2018 (6) TMI 22 - AT - Customs

Foreign exchange quantification to be taken abroad - Buying and selling of Foreign Exchange - invocation of provisions of customs Act justified or not? - appellant engaged in the productions of films - illegal issue of Foreign Exchange - Whether the Foreign Exchange was legally issued/drawn or exported by the noticee under FEMA? - Whether the carrier of foreign exchange violated the provisions of Customs Act? - The defence of appellants is that they were even otherwise permitted to carry such quantity of foreign exchange abroad. Held that - The provisions of Rule 4 & 5 of Foreign Exchange Management (Export and Import of Currency) Regulations, 2000 puts restriction on drawal of currency only for transaction listed in Schedule II & III. No permission is need for drawal of currency upto 25,000/- for the purpose of business visit in terms of S. No. 8 of Schedule III. It is apparent that the currency was issued without following the due diligence and knowingly violating the provisions for the purpose of obtaining business with full knowledge of both buyer and seller of currency. An offence under FEMA does not automatically result in invocation of provisions of customs Act. Thus the Act of buying and selling of foreign exchange in violation of FEMA, 1999, rules, regulation and guidelines issued under FEMA is not by itself sufficient to invoke charges under Customs Act. For charges under Customs Act to survive there has to be shown an active part or abetting in movement across Customs borders in terms of Section 114 of the Customs Act. The rate of the M/s Sohil Maklai Entertainment Pvt. Ltd. and the three carriers who had admittedly carried the currency out of India - defence of M/s Sohil Maklai Entertainment Pvt. Ltd. is that it was merely a procedural violation - Held that - It is apparent that there was no reason to smuggle the currency out as they were even otherwise legally entitled to purchase the said amount and take out of India for the purpose of shooting abroad - I is apparent that while M/s Sohil Maklai Entertainment Pvt. Ltd. could have legally obtained the foreign exchange and also exported the same for stated purpose it followed shortcuts as advised by Shri Anand Kulkarni resulting in FEMA offence as well as Customs offence. Penalties - Held that - The rate in illegal export with full knowledge is established in case of all appellants. - it is apparent that though they violated the law but they only saved themselves the procedural hassles. They were even otherwise entitled to carry the currency abroad legally by following due procedures - penalties imposed on appeals are relatively harsh - quantum of redemption fine as well as penalties reduced to Rs. two lakhs each. Redemption fine imposed is reduced to Rs. five lakhs. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Legality of foreign exchange issuance and export under FEMA.
2. Violation of Customs Act provisions by carriers of foreign exchange.
3. Procedural lapses and adherence to RBI guidelines.

Detailed Analysis:

Legality of Foreign Exchange Issuance and Export under FEMA:
The case revolves around the interception of a passenger carrying foreign currency in the form of travellers’ cheques and cash. The investigation revealed that the currency was issued by M/s TT Forex to various individuals based on requisition letters from M/s Sohil Maklai Entertainment Pvt. Ltd. (M/s SMEPL). Statements from individuals like Shri Anand Kulkarni, Manager of M/s TT Forex, and employees of M/s SMEPL indicated that the currency was issued without proper verification, violating FEMA guidelines. The defence argued that the transactions were within permissible limits under Schedule III of FEMA, which allows up to $25,000 for business travel. However, it was established that the issuance was based on fictitious documentation, and the foreign exchange was intended to be exported illegally.

Violation of Customs Act Provisions by Carriers of Foreign Exchange:
The Customs Act, 1962, under Section 113(d), stipulates that any goods attempted to be exported contrary to any prohibition shall be liable to confiscation. The foreign exchange issued in this case was intended for export, violating the provisions of FEMA and related RBI regulations. The carriers, including Ms. Farahjaan Sheikh, Shri Shamsher Mehmood Khan, and Shri Jayesh Vyas, were found to be carrying currency without proper authorization, rendering them liable for penalties under Section 114 of the Customs Act. The Tribunal noted that the foreign exchange had no use in India and was clearly intended for export, implicating the involved parties in illegal activities.

Procedural Lapses and Adherence to RBI Guidelines:
The issuance of travellers’ cheques by M/s TT Forex was done without adhering to the Know Your Customer (KYC) norms and personal verification requirements mandated by RBI. The statements from Shri Anand Kulkarni and Shri Feroz Babu Khan of M/s SMEPL confirmed that they were aware of the violations but proceeded due to business interests and competition. The Tribunal highlighted that the appellants could have legally obtained and exported the foreign exchange by following proper procedures but chose shortcuts, resulting in violations of both FEMA and Customs Act provisions.

Penalties and Reductions:
The original penalties imposed were deemed harsh considering the procedural nature of the violations. The Tribunal reduced the penalties on Ms. Farahjaan Sheikh, Shri Shamsher Mehmood Khan, and Shri Jayesh Vyas to Rs. one lakh each. Penalties on M/s Sohil Maklai Entertainment Pvt. Ltd. and M/s TT Forex were reduced to Rs. two lakhs each, and the redemption fine was reduced to Rs. five lakhs.

Conclusion:
The appeals were partly allowed, with penalties reduced, acknowledging the procedural lapses while emphasizing the need for adherence to legal and regulatory frameworks for foreign exchange transactions and exports.

(Pronounced in Court on 30.05.2018)