2014 (4) TMI 1162 - HC - FEMA

Under-invoicing of the imports - Contravention of Sections 8 (3) read with 8 (4) of the Foreign Exchange Regulations Act - Held that - There is nothing incriminating in the statements made by the Appellant under Section 40 FERA, admitting to under-invoicing of the imports. As far as the statement of Mr. Puri is concerned, it is seen that it was made under Section 108 of the CA and not Section 40 FERA and could not, ipso facto, be used for the proceedings under FERA. The AO passed by the SD as well as the impugned order of the AT failed to address the submission made on behalf of the Appellant that the documents seized were not proved in accordance with law. It appears that there was no independent investigation undertaken by the ED. In order to prove under-invoicing, the value of contemporaneous import made from Hong Kong, and not from Singapore, had to be looked into. Moreover, these documents were not authenticated, as required by Section 72 FERA read with Foreign Exchange Regulations (Authentication of Documents). This Court in M/s. Jain Engineering v. ED 2014 (3) TMI 678 - DELHI HIGH COURT held that documents received from abroad cannot be relied upon without authentication. The failure of the ED to comply with the above legal requirements rendered the seized documents inadmissible in evidence. Without the ED discharging the initial burden of proving that the documents seized constitute credible evidence and were corroborated by other independent evidence, the question of drawing an adverse inference against the Appellant and shifting the burden to him to rebut the statutory presumption would not arise. - Decided in favour of assessee

Summary

Issues:
1. Appeal against impugned order of Appellate Tribunal for Foreign Exchange.
2. Allegations of contravention of Sections 8 and 9 of FERA.
3. Under-invoicing of imports and penalties imposed.
4. Reliance on seized documents and statements for adjudication.
5. Burden of proof on the Appellant and presumption under Section 114 of the Evidence Act.
6. Admissibility of statements made under different Acts.
7. Lack of independent investigation and authentication of seized documents.
8. Legal requirements for proving under-invoicing.
9. Sustainability of adjudication orders and appellate tribunal's decision.

Analysis:

1. The judgment involves two appeals against the orders passed by the Appellate Tribunal for Foreign Exchange, affirming penalties imposed on the Appellant for contravention of Sections 8 and 9 of the Foreign Exchange Regulations Act (FERA). The impugned orders were based on allegations of under-invoicing of imports and violation of foreign exchange regulations.

2. The Appellant challenged the adjudication orders, arguing against the reliance on seized documents and statements for establishing under-invoicing. The burden of proof was a crucial aspect, with the Tribunal holding that a presumption could be drawn against the Appellant under Section 114 of the Evidence Act due to under-invoicing.

3. The Court analyzed the statements made under different Acts, emphasizing that a statement recorded under Section 108 of the Customs Act could not be used as substantive evidence in proceedings under FERA. The Appellant's statements did not incriminate them for under-invoicing, highlighting the lack of credible evidence.

4. The judgment highlighted the failure of the Enforcement Directorate to conduct an independent investigation and authenticate the seized documents as per legal requirements. Without proper authentication and corroboration, the seized documents were deemed inadmissible in evidence, questioning the basis of the adjudication orders and the Tribunal's decision.

5. Ultimately, the Court found the adjudication orders and the Tribunal's decision unsustainable in law due to the lack of compliance with legal procedures and the insufficiency of evidence to establish under-invoicing. The appeals were allowed, setting aside the impugned orders, and directing the refund of any deposited amount to the Appellant within a specified timeframe.