2024 (9) TMI 120 - AT - FEMA

Contravention of Section 8(1), 8(3), 8(4) read with Section 64(2) of the Foreign Exchange Regulations Act, 1973 - consignment exported from India to Singapore was re-exported under the Bill of Entry on a higher value - Restrictions on dealing in foreign exchange - re-shipment of the same machinery was on a higher value with the multiplication of amount to 40 times - HELD THAT -The mastermind behind the transaction was Dr. N.M. Parthasarthy who played a key role with M/s ETKIF America and was having significant role to arrange for the import and export of the same machinery. It was not even worth manufacturing of electronic grade iron oxide of 5000 tons rather in one factory at Puddukotai, there was no electricity supply available and at the factory of M/s ORJ Electronic Oxides, the machines were capable of only producing 20 Kg. iron oxide. The purpose was to get release of foreign exchange. The difference between the two amounts i.e. the first invoice for export from India to Singapore at the value of USD 1.71 lakh in two different consignments and reexport of the same machineries at the value of around 72 lakhs USD and 71,64,993USD totaling to an amount equivalent to USD 1,43,64,993 US Dopened that opportunity. With the support of the financial institutions, the appellants remained successful to get heavy foreign exchange released in contravention of the provisions of the Act of 1973 which was nothing but substantial loss to the country in terms of the foreign exchange. The role of the Bank of Madura and M/s Sundaram Finance Ltd was such to support the misdeeds though allegations have been made that financial institutions had made import directly and they processed the documents. However, none of the financial institution has supported the aforesaid and even other appellants have failed to prove the aforesaid allegations. The provisions quoted above are to indicate as to whether the facts disclosed above make out a case for contravention of the provisions referred above. We find that there is gross contravention of Section 8(1) read with section 48, 8(3) and 8(4) read with Section 64(2) of the Act of 1973. Shri N.M. Parthasarthy died during the pendency of the appeal and his legal heirs were brought on record but his role has been discussed in the order and is sufficient to show that he was the kingpin and mastermind for getting foreign exchange through the financial institutions by over invoicing the same consignment. In the light of the discussion made above, we find no merit in the appeals and they are accordingly dismissed.

Issues Involved:
1. Contravention of Section 8(1), 8(3), 8(4) read with Section 64(2) of the Foreign Exchange Regulations Act, 1973.
2. Validity of the adjudication proceedings under the Foreign Exchange Management Act, 1999.
3. Role of financial institutions (Bank of Madura and Sundaram Finance Ltd) in the alleged contravention.
4. Allegations and roles of individual appellants in the contravention.
5. Legal implications of the findings from other judicial and quasi-judicial bodies (Income Tax Department, CESTAT, and Madras High Court).

Detailed Analysis:

1. Contravention of Section 8(1), 8(3), 8(4) read with Section 64(2) of the Foreign Exchange Regulations Act, 1973:
The appellants were penalized for contravening the provisions of the Foreign Exchange Regulations Act, 1973, specifically Sections 8(1), 8(3), and 8(4) read with Section 64(2). The core issue revolves around the export and re-import of machinery from India to Singapore and back to India at inflated prices. The consignment was initially exported at a lower value and re-imported at a significantly higher value without breaking the seals, indicating over-invoicing. The machinery was found to be incapable of producing the declared output, and the appellants failed to justify the inflated value. The Tribunal found that the appellants had over-invoiced the machinery to fraudulently realize foreign exchange, thus violating the provisions of the Act of 1973.

2. Validity of the adjudication proceedings under the Foreign Exchange Management Act, 1999:
The appellants argued that the adjudication proceedings were not tenable as the cognizance of the contravention was not taken within the sunset period prescribed under Section 49(3) of the Act of 1999. The Tribunal, however, upheld the proceedings, stating that the contraventions were evident and the proceedings were initiated appropriately. The Tribunal emphasized that the adjudication and prosecution under different statutes should be treated independently.

3. Role of financial institutions (Bank of Madura and Sundaram Finance Ltd) in the alleged contravention:
The Tribunal examined the role of financial institutions, particularly the Bank of Madura (now ICICI Bank) and Sundaram Finance Ltd. The Bank of Madura provided lease finance for the import of machinery, and the remittances were made through its accounts. The Tribunal found that the financial institutions failed to inspect the factory units, check the viability of the projects, and carry out pre-shipment inspections, thereby facilitating the contravention. The officials of these institutions were found to have acted in connivance with the appellants.

4. Allegations and roles of individual appellants in the contravention:
Dr. N.M. Parthasarthy was identified as the mastermind behind the scheme, orchestrating the export and re-import of machinery at inflated prices. Other appellants, including officials of M/s ORJ Electronic Oxides Ltd and M/s ETK Softech, were found to have played significant roles in the contravention. The Tribunal noted that the appellants had acted with the intent to fraudulently realize foreign exchange, causing substantial loss to the country.

5. Legal implications of the findings from other judicial and quasi-judicial bodies (Income Tax Department, CESTAT, and Madras High Court):
The appellants relied on judgments from the Madras High Court and findings from the Income Tax Department and CESTAT to argue their case. The Tribunal, however, distinguished these findings, stating that the issues under different proceedings are to be decided in reference to the statutory provisions involved therein. The Tribunal emphasized that the adjudication proceedings under the Act of 1973 were independent and not bound by the outcomes of the prosecution or other proceedings. The Tribunal relied on the Supreme Court's decision in Radheshyam Kejriwal v. State of West Bengal, which clarified that adjudication and prosecution are distinct and separate under the scheme of the Act.

Conclusion:
The Tribunal dismissed the appeals, upholding the penalties imposed for contravention of the Foreign Exchange Regulations Act, 1973. The Tribunal found that the appellants had engaged in over-invoicing to fraudulently realize foreign exchange, with the active connivance of financial institutions. The adjudication proceedings were deemed valid, and the findings from other judicial bodies did not influence the outcome of the present proceedings.

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