2014 (9) TMI 798 - HC - Customs

Confiscation of currency - Redemption fine - Held that - On facts, there appears to be no dispute that the foreign currency was attempted to be exported by the first respondent - passenger (since deceased) without declaring the same to the Customs Department and therefore, it resulted in seizure - Section 113 of the Customs Act imposes certain prohibition and it includes foreign exchange. In the present case, the jurisdiction Authority has invoked Section 113 (d), (e) and (h) of the Customs Act together with Foreign Exchange Management (Export & Import of Currency) Regulations, 2000, framed under Foreign Exchange Management Act, 1999. Section 2(22)(d) of the Customs Act, defines goods to include currency and negotiable instruments, which is corresponding to Section 2(h) of the FEMA. Consequently, the foreign currency in question, attempted to be exported contrary to the prohibition without there being a special or general permission by the Reserve Bank of India was held to be liable for confiscation. The Department contends that the foreign currency which has been obtained by the passenger otherwise through an authorized person is liable for confiscation on that score also. Provision is made under the Foreign Exchange Management (Current Account Transactions) Rules, 2000, which imposes prohibition in respect of Schedule I, restriction in Schedule II transaction, which are to be done on prior approval and Schedule III also come with the rider that prior approval of the Reserve Bank of India should be obtained. Assuming that a person is permitted to carry 25,000 US for business purpose, the fact remains, that the said drawal of the foreign currency should be only from an authorized person in terms of Rule 2(b) of the Foreign Exchange Management (Current Account Transactions) Rules, 2000. The passenger, in this case, attempted to take the money out of India without a proper declaration and has not obtained from an authorized person, thereby, he has violated the Foreign Exchange Management (Export and Import of Currency) Regulations, 2000 - Tribunal fell into error by setting aside the order of absolute confiscation - Decided in favor of Revenue. Regarding redemption fine and penalty u/s 114(i) - Held that - Original Authority imposed fine of ₹ 5.00 lakhs and the Tribunal has thought it fit to reduce the same as ₹ 1.00 lakh. - when the appeal is taken up, the first respondent had actually died and the appeal was pursued by the wife of the first respondent - widow. Therefore, while restoring the order of the Original Authority in respect of absolute confiscation, we set aside the order of the Tribunal insofar as allowing the redemption on payment of fine of ₹ 2.00 lakhs. Insofar as imposition of penalty is concerned, taking note of the plea made by the learned counsel appearing for the first respondent, we are not inclined to interfere with the order of the Tribunal insofar as reduction of penalty. - Decided against the revenue.

Summary

Issues Involved:
1. Justification of the Tribunal in allowing the redemption of the foreign currency attempted to be exported in violation of the provisions of law.
2. Justification of the Tribunal in reducing the quantum of penalty.

Issue-wise Detailed Analysis:

1. Justification of the Tribunal in allowing the redemption of the foreign currency attempted to be exported in violation of the provisions of law:

The Revenue challenged the Tribunal's decision, which allowed redemption of confiscated currency upon payment of a fine and reduced the penalty. The passenger was intercepted carrying undeclared foreign currency, which he attempted to export without valid documents. The Commissioner of Customs confiscated the currency and imposed a penalty, citing violations under Section 113 (d), (e), and (h) of the Customs Act, 1962, read with FEMA regulations.

The Tribunal set aside the order of absolute confiscation, allowing redemption on payment of a fine of Rs. 2 lakhs, and reduced the penalty to Rs. 1 lakh. The Tribunal's rationale was that a passenger could legally carry up to US $25,000, although this was contested by the Revenue, which argued that such an amount required prior approval from the Reserve Bank of India (RBI). The Tribunal's interpretation was based on a misreading of Clause 8 of Schedule III of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, which requires prior RBI approval for amounts exceeding US $25,000.

The High Court found that the passenger violated Regulation 5 of the Foreign Exchange Management (Export and Import of Currency) Regulations, 2000, which prohibits exporting foreign currency without RBI's permission. The passenger did not obtain the currency from an authorized person, thus violating FEMA regulations. The High Court concluded that the Tribunal erred in allowing redemption and that the Original Authority's order of absolute confiscation was justified.

2. Justification of the Tribunal in reducing the quantum of penalty:

The Original Authority imposed a penalty of Rs. 5 lakhs under Section 114(i) of the Customs Act, which allows for penalties up to three times the value of the goods for prohibited exports. The Tribunal reduced this penalty to Rs. 1 lakh, considering the circumstances.

The High Court acknowledged the death of the passenger and the appeal being pursued by his widow. While restoring the order of absolute confiscation, the High Court did not interfere with the Tribunal's decision to reduce the penalty, taking into account the plea made by the respondent's counsel.

Conclusion:

The High Court answered the first substantial question of law in favor of the Revenue, restoring the Original Authority's order of absolute confiscation. The second substantial question of law was answered in favor of the respondent, confirming the Tribunal's reduction of the penalty. The Civil Miscellaneous Appeal was disposed of accordingly, with no costs.