Allowed

FPA-FE-8/HYD/2014 of M/s. Khazana v/s The Special Director, Directorate of Enforcement, Hyderabad

ATFP12 Oct 2018FPA-FE-8/HYD/2014

Case brief

AI extract

What is this about?

Two appeals challenging penalty orders under the Foreign Exchange Management Act were allowed. The Tribunal quashed the proceedings, holding that enforcing departments cannot initiate cases based on settled customs matters without independent investigation or specific findings.

What did the court decide?

Both appeals allowed; impugned orders for imposing penalty dated 06.01.2014 set aside.

FPA-FE-8/HYD/2014 of M/s. Khazana v/s The Special Director… — Customs and Excise | ATFP (2018)

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APPELLATE TRIBUNAL, FOREIGN EXCHANGE MANAGEMENT ACT AT NEW DELHI

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Date of Decision : 12th October, 2018

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1. FPA-FE-8/HYD/2014

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M/s. Khazana ... Appellant Versus The Special Director, … Respondent Directorate of Enforcement, Hyderabad

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2. FPA-FE-9/HYD/2014

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Shri Bhawant Anand ... Appellant Versus The Special Director, … Respondent Directorate of Enforcement, Hyderabad

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Advocates/Authorized Representatives who appeared

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For the appellant : Ms. Jyoti Rajput, Advocate Ms. Radha Rani Tarkar, Advocate For the respondent : Shri Prashant Pandey, Legal Consultant Mrs. Aagam Kaur, Legal Consultant

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CORAM JUSTICE MANMOHAN SINGH : CHAIRMAN

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JUDGEMENT

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FPA-FE-8/HYD/2014 and FPA-FE-9/HYD/2014

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The present appeal is filed against imposition of penalty of Rs.10,00,000/- and Rs.2,00,000/- on the co-appellant on the charge of violation of Section 3(b), 3(d) and 3(c) of FEMA against the Order dated 06.01.2014.

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The main appellant is engaged in the business of selling furniture, which is partly locally sourced and partly imported from China. Directorate of Revenue Intelligence, Hyderabad (DRI) conducted an investigation against the

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FPA-FE-8 & 9/HYD/2014

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appellants on the grounds of under valuation of imported goods during 2008. The appellants did not admit the allegation of undervaluation before the officers of DRI and the Managing Partner of the appellant firm had given retractions against the custodial statements recorded from him.

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After investigation, DRI issued a show cause notice to the appellants demanding customs duty and proposing penalty under the Customs Act, 1962. The appellant approached the Settlement Commission, Chennai for settlement of the case allegedly to buy peace and not to engage in protracted litigation with the department. The case was settled by the Settlement Commission.

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Three years after the case closed by Settlement Commission, Directorate of Enforcement, Hyderabad initiated investigation against the appellants alleging violation of FEMA basing on the notice issued by DRI.

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The Managing Partner of the appellant firm in his statements dated 17.08.2011 and 24.08.2011 given before the officers of Enforcement Directorate denied the allegations being made against the appellants.

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The notice was issued on the ground that the appellant has declared the value of the imported furniture from China i.e. declared furniture worth Rs.5,23,09,733/- as Rs. 3,77,19,136/- and the differential amount was paid in India to the credit of M/s Shenzhen ED and Nicename Import and Export Company of China, a company based outside India during Aug 2006 to Aug2007 otherwise than through an authorised person and in association with acquisition of foreign exchange outside India and the Managing Partner of the appellant received payments of Rs.1,50,00,000/- from Shri Viqaruddinof M/s. Red Rose Construction, Hyderabad, a person resident in India under instructions on behalf of a person resident outside India in contravention to Section 3(b), 3(d) and 3(c)of FEMA and are liable to penalty under Section 13(1) of the Act.

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The appellant in its reply dt. 05.09.2013 denying all the averments made as they were based on mere presumption and assumptions. It is stated that

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FPA-FE-8 & 9/HYD/2014

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the averment in the complaint that the Managing Partner had admitted to undervaluation before the officers of DRIis absolutely false and a made-up statement since he had never accepted the undervaluation. The appellant also requested for cross examination of the complainant for framing up a false case but the same was denied.

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There was no admission of undervaluation even in the application before the Settlement Commission. Filing of application before Settlement Commission is not admission of guilt as held in the case of Bosch Chassis Systems India Ltd vs. CCE, Gurgaon 2008 (232) ELT 622 (Tri-LB). Relevant portion is extracted below for ready reference:

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“11…..there may be good reasons for the assessee to opt for settlement and not contest the show cause notice. Taking recourse to the settlement scheme and the payment of additional/ differential duty on receipt of the show cause notice, therefore, per se may not necessarily treated as admission of guilt. The admission if any, may be found in pleadings of the applicant, that is to say „the manner‟ in which he seeks to explain the occurrence of the liability.“

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The learned counsel for the respondent does not dispute that the appellant had requested for cross-examination of witness which is denied by the respondent on various reasons. It is also stated by the learned counsel for the respondent that mere bald retraction of the earlier statement would not absolve the burden of proof from the accused when the evidence is available against him, therefore, the charges against the appellant under Section 9(1)(b) is well established. The counsel for the respondent in fact has quoted the impugned order and requested that the appeal be dismissed.

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There is no denial on the part of the learned counsel for the respondent about the order passed by the Settlement Commission. The appellant has also deposited the amount as per the order of Settlement Commission. It is the case of the appellant that the denial of witness was not correct. The entire proceedings have been commenced from the DRI case, without an iota of independent investigation under FEMA.

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FPA-FE-8 & 9/HYD/2014

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It is rightly argued that the adjudication proceeding is against the provisions of law. A show cause notice which does not discharge the initial burden of specifying the charges against him and also the evidences relied upon has no legality. The proceedings are to be dropped on this ground alone for want of clarity as to the contraventions alleged and independent evidences relied under FEMA as held in the following cases:

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(i) In the case of S.K. Mittal vs. ED [2003) 45 SCL 552 (ATFFE -N. DELHI) the Tribunal has held that in the absence of specific finding on the charges, order is to be set aside.

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(ii) In the case of CCE vs. Brindavan Beverages Ltd, 2007 (213) E.L.T 487 (S.C) the Hon‟ble Apex Court has laid down that “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 notice was not given proper opportunity to meet the allegations indicated in the show cause notice.”

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The statements are duly retracted as held in the case of VintexEngg Exports Ltd vs. ED 2013 (295) ELT 331 . The documents relied upon by the DRI in issuing the show cause notice in the Customs case was based completely on third party documents and evidences without any independent evidences corroborating them.

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It is argued by the appellant that the bold allegations of violation of Section 3(b), 3(c) and 3(d) cannot be merely made on certain presumptions and assumptions unless the initial burden of corroborating them with material evidence is discharged. Making payment of foreign exchange or receiving any foreign exchange from other than authorized channels or making any unauthorised financial transaction needs to be duly proved by providing cogent details of how, when, from whom, by what manner they have been made. If

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FPA-FE-8 & 9/HYD/2014

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any allegation of the transaction is unauthorized has to be alleged, that has to be supported with valid evidence as held in the following cases:

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(a) K. Narayanswamy vs. ED, AIR 1983 Mad 53

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(b) Union of India vs. M.S.S. Food Products Ltd 2011 (264) E.L.T. 165 (M.P)

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The counsel for the respondent has not denied the existence of Section 127J of the Customs Act, 1962. It is not denied that such proceedings have not covered rather amendment was incorporated in Section 127 B of the Customs Act. Almost in the similar situation, the Hon‟ble High Court of Delhi in the case of “ Standard Surfactants Ltd. Vs Union of India (UOI)and Ors. on 14^th December,2004 , in para 17 has held, as under:

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“17. In my considered view, the most important aspect is the import of the order of the Settlement Commission dt. 4^th Sept.,2002. This is so since it is not disputed that this order was never challenged any further and attained finality. That being the position, even the respondents have accepted the said order. It cannot be said that the respondents herein are not bound by the said order since the order was passed with the Customs Department as the respondent. This is so sine the liability has arisen only on account of customs duty and not on account of any other separate levy under the Foreign Exchange Trade Act. Normally, the party importing the goods would be liable to pay duty at the stage of import. An exemption is provided for where a party importing the goods meets certain export obligations. This is done with the object of encouraging exports. The failure to comply with the export obligations would naturally imply that the duty ought to have been paid and, thus, the liability is not only for the duty, but also for penalty and interest.”

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It is stated on behalf of the appellants that ED without conducting any independent inquiry has simply on the basis of few documents sent by DRI issued a show cause notice to the appellants for alleged under-valuation of furniture imported from China during the year 2006-07 and thereby alleging violation of the provisions of section 3(b), 3(d) and 3(c) of the Foreign Exchange Management Act, 1999 (“the Act”) read with Section 42(1) of the Act.

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The show cause notice relied solely on the DRI case which had been settled and closed by the Settlement Commission in 2009 itself. Initiation of proceedings is incorrect when the issue has already been settled by the

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FPA-FE-8 & 9/HYD/2014

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Settlement Commission. This is against the statutory mandate laid down under provisions of Section 127J of the Customs Act, 1962 which stipulates that no matter covered by such orders shall be reopened in any proceedings under this Act or under any other law for the time being in force.

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In the light of above, both the appeals are allowed. The impugned order dated 06.01.2014 for imposing penalty is accordingly set aside.

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(Justice Manmohan Singh) Chairman

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New Delhi, 12^th Oct., 2018. „skb‟

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FPA-FE-8 & 9/HYD/2014

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FPA-FE-8/HYD/2014 of M/s. Khazana v/s The Special Director, Directorate of Enforcement, Hyderabad

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