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2014 (2) TMI 441 - HC - FEMAMisdeclaration of goods - Violation of Section 8(3) and (4) of the Foreign Exchange Regulation Act, 1973 ( FERA ) - Levy of penalty - import of scotch whisky and malt to be used in upgrading locally manufactured liquor products through blending - alcoholic strength in excess of 42.8% V/V. - Held that - the order of the SD holding that there was misdeclaration of the goods, because what was imported was scotch whisky of 63% strength, is not sustainable in law. Interestingly, the SD notes that the imported CAB of 63% concentration was to be used for blending of Indian liquor at 42.8%. In other words, what was imported by SMPL could not be sold as such for consumption and answered the definition of CAB. The AT too appears to have overlooked the fact that CAB of a concentration higher than 42.8% V/V could not be sold as such and had to be diluted or blended to bring it to 42.8% V/V concentration. The mere fact that the exporters declared the goods to be wholly imported scotch whisky did not mean that they were alcohol of a concentration that rendered them fit for consumption. - Order set aside - Decided in favor of appellant.
Issues Involved:
1. Misdescription of goods. 2. Misdeclaration of quantity. 3. Misdeclaration of value. 4. Violation of Sections 8(3) and 8(4) of FERA. 5. Individual liability of Mr. Mehdiratta. Issue-wise Detailed Analysis: Misdescription of Goods: The court examined whether the import of Concentrate of Alcoholic Beverages (CAB) of concentration 60% and above constituted a misdescription of goods, thus inviting action under Sections 8(3) and 8(4) of FERA. The court noted that for potable alcohol to be sold in India, the permissible level of concentration is 42.8% V/V. The court referred to the Customs Tariff classification under Heading No. 22.08, which covers compound alcoholic preparations used for manufacturing beverages. The court concluded that CAB imported by the appellants, with a concentration of 60 to 63% V/V, was correctly described under Heading No. 2208.10 and later under Heading No. 2208.90, as it could not be consumed immediately and had to be diluted or blended. The court cited the Bombay High Court's decision in Bussa Overseas and Properties v. Union of India, which supported the classification of concentrated whisky under Heading No. 2208.10. Thus, the court found no misdescription of goods. Misdeclaration of Quantity: The court addressed the issue of misdeclaration of quantity, noting that the two Bills of Entry (B/Es) mentioned in the adjudication order were not referred to in the Show Cause Notice (SCN) dated 23rd May 2002. The court cited the Bombay High Court's decision in Dodsal P. Ltd. v. FERA Board, which set aside an adjudication order on similar grounds. The court noted that the statement of Mr. Mukesh Narain explained the indication of quantity as 'BL' instead of 'AL' was an error, which was also noted by the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT). Therefore, the court concluded that the issue of misdeclaration of quantity should not have been adjudicated upon by the Special Director (SD). Misdeclaration of Value: The court examined the issue of misdeclaration of value and found that the SD misinterpreted the Memorandum dated 23rd May 2002. The court noted that the SCN set out the rates at which different brands of whisky were supplied to other countries and compared them with rates charged for supplies to India. These were not "invoice prices of imports of similar goods by other manufacturers of alcoholic beverages" as erroneously noted by the SD. The court concluded that the SD's finding of gross under-invoicing was not based on any material available to the SD and was therefore unsustainable. Violation of Sections 8(3) and 8(4) of FERA: The court analyzed whether there was a violation of Sections 8(3) and 8(4) of FERA. The court noted that the foreign exchange acquired by the appellants was fully utilized for making payments against the import invoices. The court cited the Bombay High Court's decision in The Tata Engineering and Locomotive Company Ltd. v. Director of Enforcement, which held that as long as the foreign exchange was acquired for the import of specified items and utilized for the same, there would be no violation of Sections 8(3) and 8(4) of FERA. The court found that the appellants had used the foreign exchange entirely for the goods imported and therefore, there was no violation of Sections 8(3) and 8(4) of FERA. Individual Liability of Mr. Mehdiratta: The court addressed the individual liability of Mr. Mehdiratta, noting that the Memorandum merely stated that he was "responsible to the company for the conduct of its business during the relevant period" without indicating the basis for this conclusion. The adjudication order also failed to provide any basis for concluding Mr. Mehdiratta's involvement. Consequently, the court found that the fastening of liability on Mr. Mehdiratta for the contravention of Sections 8(3) and 8(4) of FERA was not based on any material and could not be sustained in law. Conclusion: The court set aside the adjudication order dated 21st September 2004 and the impugned common order dated 30th October 2007, dismissing Appeal Nos. 1116 and 1117 of 2007. The appeals were allowed with costs of Rs. 5,000 in each appeal.
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