2014 (3) TMI 678 - HC - FEMA

Under-invoicing of import - manipulation this under invoicing was done for foreign exchange reasons to keep their value below the licensing restrictions imposed on them by the Indian authorities. - Levy of penalty for contravention of Sections 8 (1) read with Sections 68 (1) and 68 (2) of the Foreign Exchange Regulation Act, 1973 ( FERA ) - Held that - It was incumbent under Section 72 (ii) FERA read with Clause (a) thereof for each of the documents gathered from outside India to be authenticated by the concerned officers of the Indian High Commission in both the UK and Italy. In the present case admittedly documents were simply forwarded by the office without any authentication as such. The procedure for authentication is set out in the Foreign Exchange Regulations (Authentication of Documents) Rules 1976. Clearly the said procedure was not followed in the present case. In the absence of authentication of the documents obtained from outside India in terms of the Rules prescribed for that purpose it was not open to the Commissioner to straightway rely on the said report as substantive admissible evidence for the purpose of holding the Appellants to be in violation of Section 8 FERA. A perusal of the AO shows that it was based entirely on what was stated in the SCNs issued under the CA (Customs Act) and there was no investigation to verify the particulars set out in the said documents. It was unsafe for the AO to proceed on the basis of the above documents to hold the Appellants guilty of contravention under Section 8 (1) FERA. - order set aside - decided in favor of appellant.

Issues Involved:
1. Contravention of Sections 8(1), 68(1), and 68(2) of the Foreign Exchange Regulation Act, 1973 (FERA).
2. Validity of documents collected from abroad.
3. Applicability of FERA post its repeal.
4. Settlement Commission proceedings and their impact on the case.

Issue-wise Detailed Analysis:

1. Contravention of Sections 8(1), 68(1), and 68(2) of FERA:
The Appellants were accused of importing tractor parts at undervalued prices from suppliers in the UK and Italy, allegedly contravening Sections 8(1), 68(1), and 68(2) of FERA. The Directorate of Enforcement (ED) claimed that the suppliers provided two sets of invoices: one with a lower value for bank transactions and another with the actual higher value. The adjudication orders (AOs) imposed penalties on the Appellants for these contraventions.

2. Validity of Documents Collected from Abroad:
The Appellants challenged the validity of the documents obtained from the UK and Italy, arguing that they were not authenticated as required under Section 72 FERA. The court noted that the documents were not authenticated by the concerned officers of the Indian High Commission, and the procedure set out in the Foreign Exchange Regulations (Authentication of Documents) Rules 1976 was not followed. The Additional Chief Metropolitan Magistrate (ACMM) had issued Letters Rogatory, but no authenticated documents were received. Consequently, the court found that the documents could not be used as substantive evidence.

3. Applicability of FERA Post its Repeal:
The Appellants contended that the show cause notices (SCNs) under FERA were issued after its repeal and the enactment of the Foreign Exchange Management Act (FEMA). The court held that since the imports in question occurred in 1997-98 when FERA was in force, the SCNs issued during the sunset period (before 31st May 2002) were valid. The court rejected the argument that the cause of action arose only after FERA's repeal.

4. Settlement Commission Proceedings and Their Impact:
The Appellants had approached the Settlement Commission (SA) for settlement of the customs duty liability. The SA's final order noted that the Appellants accepted the differential duty liability and misdeclaration of the value of goods. However, the SA did not grant immunity for offences under FERA, as no disclosure was made regarding contraventions of FERA. The court clarified that the SA's order could not be taken as an admission of violation of Section 8(1) FERA. The ED was still required to prove the allegations independently.

Conclusion:
The court found that the AOs and the Appellate Tribunal's (AT) order were unsustainable due to the lack of authenticated evidence and the reliance on SCNs issued under the Customs Act without independent investigation. The court set aside the AOs dated 13th and 16th February 2004 and the AT's order dated 19th November 2007. The appeals were allowed, and any amount paid by the Appellants pursuant to the impugned orders was to be refunded within eight weeks.

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