2006 (4) TMI 174 - HC - Customs

Issues Involved:
1. Validity of the Appellate Tribunal for Foreign Exchange's order dismissing the application for pre-deposit.
2. Allegations of breach under the Customs Act, 1962 and the Foreign Exchange Management Act, 1999.
3. Prima facie case and principles of natural justice.
4. Jurisdiction under Section 49(3) of the Foreign Exchange Management Act, 1999.
5. Request for cross-examination of officials.

Detailed Analysis:

1. Validity of the Appellate Tribunal for Foreign Exchange's Order:
The petitioners challenged the order dated 4th January 2006 by the Appellate Tribunal for Foreign Exchange, which dismissed their application for pre-deposit of penalties. The Tribunal failed to consider the prima facie merits of the petitioners' case and the violation of principles of natural justice. The Tribunal's decision was based on the balance of convenience rather than the merits, which was deemed unsatisfactory.

2. Allegations of Breach under the Customs Act, 1962 and the Foreign Exchange Management Act, 1999:
The allegations against the petitioners involved misdeclaration of goods and over-invoicing, leading to misuse of foreign exchange. The goods in question were imported by M/s. Vaishal Impex and involved software and compact disks. The notices under the Customs Act, 1962 encompassed the allegations under the Foreign Exchange Management Act, 1999. The petitioners argued that the proceedings under the Customs Act should be resolved first as they would impact the proceedings under the Foreign Exchange Management Act.

3. Prima Facie Case and Principles of Natural Justice:
The petitioners contended that there was a prima facie case in their favor, as evidenced by the waiver of pre-deposit by CESTAT, Bangalore. They also highlighted the breach of natural justice, as their request for cross-examination of Directorate of Revenue Intelligence (DRI) officials was not addressed. The Additional Director General admitted there was no direct evidence of over-invoicing, relying instead on logical inferences.

4. Jurisdiction under Section 49(3) of the Foreign Exchange Management Act, 1999:
The petitioners raised the issue of jurisdiction under Section 49(3) of the Foreign Exchange Management Act, 1999, arguing that the show cause notice was issued after the two-year period stipulated by the "Sunset Clause." This point was not adequately considered by the authorities.

5. Request for Cross-Examination of Officials:
The petitioners' application for cross-examination of DRI officials was ignored by the Additional Director General, which was a significant procedural lapse. The right to cross-examine is crucial for establishing the truth, especially when there is no direct evidence of the alleged violations.

Conclusion:
The High Court quashed the orders at Annexure 'A' and Annexure 'F', remanding the matter to the Additional Director General for a fresh decision. The Court emphasized the need to consider the prima facie merits, address the violation of natural justice, and allow cross-examination of officials. The proceedings under the Foreign Exchange Management Act should await the outcome of the appeals under the Customs Act, 1962, pending before CESTAT, Bangalore. The judgment underscores the importance of procedural fairness and the interdependence of allegations under different statutes.

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