2008 (7) TMI 1115 - AT - FEMA

Summary

Issues Involved:
1. Contravention of Section 9(1)(f)(i) of the Foreign Exchange Regulation Act, 1973.
2. Validity of the evidence and documents seized.
3. Applicability of the Remittance of Foreign Exchange (Immunities) Scheme, 1991.
4. Burden of proof and circumstantial evidence.
5. Quantum of penalty imposed.

Issue-wise Detailed Analysis:

1. Contravention of Section 9(1)(f)(i) of the Foreign Exchange Regulation Act, 1973:
The appellants were penalized for making payments to Niranjan J. Shah without the general or special exemption from the RBI, in consideration for the acquisition of US dollars outside India. The tribunal confirmed that the appellants had contravened Section 9(1)(f)(i) of FERA, 1973, by making payments in Indian Rupees to Niranjan Shah, who arranged for foreign exchange outside India.

2. Validity of the evidence and documents seized:
The investigation initiated by the Income Tax Department led to the seizure of documents and computer floppies from Niranjan Shah's residence, which indicated transactions between the appellants and Niranjan Shah. The documents included account details under "Niranjan's $ A/c" and a list of 36 persons, including the appellants, who received remittances. The tribunal found that the seized documents and the interconnected transactions were valid evidence to establish the contravention.

3. Applicability of the Remittance of Foreign Exchange (Immunities) Scheme, 1991:
The appellants claimed immunity under the Remittance of Foreign Exchange (Immunities) Scheme, 1991, asserting that the remittances were gifts declared in their income tax returns. However, the tribunal held that the statutory declarations of gift cheques and their acceptance by the bank and income tax officers could not override the provisions of FERA. The scheme did not apply to the facts of this case, as the appellants failed to prove that the foreign exchange was received as a gift without consideration.

4. Burden of proof and circumstantial evidence:
The tribunal emphasized the importance of circumstantial evidence and the burden of proof on the appellants. It referred to several Supreme Court judgments, highlighting that circumstantial evidence must form a complete chain to prove guilt. The tribunal concluded that the appellants failed to discharge their burden of proving that the foreign exchange was received as a gift without any consideration. The presumption of fact under Section 114 of the Evidence Act and the principle of special knowledge under Section 106 of the Evidence Act were applied against the appellants.

5. Quantum of penalty imposed:
The tribunal considered the gravity of the charges and the substantial amount involved in the contravention. Although the appellants argued for a reduction in the penalty based on a previous tribunal judgment, the tribunal decided to reduce the penalty to 75% of the total imposed amount, considering that the amount was declared with the income tax assessing officers and was not meant for hawala payments. The appellants were directed to deposit the balance amount within 15 days, failing which the respondent could recover the same in accordance with the law.

Conclusion:
The tribunal upheld the charges against the appellants for contravening Section 9(1)(f)(i) of FERA, 1973, based on valid evidence and circumstantial proof. The applicability of the Remittance of Foreign Exchange (Immunities) Scheme, 1991, was rejected, and the burden of proof lay with the appellants, which they failed to discharge. The penalty was reduced to 75% of the total amount, considering the specific circumstances of the case.