2019 (5) TMI 478 - AT - FEMA

Contravention of Section 3(a) and (b) of FEMA, 1999, contravention of Section 6(3)(g) of FEMA, 1999 and Section 10(6) of FEMA, 1999 - HELD THAT - There is no statement or document or admission on record to substantiate the said allegations. In this regard, no investigation was done by the department in India or abroad. No show cause notice has been issued for alleged under valuation by the customs authorities and there is no dispute on this aspect. If department wished to prove the aforesaid allegations. As per department they had all information in this regard, which fact is apparent from the impugned complaint however department did not do anything in this regard, who only interpreted the cash book entries and come to the conclusion that these entries were factual and held against the Appellants, without any corroborative evidence available on record. Pertaining to violation of Section 10(6) of FEMA, the basis of the said allegation is that the Appellant firm had made remittance to its foreign suppliers towards import advance payment of ₹ 3.44 crores through proper banking channel but have made actual import of ₹ 2.49 crores and excess payment of ₹ 95 lacs was made to square off alleged differential value arising on account of alleged under valuation of the imported goods. In this regard the Respondent held that there was no doubt that advance remittances for imports are permissible under law, however the Respondent held against the Appellants on this count only on the ground that there was no co-relation between the said advance remittances and imports although Appellants produced different details to establish the said co-relation, accordingly it was held that Appellants were guilty of contravention of section 10(6) of FEMA 1999. The Respondent did agree that advance remittance is permissible in law against imports. Appellant had produced different evidence / details to establish the co-relation between the advance remittance and imports, however the Respondent was not convinced and only on that ground held Appellants guilty of violation of Section 10(6) of FEMA, 1999. One is failed to understand why a person would make alleged hawala transactions through banking channel. The business of Appellant firm was on-going business and Appellant had and continued to import electronic components from various suppliers. It is alleged on behalf of the Appellant that they had imported the goods against the aforesaid advance payments so made over period of time. In this regard, along with typed written submissions filed during arguments, Appellant had placed on record chart showing the co-relation between the advance remittances of ₹ 95 lacs, therefore the allegation in regard to alleged undervaluation have been made herein above and the same are reiterated. The provisions of Section 39 of FEMA, 1999 are not applicable to the fact of the present case and the respondent was merely presuming the cash book as documents for the purpose of investigation under FEMA, 1999. The said cash book was not seized from the custody / control of the Appellants, the same was not seized from the personal computers of either of the partners. The alleged cash books were denied and it was stated that neither of the partners were aware of the contents of the same and that the said alleged cash book was maintained by Shri Pankaj/Shri Dinesh. No statement of either of them was ever recorded by the department. Thus, in the absence thereof, said cash book cannot be held to be substantive evidence to establish alleged violation by the Appellants. Even in a strong matter against the accused parties, it is still the duty of the department to prove the case beyond any doubt for each charge by discharging the burden. It is the admitted position that the department chose not to record statement of Shri Pankaj or Shri Dinesh Gaud. The department has also not called upon the Appellants to produce Shri Pankaj and/or Shri Dinesh. It is submitted on behalf of the appellant that the failure of the department to summon there who were authors of the alleged entries made in the cash book. Entire basis of the case of the department is that the Appellants had made alleged violations in order to square off the alleged difference in value of the imported goods / components viz. under valuing the same and paying the alleged difference in value to its overseas supplier through non-banking channels. There no evidence on record to substantiate the said allegations. There is no statement or document or admission on record to substantiate the said allegations. No independent investigation was done by the department in India or abroad. No show cause notice has been issued in this regard viz. for under valuation by the Customs Authorities. The department at least should have recorded statement of Shri Pankaj and Dinesh Goud to this effect from the sellers of the Appellant or other persons in India or abroad who were allegedly paid money being alleged differential value on behalf of overseas suppliers of Appellant. The Respondent only read and interpreted the cash book entries and it was the violation of various provisions against the appellant without there being any corroborative evidence available on record. Either said witnesses would have been summoned after obtaining the address or the appellants should have been directed to produce them. There is no evidence on record to show that any exercise is done. Adjudicating Authority erred holding that the Appellants should have produced Shri Pankaj/Shri Dinesh for recording their statement rather than finding fault with the department for not interrogating that the said two persons. As stated above Shri Pankaj and Shri Dinesh had left the firm during investigation by DGCEI and it is not the case of department that Appellants had any role in that regard, rather Shri Pankaj was the person who got the case registered against the Appellants as alleged and it was duty of department to prove its case. Department has therefore was unable to discharge the said onus. In the light of above, the appeals are allowed and the impugned order is set aside. All the appeals are disposed of.

Summary

Issues Involved:
1. Contravention of Section 3(a) of FEMA, 1999.
2. Contravention of Section 6(3)(g) of FEMA, 1999.
3. Contravention of Section 3(b) of FEMA, 1999.
4. Contravention of Section 10(6) of FEMA, 1999.
5. Admissibility and credibility of evidence (cash book).
6. Burden of proof and corroborative evidence.
7. Separate penalties on partners of a partnership firm.

Issue-wise Detailed Analysis:

1. Contravention of Section 3(a) of FEMA, 1999:
The allegation was that Shri Prasanna Bhutoria dealt in foreign exchange worth USD 41,000/- (equivalent to ?33,79,460/-) procured from the grey market, contravening Section 3(a) of FEMA, 1999. The adjudicating authority imposed a penalty based on cash book entries. However, the Tribunal found no seizure of foreign currency from the appellant's premises or during travel. The findings were based on assumptions without corroborative evidence, and the cash book entries alone were deemed insufficient to prove the violation.

2. Contravention of Section 6(3)(g) of FEMA, 1999:
Shri Prasanna Bhutoria was alleged to have carried USD 41,000 abroad in person, violating Section 6(3)(g) of FEMA, 1999. The Tribunal noted that there was no evidence of foreign currency seizure during his travels, and the findings were based on presumptions from cash book entries without corroborative evidence.

3. Contravention of Section 3(b) of FEMA, 1999:
M/s. Welcord Components and its partners were alleged to have made payments worth ?2,67,09,260/- to overseas suppliers through non-banking channels, contravening Section 3(b) of FEMA, 1999. The Tribunal found no independent investigation or corroborative evidence to substantiate these allegations. The cash book entries alone were insufficient to prove the violation.

4. Contravention of Section 10(6) of FEMA, 1999:
The allegation was that M/s. Welcord Components made excess advance payments of ?95 lakhs to overseas suppliers without corresponding imports, violating Section 10(6) of FEMA, 1999. The Tribunal noted that advance remittances for imports are permissible under law, and the appellants provided details to establish the correlation between remittances and imports. The respondent's findings were based on a lack of correlation, but the Tribunal found the evidence provided by the appellants sufficient to refute the allegations.

5. Admissibility and Credibility of Evidence (Cash Book):
The Tribunal emphasized that the cash book was not a statutory document and was not maintained by the firm or its partners. The cash book was maintained by employees Shri Pankaj and Shri Dinesh, whose statements were not recorded. The Tribunal held that the cash book entries alone could not be considered substantive evidence of violations.

6. Burden of Proof and Corroborative Evidence:
The Tribunal reiterated that the burden of proof lies with the department to establish charges beyond doubt. The department failed to conduct independent investigations or gather corroborative evidence in India or abroad. The Tribunal cited several judgments supporting the need for substantive evidence beyond mere entries in documents like diaries or cash books.

7. Separate Penalties on Partners of a Partnership Firm:
The Tribunal referred to judgments stating that a partnership firm has no legal existence apart from its partners, and separate penalties cannot be imposed on partners unless explicitly stated by law. The Tribunal found no intention in FEMA, 1999, to treat firms and partners as distinct entities, thus ruling against separate penalties on partners.

Conclusion:
The Tribunal allowed the appeals, setting aside the impugned order and disposing of all appeals without costs. The judgment emphasized the need for substantive evidence and proper burden of proof in establishing violations under FEMA, 1999.