2017 (1) TMI 826 - HC - FEMA

Violation of Section 8 (3) and Section 8 (4) of the Foreign Exchange Regulation Act, 1973 read with Chapter 7A.20 (i) of the Exchange Control Manual, 1995 - Held that - Courts have repeatedly held that in quasi criminal proceedings the penalty should not be imposed merely because it is lawful to impose the penalty. Whether penalty should be imposed or not is a matter of discretion to be exercised judicially and on consideration of all the relevant circumstances. Further simplicitor from the non-compliance of placing on record no inference can be drawn that the foreign remittance was not used for the purpose of import. It is trite law that to impose a penal liability compliance should be sought within a reasonable time and a person cannot be penalised for not retaining the documents for a period of 13 years. During the course of the present appeal, exchange copy of Bill of Entry qua transaction at Sr. No. 2 has already been placed however, despite best efforts the appellant could not locate the exchange copies of Bills of Entry qua other two transactions. In view of the belated show cause notice being served on the appellant, the defence of the appellant that it was not in possession of the copies of Bill of Entry for the two transactions is plausible. It cannot be held that the respondent has proved its allegation beyond reasonable doubt and the copies of the Bills of Lading probablise that the remittances were utilized for import. Consequently, the impugned orders passed by the Appellate Tribunal and the Adjudicating Authority are set aside.

Issues Involved:
1. Violation of Section 8(3) and Section 8(4) of the Foreign Exchange Regulation Act, 1973 (FERA).
2. Submission of exchange control copy of Bill of Entry.
3. Imposition of penalty by the Adjudicating Authority.
4. Maintainability of the appeal without pre-deposit.
5. Proof of foreign remittances used for imports.
6. Principles of natural justice in quasi-criminal proceedings.

Detailed Analysis:

1. Violation of Section 8(3) and Section 8(4) of FERA:
The appellant was issued a show cause notice alleging violations of Section 8(3) and Section 8(4) of FERA, read with Chapter 7A.20(i) of the Exchange Control Manual, 1995. It was alleged that the appellant failed to submit the exchange control copy of the Bill of Entry for three remittances, thus violating the aforementioned sections. Section 8(3) prohibits the misuse of acquired foreign exchange, while Section 8(4) presumes non-compliance if goods are not imported within a reasonable time.

2. Submission of Exchange Control Copy of Bill of Entry:
The appellant failed to submit the exchange control copy of the Bill of Entry for three remittances. Chapter 7A.20(i) of the Exchange Control Manual mandates importers to submit this document as evidence of actual importation of goods for which foreign exchange was remitted. The appellant argued that due to the delay in issuing the show cause notice, they were not in possession of the required documents but had provided Bills of Lading as proof.

3. Imposition of Penalty by the Adjudicating Authority:
The Adjudicating Authority imposed a penalty of ?15 lakhs on the appellant for failing to submit the exchange control copies of the Bill of Entry for three specific remittances. The appellant contended that the delay in issuing the show cause notice (13 years) made it unreasonable to expect them to retain the documents.

4. Maintainability of the Appeal Without Pre-Deposit:
The respondent raised a preliminary objection regarding the maintainability of the appeal without pre-deposit of the penalty. The court noted that the pre-deposit of the penalty was waived in the impugned order, thus allowing the appeal to proceed without the pre-deposit.

5. Proof of Foreign Remittances Used for Imports:
The appellant provided Bills of Lading as evidence that the foreign remittances were used for imports. The respondent argued that Bills of Lading only prove that goods were exported from the country of origin and not necessarily imported into India. The court referred to previous judgments, including Xerox Modi Corp Ltd. vs. The Special Director, Enforcement Directorate, which emphasized that the delay in issuing show cause notices and the loss of documents over time should be considered.

6. Principles of Natural Justice in Quasi-Criminal Proceedings:
The court reiterated that in quasi-criminal proceedings, penalties should not be imposed merely because it is lawful to do so. The principles of natural justice require that penalties be imposed judiciously, considering all relevant circumstances. The court cited various precedents, including the Supreme Court's decision in Bareily Electricity Supply Co. Ltd. vs. The Workmen & Ors., which emphasized that procedural fairness and the genuineness of evidence are crucial in such cases.

Conclusion:
The court held that the appellant's inability to produce the exchange control copies of the Bill of Entry due to the belated show cause notice was plausible. The Bills of Lading provided by the appellant probablised that the remittances were utilized for imports. Consequently, the impugned orders passed by the Appellate Tribunal and the Adjudicating Authority were set aside, and the appeal and applications were disposed of.

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