2018 (1) TMI 1222 - AT - FEMA

Contravention of section 3 FEMA - statement made under oath reliance - Held that - In harwala transactions, the main aspect is secrecy and stealth. Most of the facts relating to such transactions remain in the knowledge of the persons involved in such transactions. It is difficult for Authorities to unravel every link of such transitions. The burden is on the person to explain; otherwise adverse inference can be drawn based on surrounding facts and circumstances. The appellant is engaged in the money exchange business, real estate brokering and pre-owned car sales. In the case of the appellant, there is a presumption that he has indulged in two transactions and also he was in touch with a person in Dubai as per his own statement though retracted later on. A statement made under oath has to be taken as true, unless there is contra evidence to dispel that presumption. Mere retraction of a statement made under oath cannot help the appellant to get relief from the consequences of violations of an act. Thus the elements of contravention of section 3 FEMA have been established in the present case. As considering the financial condition of the appellant, the penalty amount is reduced to ₹ 2 lac as agreed by the appellant to deposit within eight weeks from today. Let the appeal be dispose of on these terms by modifying the impugned order by reducing the penalty 50% of the penalty imposed only to this extent.

Issues:
1. Appeal under section 19 of Foreign Exchange Management Act, 1999 against adjudication order.
2. Seizure of incriminating evidence and statements recorded under Section 37 of FEMA.
3. Reliability of statements recorded by Enforcement Authorities.
4. Retraction of statements and its admissibility in evidence.
5. Elements of contravention of section 3 FEMA established.
6. Imposition of penalty and financial condition of the appellant.

Analysis:

1. The appeal was filed under section 19 of the Foreign Exchange Management Act, 1999 against an adjudication order. The appellant was confronted with incriminating evidence seized during a search of their premises, leading to statements being recorded under Section 37 of FEMA.

2. The reliability of the statements recorded by the Enforcement Authorities was crucial in this case. The appellant's statements regarding financial transactions and connections with individuals in Dubai were detailed in the Impugned Order and Adjudication Order, forming the basis of the case against the appellant.

3. Despite the appellant's retraction of the statements, the Tribunal considered the admissibility of the retracted statements in light of legal precedents. The Tribunal referred to relevant Supreme Court judgments to support the admissibility of retracted statements and their corroborative value with seized documents.

4. The Tribunal found that the elements of contravention of section 3 FEMA were established based on the evidence presented. The appellant's involvement in transactions and connections with individuals involved in harwala transactions raised serious concerns, leading to adverse inferences drawn against the appellant.

5. The imposition of a penalty was a key aspect of the judgment. The Special Director (appeals) had initially imposed a penalty of ?4 lakh, which the appellant claimed inability to pay due to financial crisis. After negotiations, the penalty amount was reduced to ?2 lakh, which the appellant agreed to deposit within eight weeks.

6. Considering the overall facts and circumstances, the Tribunal modified the impugned order by reducing the penalty to 50% of the original amount. However, failure to deposit the reduced penalty within the stipulated time would result in dismissal of the appeal and entitle the respondent to recover the full penalty amount of ?4 lakh.

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