules-2000. Rule 4 being relevant is extracted below; Rule 4. Holding of inquiry- (1) For the purpose of Adjudicating under Section 13 of the Act whether any person has committed any contravention as specified in that section of the Act, the Adjudicating Authority shall, issue a notice to such person requiring him to show cause within such period as may be specified in the notice (being not less than ten days from the date of service thereof) why an inquiry should not he held against him. (2) Every notice under sub-rule (1) to any such person shall indicate the nature of contravention alleged to have been committed by him. (3) After considering the cause, if any, s....
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....s he thinks fit, in accordance with provisions of Section 13 of the Act. (9) Every order made under sub-rule (8) of the Rule 4 shall specify the provisions of the Act or of the rules, regulations, notifications, direction or orders or any condition subject to which an authorisation is issued by the Reserve Bank of India in respect of which contravention has taken place and shall contain reasons for such decisions. (10) Every order made under sub-rule (8) shall be dated and signed by the Adjudicating Authority. (11) A copy of the order made under sub-rule (8) of the Rule 4 shall be supplied free of charge to the person against whom the order is made and all other copies of proceedings shall be supplied to him on payment of copying fee @ Rs. 2 per page, (12) The copying fee referred to in sub-rule (11) shall be paid in cash or in the form of demand draft in favour of the Adjudicating Authority. 36. It is submitted that there is a violation of sub- rule (1) and (3) of Rule 4 of the Adjudication Rules thereby vitiating the entire proceedings, Rule 4(1) of the FEMA Rules 2000 prescribes that in the first stage, the adjudicating authority has to iss....
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....undantly clear that the manner, method and procedure of adjudication are completely structured by the statute and the Rules. The authority is bound to follow the prescribed procedure under the statute and the Rules and is not free and entitled to devise its own procedure for making inquiry while adjudicating under Section 13 of the Act since it is under legislative mandate to undertake adjudication and hold inquiry in the prescribed manner after giving the person alleged to have committed contravention against whom a complaint has been made, a reasonable opportunity of being heard for the purpose of imposing any penalty. The discretion of the authority is so well structured by the statute and the Rules: 18. The Rules do not provide and empower the adjudicating authority to straightaway make any inquiry into allegations of contravention against any person against whom a complaint has been received by it. Rule 4 of the Rules mandates that for the purpose of adjudication whether any person has committed any contravention, the adjudicating authority shall issue a notice to such person requiring him to show cause as to why an inquiry should not be held against him. It is clear ....
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....the detection of crime, might make it impossible to obtain certain clauses of essential information at all in the future (see R. v. Secy. of State for Home Deptt., ex p H [1995 QB 43: (1994) 3 WLR 1110: (1995) 1 All ER 479 (CA)]). The concept of fairness may require the adjudicating authority to furnish copies of those documents upon which reliance has been placed by him to issue show-cause notice requiring the noticee to explain as to why an inquiry under Section 16 of the Act should not be initiated. To this extent, the principles of natural justice and concept of fairness are required to be read into Rule 4(1) of the Rules Fair procedure and the principles of natural Justice are in-built into the Rules. A noticee is always entitled to satisfy the adjudicating authority that those very documents upon which reliance has been placed do not make out even a prima facie case requiring any further inquiry. In such view of the matter, we hold that all such documents relied on by the authority are required to be furnished to the noticee enabling him to show a proper cause as to why an inquiry should not be held against him though the Rules do not provide for the same. Such a fai....
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....quiries, the inquiry officer is not required to form any opinion before conclusion of the inquiry. On the other hand, the scheme of Rule 4 of the Adjudication Rules is quite different and the same is required to be examined both for the purpose of considering the last alternative submission of the petitioner about breach of Rule 4 of the Adjudicating Rules and also for considering the aforesaid preliminary objection raised by the learned Additional Solicitor General about maintainability of the Writ Petition. On reading the above Rule, particularly sub-rules (1) and (3) thereof, it is clear that on the issue of show cause notice, a noticee is permitted to submit his reply to the same. In terms of the above Rule. the Adjudicating Authority has to consider the objections raised by the noticee and only if he forms an opinion that an inquiry should be continued further that the Adjudicating proceedings can be proceeded with, by issuing a notice for personal hearing However, if the Adjudicating Authority is satisfied that the objections raised to the notice are valid, he may drop the show cause notice. The provision as found in Rule 4 of the Adjudication Rules is a unique provi....
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....vam Development Trust v. Union of India-2016 (340) E.LT. 45 (Guj.), held "Recovery of fine when show cause notice having no proposal for imposition of fine in lieu of confiscation Order-in- original not having any directions that fine would be borne by noticee; In such case, Department could not recover fine from noticee. [para 6] The Hon'ble High Court of Gujarat at Ahmedabad, in Krishna Trading Co. Versus Addl. Director General of Foreign Trade-2016 (336) E.L.T. 449 (Guj.), on the same issue held as below; 10. Moreover, by the impugned order, a fiscal penalty of Rs. 25 crores has been imposed upon the petitioner firm under Section 11(2) of the Foreign Trade (Development and Regulation) Act. From the record of the case as referred to hereinabove, it is evident that at no point of time were the petitioners put to any notice as regards any proposal to impose any penalty upon them. Under the circumstances, the order of penalty, which has been imposed without issuing any notice to the petitioners in respect thereof, clearly suffers from the vice of breach of the principles of natural justice. 43. The Hon'ble High Court of Karnataka at Bengaluru in CCE, C. & ST, Belgaum ....
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....g disclosed in detail in the interest of brevity and also as the same are not to be of much relevance to the present proceedings under FEMA, 1999. 47. It is next contended that Penalty under section 13 of FEMA is directly related to the sum involved. The Ld. Respondent failed to ascertain this basic ingredient contemplated under section 13 of FEMA, 1999 for imposing penalty on the Appellant. The respondent mechanically picked up the figure Rs 4,30,20,224/- mentioned at para 27 of DRI show cause notice and erroneously concluded it as "sum involved" and imposed penalty. It is a mistaken assumption, Para 27 of DRI show cause notice only contains allegation. The amount (value) mentioned at Para 27 of DRI show cause notice is the alleged differential value to arrive at the alleged customs duty evasion and for demanding differential customs duty allegedly short levied or non- levied under section 28 of the Customs Act. Value as defined under the Customs Act is of no relevance for imposing penalty under section 13 of FEMA. 48. It is contended that as already submitted, the Customs Act 1962 and FEMA are two different Acts which operate in separate field. The principal purpose and pur....
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....FEMA, reveals the said section will come in play only when there is dealing of any nature as specified therein takes place in "foreign exchange"; the heading of Section 3 reads as " DEALING IN FOREIGN EXCHANGE before Invoking section 3(b) of FEMA, it has to be established that the payment to or for the credit of any person resident outside India has been made in foreign exchange only. From the above, and aim and object of FEMA: FEMA is aimed at consolidating and amending the law relating to foreign exchange and also facilitating external trade and promoting orderly development and maintenance of forex market in India, in these circumstances invocation of provisions of FEMA is without authority of law, any order passed on such an illegal notice is unsustainable in law and liable to be set aside. 51. In light of the above contentions, it is prayed by the appellant that the impugned order be quashed and set aside. Arguments on Behalf of the Respondent 52. The respondents have strongly opposed the arguments put forward on by the learned counsel for the appellant. It is firstly submitted that the present case arose out of a case of undervaluation of imports booked under the Cus....
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.... though related contraventions under the respective Acts. The respondent Directorate independently recorded the statements of the appellant under FEMA, 1999 on 09.03.2011, 04.04.2011, 23.09.2011 and 08.12.2011 in which he confirmed his earlier statements before the DRI and explained in detail not only the modus operandi adopted by him for under-invoicing, but also payment of the price differential in cash to the representatives of the overseas suppliers. Other verifications were also carried out, including letters sent to and reply received from the Citibank, Surat confirming the remittances made against imports made by the Shree Laxmi Trading Company, though, admittedly, the investigations in this case primarily relied on the statements of the appellant. There is no bar on the empowered agency under one Act utilizing the information and findings of the investigations conducted by another law-enforcement agency investigating the case from its own angle under another Act. In fact, it is considered good practice for law enforcement agencies to share information which may be relevance to each other so that appropriate investigation can be undertaken by the other agency on issues undue....
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....not have been relied upon by the respondents. I have considered the submissions. Perusal of para 4 of the impugned order reveals that statements of the appellant under section 37 of the Act were recorded on 04.04.2011 wherein he confirmed the admissions made in his statements dated 26.09.07, 28.09.07, 27.11.07, 12.12.07 and 29.02.08 before the DRI. As has been pointed out by the learned adjudicating authority, the statements were recorded over a period of 9 months. Furthermore, they were recorded nearly four years after the DRI had recorded his statements and yet the appellant Shri Jariwala, confirmed the facts stated to the officers of the DRI during the investigation under Customs Act. The learned adjudicating authority has further pointed out that the statements had not been retracted even upto the time of passing the adjudication order. Keeping in view the time horizon over which the statements were recorded the consistency in the admissions made before the two authorities, I am of the view that the allegation of threat and duress are clearly an afterthought on the part of the appellant to escape liability under FEMA, 1999. 57. In the above context, I have also perused the d....
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....o the authorities to now place reliance on the aforesaid statement, while proceeding to take penal action against the Appellant, in furtherance of the aforesaid memorandum dated 12.03.1990. Furthermore, the appellant in that case had expressly refuted having executed any statement on 20.04.1989. Under the circumstances, the Hon'ble Supreme Court observed that it was imperative for the ED to establish through cogent evidence that the appellant had indeed made such a statement on 20.04.1989. There was also a clear-cut finding in that case that the second statement was recorded by the Directorate, when the appellant was in custody of the ED. Comparable facts simply do not exist in the present case. Moreover, even the legal position is vastly different Vinod Solanki case was decided under the erstwhile FERA, 1973 which was a much more stringent piece of legislation and inter-alia granted the power of arrest to ED which it exercised in that case. The FEMA, 1999 does not bestow any such power upon the ED. 59. The next contention of the appellant is that the Show Cause Notice (SCN) was vague. It is also contended that there was no proposal in the SCN to impose penalty on the appellant ....
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....„A‟) enclosing the following documents: "ANNEXURE "A" 1. Show Cause Notice No. DRI/SRU/INV-II/2007 dt.13.03.2008 issued by DRI, Ahmedabad along with its annexures to Shri Devendra Mulchanddas Jariwala, Karta/ Proprietor of M/s Shree Laxmi Trading Company. 2. Statement dt. 26.09.2007, 28.09.2007,27.11.2007,12.12.2007 and 29.02.2008 given by Shri Devendra Mulchanddas Jariwala, KARTA/Proprietor of M/s Shree Laxmi Trading Company before DRI, Surat. 3. Statement dt. 09.03.2011, 04.04.2011,27.11.2007,23.09.2011 and 08.12.2011 given by Shri Devendra Mulchanddas Jariwala, before the Assistant Director, Directorate of Enforcement, Ahmedabad. 4. Letters dated 14.07.2011 & 24.08.2011 from Citibank, Ghod Dod Branch, Surat along with its enclosures. 63. Having perused the aforesaid documents, I find that the SCN, the attached Complaint and the documents annexed thereto as "Annexure-A", when read together as one, convey very specific allegations against the appellant as well as the material being relied upon in support of the said allegations. I do not find anything vague about the same as alleged by the appellant. Accordingly, I reject....
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.... in pursuance thereof was passed on 30.01.2013. Thus, it is evident that there was a considerable time gap between the date of issue of the notice and the date of passing the adjudication order. I also note that under Section 16 of FEMA, 1999 the Central Government is authorised to appoint as many officers as it may think fit as adjudicating authority. In all likelihood, in the interim period between the date of issue of the notice and the passing of the impugned order, the jurisdiction of the adjudicating authority changed. Needless to say, once a notice has been issued and the proceedings have commenced, the same shall not come to an abrupt end upon change of the incumbency in the post of the designated adjudicating officer and the proceedings can be continued by the new incumbent appointed as adjudicating authority and continuation of the proceedings already initiated and ongoing would not necessitate issue of a fresh SCN by the new incumbent. No doubt, in the interest of natural justice, the new incumbent would be expected to provide another opportunity of being heard to the affected person before passing an order based on the material already brought on record by his predecess....
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....he Rules. The Authority is bound to follow the prescribed procedure under the statute and the Rules and is not free and entitled to devise its own procedure for making inquiry while adjudicating under Section 13 of the Act since it is under legislative mandate to undertake adjudication and hold inquiry in the prescribed manner after giving the person alleged to have committed contravention against whom a complaint has been made, a reasonable opportunity of being heard for the purpose of imposing any penalty. The discretion of the Authority is so well structured by the statute and the Rules. 18. The Rules do not provide and empower the Adjudicating Authority to straightaway make any inquiry into allegations of contravention against any person against whom a complaint has been received by it. Rule 4 of the Rules mandates that for the purpose of adjudication whether any person has committed any contravention, the Adjudicating Authority shall issue a notice to such person requiring him to show cause as to why an inquiry should not be held against him. It is clear from a bare reading of the rule that show cause notice to be so issued is not for the purposes of making any adjudi....
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....rn proposing imposition of penalty under section 13 of FEMA, 1999. In the next para, namely, para 6 of the same order, it is further observed that as nothing was heard from the noticee, a hearing notice was issued on 07.08.2012. From the above, it is evident that prior to the issue of SCN, the adjudicating authority had already discussed the factual background of the case and come to a prima facie conclusion that M/s Shree Lakshmi Trading Company had contravened the provisions of FEMA, 1999 for which it prima facie appeared to be liable for penalty under Section 13. Since nothing was heard from the side of the appellant in response to the SCN, no new light was thrown upon the subject from the appellant's side. Therefore, there was no reason for any change in the opinion formed by the authority and the authority issued notices of hearing in the matter. Considering the above sequence of events, I do not find any illegality in the action of the learned adjudicating authority. 68. An issue has also been raised regarding the determination of "sum involved" in the contravention which is the basis of imposition of penalty u/s 13 of FEMA, 1999. It is contended that for the purpose of le....