2013 (9) TMI 708 - HC - FEMA

Abetment of Contravention of Section 8(3) and 8(4) of FERA - Whether the appellants were liable for abetment of the contravention of Section 8(3) and Section 8(4) of FERA by virtue of having opened a Letter of Credit as a status holder in terms of the provisions of the Export Import Policy and the Handbook of Procedure, in force at the relevant time Held that - Birla Corporation Ltd. vs. Collector of Central Excise 2005 (7) TMI 104 - SUPREME COURT OF INDIA - if no appeal was filed against an earlier order or the earlier appeal involving the identical issue was not pressed by the revenue, the revenue was not entitled to press the other appeals involving the same question - if the department accepted a principle laid down in an earlier case, it should not be permitted to take a contrary stand in a subsequent case - It was further pointed out that the classification of goods adopted in earlier decision must not be slightly disregarded in the subsequent decisions. Both the notices issued under FERA / FEMA, charged the appellants with similar allegation to the effect that Foreign Exchange was acquired for bringing into India the goods of - (i) specific value; and (ii) specific description, but what was brought into India were goods of different value and different quality and hence there was mis-utilisation of foreign exchange and consequent breach of Sections 8(3) and 8(4) of FERA - when the authorities under FERA while issuing notice solely relied upon the investigation carried out by the customs authorities then in such circumstances the authorities under FERA should not have taken a stand contrary to what was taken by the customs - The rational of this Rule was the need for consistency, certainty and predictability in the administration of justice. The manner in which the customs authorities were expected to follow the decision of the licensing authorities in the matter of issuance of license, the custom authority s decision in the matter of classification and valuation are also final vis-a-vis FERA authorities, more particularly, when the custom authorities were the statutory authorities empowered to decide the issue of classification and valuation of goods at the time of import as well as export. Validity of Saving Provisions of Section 49(3) of FEMA - When proceedings commenced prior to 31.05.2002 under erstwhile Section 51 of the FERA were sought to be saved under Section 49(3) of the FEMA Held that - Following Star India Pvt. Ltd. v. Union of India 2010 (12) TMI 657 - BOMBAY HIGH COURT - The adjudicating officer, on taking notice of the alleged contraventions of FERA, had signed the show cause notice on 31st May 2002. Since the adjudicating officer had taken note of the alleged offence on 31st May 2002, which was within the period of two years from the commencement of FEMA as contemplated under Section 49, Clause (3) of the FEMA, the adjudicating officer had the jurisdiction to adjudicate the notice dated 31st May 2002 - The fact that the said notice was served upon the appellant on 4th June 2002 would not invalidate the proceedings initiated by show cause notice dated 31st May 2002, because for the purpose of Section 49, Clause (3) of FEMA, what was relevant is taking notice and not issuance or service of notice. Principles of Natural Justice Held that - On the material on record there had been no such breach - In the show-cause notice issued on August 21, 1961, all the material on which the Customs Authorities have relied was set out and it was then for the appellant to give a suitable explanation - The complaint of the appellant now was that all the persons from whom enquiries were alleged to have been made by the authorities should have been produced to enable it to cross-examine them - the principles of natural justice do not require that in matters like this the persons who have given information should be examined in the presence of the appellant or should be allowed to be cross-examined by them on the statements made before the Customs Authorities. Opportunity to Cross Examination Held that - The refusal on the part of the adjudicating authority to permit the appellants to cross-examine the experts, who had given their opinions as regards classification and valuation of the goods, has really vitiated the entire proceedings - The appellants were absolutely justified to request the adjudicating authority to permit them to cross-examine those experts on the line as to on what basis they had reached to such a conclusion, which was contrary to the other set of opinion. When there was an apparent conflict between the two sets of opinion the appellants were justified in making a request to cross-examine those officers, who had expressed the opinion quite contrary to the one on which the custom authorities had relied upon - We fail to understand what prejudice could have been caused to the department if at all such permission would have been granted - On the other hand, the prejudice seems to have been caused to the appellants as they were not in a position to convince the adjudicating authority and the Appellate Tribunal why the adverse opinion which was in conflict with the first two opinions should have been ignored in absence of opportunity to cross-examine the person who gave such a opinion in writing - It was also not the case of the department that such request was made only with a view to protract the proceedings. Validity of Order - The order impugned travels much beyond the scope of the show cause notice and his clients had no opportunity to explain many relevant aspects which the Tribunal had taken into consideration - it is settled law that a party to whom a show cause notice of this kind was issued must be made aware of the allegations against it - As observed by the Supreme Court in Kaur Singh v. Collector of Central Excise, New Delhi 1996 (11) TMI 84 - SUPREME COURT OF INDIA - this was a requirement of natural justice - Unless the party concerned was put to such notice, he had no opportunity to meet the case against him - Which ground was alleged against the party must be made known to him, and there was no scope for assuming that the ground was implicit in the issuance of show cause notice.

Summary

Issues Involved:
1. Judicial discipline and consistency in tribunal decisions.
2. Duty of the Tribunal to follow CESTAT orders.
3. Correctness of the Tribunal's decision in light of Supreme Court judgments.
4. Liability for abetment under FERA.
5. Applicability of Section 49(3) of FEMA to proceedings initiated under FERA.

Issue-wise Detailed Analysis:

1. Judicial Discipline and Consistency in Tribunal Decisions:
The appellants argued that the Appellate Tribunal for Foreign Exchange should have followed its own prior order dated 28th November 2007 in the case of M/s Contessa Commercial Company Pvt. Ltd., which involved identical facts and circumstances. The Tribunal had previously accepted the findings of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) that there was no misdeclaration or undervaluation. The High Court agreed, emphasizing the need for consistency, certainty, and predictability in the administration of justice. The Court cited several cases to support the principle that quasi-judicial authorities should not take a different stand when similar questions arise.

2. Duty of the Tribunal to Follow CESTAT Orders:
The appellants contended that the Tribunal was bound to follow the CESTAT's decision in their own case, which had held that there was no misdeclaration or undervaluation. The High Court supported this view, stating that the Tribunal should have relied on the CESTAT's judgment, especially since the customs authorities are empowered to decide on the classification and valuation of goods. The Court referred to several Supreme Court decisions that reinforced the finality of customs authorities' decisions on classification and valuation vis-a-vis FERA authorities.

3. Correctness of the Tribunal's Decision in Light of Supreme Court Judgments:
The appellants argued that the Tribunal's decision was incorrect as it did not follow the Supreme Court's judgment in Commissioner of Customs vs. Pentamedia Limited, which held that the imported goods were computer software and were correctly assessed at nil duty. The High Court found merit in this argument, noting that the Tribunal should have considered the Supreme Court's judgment, which supported the appellants' case regarding the classification and valuation of the imported goods.

4. Liability for Abetment under FERA:
The appellants contended that they were not liable for abetment under Section 8(3) and Section 8(4) of FERA as they were merely facilitators of opening Letters of Credit and had not imported the goods themselves. The High Court found that the adjudicating authority had gone beyond the scope of a mere facilitator and had not taken adequate care to safeguard their interests, which was not in conformity with prudent business practice. However, the Court ultimately quashed the Tribunal's order on other grounds, without delving deeply into this issue.

5. Applicability of Section 49(3) of FEMA to Proceedings Initiated under FERA:
The appellants argued that the show cause notice issued on 31st May 2002 and received on 3rd June 2002 was not saved by Section 49(3) of FEMA, which required the adjudicating officer to take notice of any contravention within two years from the commencement of FEMA. The High Court rejected this argument, stating that the adjudicating officer had taken notice of the alleged contravention within the stipulated period by signing the show cause notice on 31st May 2002. The Court held that the relevant date was when the adjudicating officer took notice, not when the notice was received by the appellants.

Conclusion:
The High Court allowed the appeals, quashing the order passed by the Appellate Tribunal for Foreign Exchange. The Court emphasized the need for judicial discipline and consistency, the duty to follow CESTAT orders, and the importance of adhering to Supreme Court judgments. The Court also highlighted the procedural requirements under Section 49(3) of FEMA and the principles of natural justice, particularly the right to cross-examine witnesses. The Court found that the Tribunal's order traveled beyond the scope of the show cause notice and was not consistent with prior decisions and established legal principles.