TaxTMI 
TaxTMI 
TaxTMI 
2024 (11) TMI 834
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....ent 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 he made payment of differential amount to M/s. S....
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....plier 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 metallic yarn/film falling under Chapter 56 and 39 of the Cust....
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....e 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 show cause notice under the Customs Act 1962. Therefore, the show cause notic....
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....ause 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 contentions against the appellant does not represent true facts. The statements recorded either ....
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.... 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 Management Act-1999 (FEMA); * the statements recorded under section 108 of the Customs Act are not relevant for the pro....
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....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 the goods; that the goods were under- valued compared the contemporaneous import of same or similar goods at or about same time period; cash was handed over to ....
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....;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 substantiate the stand of the appellant, the conclusions of the Commissioner as affirmed by the CEGAT cannot be faulted." 32. The judgment of the Hon'ble Calcutta High Court in the cas....
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....ugned 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, shown by such person, the Adjudicating Authority is of the opinion that an inquiry should be held, he shall issue a notice fixing a date for the appearance of that person either personally or through his legal practitioner or a ch....
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....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 issue a notice requiring the person to show the cause as to why an enquiry should not be held against him. The stage of the notice under Rule 4(1) is not for adjudication but is for the purpose of deciding whether an enquiry should be held or not. On issue of show cause notice, the noticee is permitted ....
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....der 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 adjudication into alleged contravention but only for the purpose of deciding whether an inquiry should be held against him or not. Every such notice is required to indicate the nature of contravention alleged t....
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....ents 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 fair reading of the provision would not amount to supplanting the procedure laid down and would in no manner frustrate the apparent purpose of the statue" 39. It is submitted that the Hon'ble Supreme Court distinguished between the initial stage under Rule 4(1) which is only for the purpose of deciding whether an enquiry has to be ....
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....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 provision. The Counsel for the parties were not able to point out any similar rules under which a two tier adjudication of a show cause notice is provided for in any other statute Normally, once a show cause notice has been issued, the Adjudicating Authority deals with all the objections of the noticee, be it preliminary as well as any other defence, by passing o....
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.... 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 versus Swarnagiri Wire Insulations Pvt. Ltd- 2014 (301) ELT. 46 (Kar.), is also cited wherein, while considering the order passed without proposal in the show cause notice has held that Adjudication order is to be confined to the proposal made in the show cause notice and without mentioning the amount proposed to be recovered as penalty, no order could be passed and any order pa....
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....pellant. 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 purport of DRI investigation was only to find out if there is evasion of Customs Duty, since the goods imported by the Appellant were chargeable to duty on "ad- valorem" basis, hence to ascertain duty evasion, if any, the investigation was valuation centered; whereas the object and intent of FEMA, 1999 is relating to foreign exchange with object of facilitating external trade and payments an....
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....e 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 Customs Act, 1962 wherein a search was conducted by the Directorate of Revenue Intelligence (DRI). In his statements before the DRI, the appellant admitted under-valuation of imports. During the proceedings under FEMA, 1999, in his statements recorded by ED, he once again reiterated and reconfirmed the admissions made in his statements before the DRI. The aforesaid admissions made by him in the state....
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....sh 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 its domain. As such, I do not find any merit in these contentions of the appellant. 55. A connected issue raised by the appellant is regarding the competence of the DRI to conduct investigations under the Customs Act, 1962. It is contended that the Hon'ble Supreme Court has held that the Directorate of Revenue Intelligence has no authority to issue Show Cause Notice under the Customs Act, 1962. Detail....
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....ty, 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 decision of the Hon'ble Supreme Court in the case of Vinod Solanki, 2009 (233) ELT 157 (SC) which has been relied upon by the appellant in support of the contention that the burden is on the department to prove that the appellant's statement was voluntary. I find that the facts of the said case are significantly different from those obtaining in the present case. The allegation of the appellant in that case wa....
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....gent 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 under any section of FEMA, 1999. Therefore, the respondent traversed beyond the SCN by levying penalty without any proposal to do so in the SCN. A series of decisions of various higher judicial authorities under various laws have been cited in order to contend that before levying penalty, the person concerned shall be given a notice in writing informing him of the grounds on which penalty is proposed to be impose....
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....ing 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 these contentions of the appellants. However, a further contention of the appellant, based primarily on the decision of the erstwhile Appellate Tribunal for Foreign Exchange (ATFE) in Mittal Ispat Limited v. Enforcement Directorate reported in 349 ELT 513 ATFE is that merely enclosing a copy of the Complaint with the SCN cannot be said to be sufficient compliance with the legal requirement. The Directorate is obliged to establish that the defense was not prejudiced in....
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....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 predecessor. But the law does not mandate that he should issue a fresh SCN and re- initiate the entire process. The process already initiated for adjudication can be continued until the final order is passed regardless of any change in incumbency. I find that nothing has been brought on record by the appellant to indicate how the passing of order by a different officer than the one who originally issued the SCN has caused any prejudice to the appellant. It has not even been alleg....
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....pose 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 adjudication into alleged contravention but only for the purpose of deciding whether an inquiry should be held against him or not. Every such notice is required to indicate the nature of contravention alleged to have been committed by the person concerned. That after taking the cause, if any, shown by such person, the Adjudicating Authority is required to form an opinion as to whether an inquiry is required to be held into the allegations of contravention. It is only then the real and substan....
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.... 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 levy of penalty, the Ld. Adjudicating Authority mechanically picked up the figure of Rs. 4,30, 20,224/- mentioned in para 27 of DRI SCN and concluded it as the "sum involved" and imposed penalty accordingly. It is contended that the said amount is the differential value to arrive at the alleged customs duty evasion and for demanding differential customs duty and has no relevance for imposing penalty u/s 13 of the FEMA, 1999. 69. I have considered the above submission. A very specific admission....