TaxTMI 
TaxTMI 
2026 (10) TMI 476
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....) imposed the penalty of Rs. 75,00,00,000/- on Appellant M/s Sachdev Overseas Fitness Pvt. Ltd. for the contraventions of Sections 3(a) and 3(b) of the Foreign Exchange Management Act, 1999 (FEMA) to the extent of USD 17,446,534/- approximately equivalent to Rs. 104 Crores. Further penalty of Rs. 25,00,00,000/- was imposed on the Appellant Shri Prem Kumar Sachdev, Director of M/s Sachdev Overseas Fitness Pvt. Ltd. vide the Impugned Order, for the aforementioned contraventions in terms of Section 42 (1) of FEMA. 2. Ld. Counsel for the Appellants submitted that the Impugned Order has been passed without appreciating the facts and circumstances of the case. The entire case was made out on reference from the Directorate of Revenue Intelligence (DRI) which had searched the Office and the residence premises on 03.03.2016. During the course of searches, certain documents were seized by the DRI Officers along with data storage devices viz. hard discs and pen drive, and they also seized 7 containers lying at ICD, Sanathnagar, Hyderabad, containing fitness equipment. After conducting their investigations, a Show Cause Notice bearing No. DRI/HZU/26D/ENQ-01(INT-03)/2016, dated 20.10.2016 wa....
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....his signature in token of identification, stated that he had no idea about the context in which Shri Durga Prasad @ Rajan Khera had mentioned his name. Ld. Counsel submitted that Shri Sachdev had informed that there was an Agreement entered with M/s Lucky Parters Investment Ltd., Taiwan on 06.04.2010, whereby they were entitled for 35% discount for a turnover of over USD 5 million every year. The supplier gave turnover/quantity discount on his procurement price based on the assured Orders placed for each financial year. The Appellant was not aware as to how much discount the supplier in Taiwan would have received from the manufacturer in China. He asserted that the supplier in Taiwan would have received more discount than given to the Appellant Company. Shri Sachdev denied having knowledge about the invoice of M/s Xiamen K-Power Trading Co. Ltd. Ld. Counsel contended that the total differential value of 728 imports made by SOFPL during the period from October, 2011 to February, 2016 estimated as USD 1,74,46,534 was based on the imagination of the DRI. Ld. Counsel submitted that certificate from Chartered Accountant demonstrates that no cash was generated from the business and hence....
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....ragraph 5.8 of the Impugned Order that the recovery of the pen drive from the residential premises of Shri Prem Kumar Sachdev was not disputed. In this regard, Ld. Counsel further submitted that the pen drive recovered from the residence of Shri Prem Kumar Sachdev on 03.03.2016 was not the one that was deciphered by CSFL. While the Pen drive seized from the residence of Shri Prem Kumar Sachdev on 03.03.2016 was "Kingston 1GB SL No. KF041608" as per Panchanama dated 03.03.2016, the pen drive from which the alleged statement of account was retrieved was "Kingston No.04235-328, capacity 01 GB" as per Examination Report dated 10.05.2016 of CFSL. As such the entire adjudication proceedings based on the contents of the aforesaid pen drive are not sustainable. Ld. Counsel for the Appellants pleaded to allow the Appeals. 5. Ld. Counsel for the Respondent Directorate submitted that the examination of live consignment, imported by SOFPL at ICD, Sanath Nagar, Hyderabad vide Bill of Entry No. 4244143 dated 13.02.2016 was conducted on 09.03.2016. During the course of recording of Panchnama, Shri Prem Kumar Sachdev admitted that the goods under import have been undervalued in range of 32% to ....
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....ellants that the contents of the pen drive seized from the residential premises of individual Appellant has no evidentiary value. In this regard, it is seen that no dispute regarding the recovery and seizure of the pen drive from the residential premises of the individual Appellant, during the search operation conducted by the Directorate of Revenue Intelligence on 03.03.2016 has been raised by the Appellants. However, the Appellants have joined the issue with respect to the admissibility of the contents of the said pen drive submitting that the contents of the seized pen drive were not admissible. Ld. Counsel contended that the contents of the pen drive were examined by the Central Forensic Science Laboratory, Hyderabad and examination report was issued by the CFSL on 10.05.2016. Therefore, there cannot be any dispute regarding the contents of the said pen drive as the contents have been certified by the CFSL, Hyderabad. 6. Ld. Counsel for the Respondent Directorate submitted that regarding the admissibility of the seized pen drive, it is necessary to reproduce Section 39 of FEMA, which states that: "39. Presumption as to documents in certain cases.-Where any document-....
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....n regarding the truth of the contents of the Pen drive seized from the premises of the individual Appellant. Although this is a rebuttable presumption, the Appellants have to produce sufficient evidence in this regard to rebut the presumption. Merely stating that contents of the seized pen drive have no evidentiary value would not be sufficient enough to rebut the presumption under Section 39 of FEMA. As such, contention of the Appellants regarding the admissibility of the contents of the pen drive seized from the residential premises of the individual Appellant cannot be accepted. 7. Ld. Counsel for the Respondent Directorate further submitted the following observations made in the Impugned Order: "5.12 .........It is irrational to believe that Supplier is giving a discount to the Noticee Company while paying the full price to the manufacturer himself. If the supplier has received equivalent or more compensation from the manufactures, no evidence in this respect has been produced by the Noticees. The so called agreement says that 35% discount would be given on CIF, if the slab is $5 million or above. Just to take one example, in Invoice No 11KTE283 dated 16.12.2011, th....
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....t with the overseas supplier, especially if the agreement is an unsupported, standalone document, would not allow the importer to escape from the charges under FEMA, 1999, if the charges are well supported by the recovery of documents, bank statements, manufacturer's invoices, packing lists, supplier's invoices etc. Therefore, as already held by me, the agreement between the overseas supplier and the Indian entities cannot be taken into consideration and it has to be considered as a sham agreement. 5.14 From the pen drive seized from the residential premises of Noticee no 2 (individual Appellant herein), one excel file titled 2012-13 PS containing several sheets numbered from sheet 54 to 65 was retrieved. The contents of the seized pen drive contains details in respect of the invoice number raised by the overseas supplier based in Taiwan, goods imported, actual invoice value of the supplier in US $, the handling charges in US $, Name of the Manufacturer and the previous balance in US $. These details are given in the section marked as debit. It begins with "Dear Premji". In this context, it is useful to note that the name of Noticee No 2 is Prem Kumar Sachdev. In t....
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....king channels. Thus, contents of the seized pen drive are true and correct as can be seen from the fact that it is fully corroborated by supplier's invoices, banking transactions, manufacturer's invoices and packing lists. 5.16 It has been contended by the Noticees that the entries in the seized pen drive pertain to the period up to 21.10.2014 and that percentage of under valuation worked out from the entries in the pen drive was adopted for a later period without any corroborative evidence. However, it is seen that for the subsequent period too, the under invoicing continued as before. In this regard, it is seen that documents recovered from the office premises of M/s Sachdev Overseas Fitness Pvt Ltd, Secunderabad under Panchanama dated 03.03.2016 contained certain invoices of the Chinese Manufacturer pertaining to the period after 21.10.2014. Commercial Invoice bearing number 14KTE0885E-2 dated 17.12.2014 drawn by M/s Xiamen K-Power Trading Co Ltd, China on Argain Company Ltd Lucky Partners Ltd has invoice value of US $ 53,344.29 whereas the Supplier's corresponding invoice bearing number SV-045 dated 19.12.2014 drawn on the Noticee Company has the invoice va....
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....olation must be assessed from a robust and common-sense perspective. Clandestine violations take place under the cloak of secrecy. To impose a burden of establishing in an adjudication proceeding, every conceivable link of an unlawful transaction would result in a manifest failure of justice and would defeat the underlying purpose of the Act." Ld. Counsel contended that not only the Appellant Company indulged in contraventions of Sections 3(a) and 3(b) of FEMA, but also the individual Appellant being in-charge of Company and having run its affairs is also liable for penalty for the said contraventions in terms of Section 42(1) of FEMA. Ld. Counsel therefore pleaded to dismiss the Appeals. 9. We have considered the rival submissions and the material on record. Ld. Counsel for the Appellants strongly pleaded that the Customs, Excise and Service Tax Appellate Tribunal, Hyderabad vide its Final Order No. A/30053/2022 dated 19.04.2022 in Customs Appeal No. 30546 of 2019 did not interfere with the Order dated 19.07.2019 passed by the Commissioner of Customs, Hyderabad and dismissed the Appeal against the said Order dated 19.07.2019 filed by the Department. Ld. Counsel submitted tha....
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....tly by the manufacturer from China to the respondent (Appellants herein). According to the Revenue, the trader's invoices are fraudulent and manipulated Invoices. Insofar as the first part of the demand indicated in paragraph 10 (a) above is concerned, the EXCEL sheets in the pen drive as well as the invoices recovered during the searches form the basis for the doubt. As far as the second and third parts of the demand indicated in paragraphs 10 (b) and 10 (c) are concerned, the doubt is based on projections." Ld. Customs Tribunal has gone on to further observe in Paragraph 24 of its Order (supra) the following: "As may be seen, the proposal to reject the transaction value in respect of those imports listed in WORKSHEET II to the SCN [indicated in paragraph 10 (a) above] is based on the EXCEL sheet recovered from the Pen drive recovered from the residence of Shri Sachdev of the respondent (Appellant herein) and the copies of invoices recovered from the office of the respondent. As for the imports listed in WORKSHEET IIIA to the SCN [Indicated in paragraph 10(b) above] and WORKSHEET IV to the SCN [Indicated in paragraph 10(c) above], they are based on projections and ....
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....s. In other words, the trader companies in Taiwan are in the business of running their business so as to incur a loss of 30% in every transaction. This is sufficient reason to doubt the truth and accuracy of the invoices issued by them as no prudent man will run his business so as to lose 30% on each and every transaction more so, when they are back-to-back deals and not where the trader has some old stock left which he clears selling at a price below his purchase price. The submission of the learned counsel for the respondent (Appellants herein) before us is that they are getting a quantity discount as per the agreement with the trader in Taiwan whereby they get the goods at a price 30% lower than the manufacturer's price. Trade discount is a common business practice to encourage larger purchases. The seller gives a discount in the price so as to increase volumes of sale. Trade discount can take various forms but all have one objective-increase the sales so that even though the seller loses some profit on each item sold, the overall profits are higher because of larger volumes and he also increases his market share. However, the trade discount is not given so as to lose money ....
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.... and leave it at the house of the individual Appellant. The Ld. Customs Tribunal rejected the explanation of the Appellants that repeated trade discounts were granted by the Supplier in Taiwan to them in spite of having obtained the goods from the manufacturer in China at higher price. In such eventuality, repeated trade discounts would only result in losses as nothing was produced to show increase in sales and in profits due to trade discounts. Moreover, paragraphs 5.12 and 5.13 of the Impugned Order has discussed at length, how the agreement dated 06.04.2010 entered between the overseas supplier and M/s Sachdev Overseas, which was extended by the Appellant Company was nothing, but a sham agreement. These paragraphs have been reproduced by the Ld. Counsel for the Respondent Directorate in paragraph 7 of this Order. 13. The Ld. Customs Tribunal however, did not accept under valuation in those transactions, which were worked out by the DRI on the basis of projections and extrapolations. While accepting that the pen drive did show the names of the persons, through whom the alleged additional cash payments were made to the supplier in Taiwan, the Ld. Customs Tribunal rejected such ....
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....es including the pen drive could not have been provided by anyone else other than the individual Appellant. Ld. Customs Tribunal has also rejected that the difference in value between the invoices submitted to Customs and the value at which the Chinese manufacturer issued the invoices was attributable to the trade discounts. It is also noted that the names of the individuals appear in the pen drive, who allegedly paid in cash to Shri Rajan Khera, the supplier in Taiwan. However, for certain reasons as mentioned in the preceding paragraph, the evidential value of the pen drives has been rejected by the Ld. Customs Tribunal. On perusal of the statement dated 07.03.2016 of the individual Appellant of Shri Prem Kumar Sachdev recorded under Section 108 of the Customs Act, 1962, it is clear that the individual Appellant would place the import orders detailing the model number, the sources i.e. the Chinese manufacturer, the quantity of goods, the delivery schedule, the delivery address, the port of discharge etc. on Shri Rajan Khera, who in turn place the order on the Chinese manufacturer and thereupon the goods were directly shipped from China to India. The individual Appellant has also ....
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....f the contents of the seized devices as stored in the Pen Drive marked CCH2016PD. We also reject the contention that any prejudice was caused to the Appellants by not handing over the data as certified by CFSL to the individual Appellant. We note that even the Ld. Customs Tribunal has attributed the data in the seized electronic devices to the individual Appellant and the truth thereof is established by virtue of presumption under Section 39 of FEMA. In any case there is nothing to show any tampering of the data retrieved by the CFSL. Moreover, the Panchnama dated 03.03.2016 of the search at the office premises of the Appellant Company shows that besides three made up files, two hard disks with detailed description about their make and capacity were seized. Further, the Panchnama dated 03.03.2016 of the residential premises of the individual Appellant that shows besides the made up file there were seizure of one pen drive of make Kingston 1GB and one flash drive of make Kingston 2GB. In this regard, the statement of Shri Prem Kumar Sachdev under Section 108 of the Customs Act, 1962 tendered on 22.09.2016, which is part of the record is revealing and therefore the following part of ....
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....proceeding, every conceivable link of an unlawful transaction would result in a manifest failure of justice and would defeat the underlying purpose of the Act. The standard of proof in an adjudication proceeding cannot be equated with the rigorous standard in a criminal trial. The proof required in an adjudication proceeding is on a preponderance of possibilities. The Department has discharged the burden cast upon it of proving the breach of Sections 3(b) and 3(d)." The very fact that these names were retrieved from the documents recovered from the premises of the individual Appellant and in voluntary statement of his, he had no explanation as to the identification of the person mentioned therein the onus cannot shift to the investigating agency to identify these persons. No burden can be imposed on the investigating agency to establish every conceivable link of an unlawful transaction particularly when such transaction occurs clandestinely. 17. We find that the data in the seized pen drive covered 363 import bills showing under-valuation to the extent of US $ 14,01,850 equivalent to Rs. 7,42,27,152/- as recorded in paragraph 5.12 of the Impugned Order. Even the Appellants in....