2024 (11) TMI 834 - AT - FEMA

Penalty for the contravention of Section 3(b) of FEMA, 1999 - under-invoicing to evade customs duty - significance of a statement recorded under Customs Act as relied upon - goods worth Rs. 6,01,82,311 imported as against the declared value of Rs. 1,71,62,087 against 26 Bills of Entry and had paid the differential amount in cash to the supplier in Japan in Indian Rupees in contravention of Sec. 3(b) of FEMA, 1999 Applicability of Customs Act on FEMA Issues - Reliance placed by the respondent Directorate on the proceedings conducted by the DRI under the Customs Act, 1999 - as contended that the intent and purpose of the two enactments are vastly different from each other and the findings of investigation under the first Act cannot be applied to the other - HELD THAT - Though the case under the FEMA, 1999 may have been based on the findings of the investigations conducted by the DRI under the Customs Act, 1962, having initiated the investigation, the Directorate of Enforcement (ED) has examined the case and concluded enquiries from the point of view of violations under FEMA, 1999, if any. While the focus of investigation under the Customs Act, 1962 was under-invoicing of imports to evade Customs duty, the focus of investigation under FEMA, 1999 was payment of the differential amount between the invoiced value and actual value through illegal channels. The two are different, though related contraventions under the respective Acts. The respondent Directorate independently recorded the statements of the appellant under FEMA, 1999 in which he confirmed his earlier statements before the DRI and explained in detail not only the modus operandi adopted by him for under-invoicing, but also payment of the price differential in cash to the representatives of the overseas suppliers. Other verifications were also carried out, including letters sent to and reply received from the Citibank, Surat confirming the remittances made against imports made by the Shree Laxmi Trading Company, though, admittedly, the investigations in this case primarily relied on the statements of the appellant. No bar on the empowered agency under one Act utilizing the information and findings of the investigations conducted by another law-enforcement agency investigating the case from its own angle under another Act. In fact, it is considered good practice for law enforcement agencies to share information which may be relevance to each other so that appropriate investigation can be undertaken by the other agency on issues undue its domain. As such, no merit in these contentions of the appellant. Competence of the DRI to conduct investigations under the Customs Act, 1962 - The order under challenge in this appeal is an order arising from proceedings which were initiated and concluded under the FEMA, 1999 and not under the Customs Act 1962. Even if there is any substance in the contention that the DRI was not competent to conduct the said investigation under the Custom Act, 1962, so long as the investigations made out a case of violation of FEMA, 1999, the ED would be well within its rights to initiate appropriate enquiries under FEMA, 1999 take the matter to its logical end. As already pointed out, no doubt the action of the ED under FEMA, 1999 was triggered by the information received from the DRI in respect of proceedings under the Customs Act, 1962. However, proceedings under FEMA 1999 were independent proceedings initiated and concluded under the said Act which did not suffer from any illegality for want of jurisdiction since the ED is the designated authority empowered to implement the provisions of FEMA, 1999. Accordingly, there is no reason for me in the current proceedings to enter into the issue of competence of the DRI to investigate violations under the Customs Act, 1962. Reliance placed on statements of the appellant before the DRI and the respondent Directorate (ED) - Statements of the appellant under section 37 of the Act were recorded on 04.04.2011 wherein he confirmed the admissions made in his staements before the DRI. As has been pointed out by the learned adjudicating authority, the statements were recorded over a period of 9 months. Furthermore, they were recorded nearly four years after the DRI had recorded his statements and yet the appellant Shri Jariwala, confirmed the facts stated to the officers of the DRI during the investigation under Customs Act. Adjudicating authority has further pointed out that the statements had not been retracted even upto the time of passing the adjudication order. Keeping in view the time horizon over which the statements were recorded the consistency in the admissions made before the two authorities, allegation of threat and duress are clearly an afterthought on the part of the appellant to escape liability under FEMA, 1999. Show Cause Notice (SCN) was vague - There was no proposal in the SCN to impose penalty on the appellant under any section of FEMA, 1999 - SCN, the attached Complaint and the documents annexed thereto as Annexure-A , when read together as one, convey very specific allegations against the appellant as well as the material being relied upon in support of the said allegations. Nothing vague about the same as alleged by the appellant. Accordingly, reject these contentions of the appellants. SCN was issued by the Special Director of Enforcement whereas the case was actually adjudicated upon by the Additional Director who is junior in the hierarchy to the Special Director - SCN in this case was issued on 28.12.2011 and the impugned order in pursuance thereof was passed on 30.01.2013. Thus, it is evident that there was a considerable time gap between the date of issue of the notice and the date of passing the adjudication order. As under Section 16 of FEMA, 1999 the Central Government is authorised to appoint as many officers as it may think fit as adjudicating authority. In all likelihood, in the interim period between the date of issue of the notice and the passing of the impugned order, the jurisdiction of the adjudicating authority changed. Once a notice has been issued and the proceedings have commenced, the same shall not come to an abrupt end upon change of the incumbency in the post of the designated adjudicating officer and the proceedings can be continued by the new incumbent appointed as adjudicating authority and continuation of the proceedings already initiated and ongoing would not necessitate issue of a fresh SCN by the new incumbent. No doubt, in the interest of natural justice, the new incumbent would be expected to provide another opportunity of being heard to the affected person before passing an order based on the material already brought on record by his predecessor. But the law does not mandate that he should issue a fresh SCN and re- initiate the entire process. The process already initiated for adjudication can be continued until the final order is passed regardless of any change in incumbency. Nothing has been brought on record by the appellant to indicate how the passing of order by a different officer than the one who originally issued the SCN has caused any prejudice to the appellant. Violation of Sub-rule (1) and (3) of Rule 4 of the said rules which vitiated the entire proceedings - As prior to the issue of SCN, the adjudicating authority had already discussed the factual background of the case and come to a prima facie conclusion that M/s Shree Lakshmi Trading Company had contravened the provisions of FEMA, 1999 for which it prima facie appeared to be liable for penalty under Section 13. Since nothing was heard from the side of the appellant in response to the SCN, no new light was thrown upon the subject from the appellant s side. Therefore, there was no reason for any change in the opinion formed by the authority and the authority issued notices of hearing in the matter. Considering the above sequence of events, no illegality in the action of the learned adjudicating authority. Determination of sum involved in the contravention which is the basis of imposition of penalty u/s 13 of FEMA, 1999 - A very specific admission was made in the present case by the appellant in his statements that value declared for import 5 to 8 per kg per metallic prevailing rate of 30 -37 per kg for metallic yarn 23-25 per kg for metallic film. The above statement was confirmed in subsequent statements before the DRI as well as ED, although, it is now denied by the appellant. The veracity of the statement has already been discussed in para 56-58 above. On the basis of the above differential in the declared rate and the actual rate, it was held that the appellants had actually imported goods of value Rs. 6,01,82,311/- as against the declared value of Rs. 1,71,62,087/- against 26 Bill of Entry. He further admitted in his statement that he had paid the differential which works out to Rs. 4, 30,20,224/- to the representatives of the suppliers in India in cash in Indian Rupees while imposing penalty, the Ld. Adjudicating Authority has held the said amount to be the sum involved . Having considered the above facts carefully, I do not find any discrepancies in the same. Nor has the appellant provided any alternate working of the sum involved backed by necessary evidence. DRI received certain invoices showing the current value of goods supplied to that firm. The appellant, in the present case, has admitted that his firm was importing goods at the same prices. DRI also recovered insurance policy document disclosing the current value in respect of another importer. These facts, corroborate the facts stated by the appellant Sh. Jariwala in his statements. No merit in the contentions of the appellant wherein he has questioned the imposition of the penalty on the ground that the sum involved has not been arrived at correctly by the respondent. Appeal dismissed.

Summary

Issues Involved:

1. Reliance on proceedings conducted by the Directorate of Revenue Intelligence (DRI) under the Customs Act, 1962 for proceedings under the Foreign Exchange Management Act (FEMA), 1999.
2. Competence of DRI to conduct investigations and issue Show Cause Notices under the Customs Act, 1962.
3. Reliance on statements recorded under duress and without corroborative evidence.
4. Vagueness of the Show Cause Notice (SCN) and lack of specific proposal for penalty in the SCN.
5. Jurisdiction of the adjudicating authority to adjudicate the SCN issued by a higher authority.
6. Compliance with procedural requirements under the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000.
7. Determination of "sum involved" for the purpose of imposing penalty under Section 13 of FEMA, 1999.

Detailed Analysis:

1. Reliance on DRI Proceedings:
The appellant argued that the findings from the DRI under the Customs Act should not be used for proceedings under FEMA as the intents of the two Acts are different. The Tribunal found no merit in this argument, stating that while the DRI focused on under-invoicing to evade customs duty, the ED focused on the payment of the differential amount through illegal channels, which are related but distinct contraventions. The ED independently recorded statements under FEMA and verified facts, indicating that the proceedings under FEMA were independent and valid.

2. Competence of DRI:
The appellant contended that the DRI was not competent to issue SCNs under the Customs Act, citing various judgments. The Tribunal held that this issue was irrelevant to the proceedings under FEMA, as the ED is the designated authority for FEMA violations. The competence of the DRI under the Customs Act did not affect the legality of the proceedings under FEMA.

3. Reliance on Statements:
The appellant claimed that statements were recorded under duress and lacked corroborative evidence. The Tribunal noted that the statements were consistent over a long period and were not retracted, indicating they were voluntary. The Tribunal distinguished this case from others cited by the appellant, where statements were retracted promptly and under different circumstances.

4. Vagueness of SCN:
The appellant argued that the SCN was vague and lacked a proposal for penalty. The Tribunal found that the SCN, along with the enclosed complaint and annexures, clearly conveyed specific allegations and the material relied upon. The Tribunal rejected the appellant's contention that enclosing the complaint with the SCN was insufficient.

5. Jurisdiction of Adjudicating Authority:
The appellant contended that the SCN was issued by a Special Director, but adjudicated by an Additional Director, which was improper. The Tribunal found that a change in the adjudicating officer did not necessitate a new SCN, as the proceedings could continue with the new officer, provided the appellant was given a fair hearing.

6. Compliance with Procedural Requirements:
The appellant argued that there was a violation of procedural rules under FEMA, which require a two-stage process for adjudication. The Tribunal found that the adjudicating authority had formed a prima facie opinion before issuing the SCN and had followed the required procedure, thus not violating any rules.

7. Determination of "Sum Involved":
The appellant challenged the determination of the "sum involved" for imposing a penalty, arguing it was based on customs duty evasion figures. The Tribunal found that the amount was based on the differential value admitted by the appellant in his statements and corroborated by other evidence, thus justifying the penalty imposed.

Conclusion:
The Tribunal dismissed the appeal, finding no merit in the appellant's contentions across all issues. The proceedings under FEMA were found to be independent and legally valid, with due process followed in determining the penalty.