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TMI Blog2013 (4) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... pose penalty on the assessee on the ground that the assessee had no knowledge that the foreign currencies were going to be smuggled out of India and that there was no breach of the provisions of the 1962 Act committed by the assessee. Therefore, if the assessee has neither sold the smuggled goods (foreign currencies) nor the assessee had any knowledge that the foreign currencies are going to be smuggled out of India, the question of invoking Section 121 of the 1962 Act does not arise at all. The decision of this Court in the case of LKP Merchant Financing Ltd. (2010 (1) TMI 610 - BOMBAY HIGH COURT) would be squarely applicable to the facts of the present case as so long as the pay orders represent the sale proceeds of the foreign currencies sold by the assessee in the ordinary course of business and the foreign currencies sold by the assessee were not smuggled goods, the amounts under the pay orders cannot be confiscated as sale proceeds of the smuggled goods. Appeals allowed by quashing the impugned orders and the respondents are directed to refund the amounts under the pay-orders with interest quantified @ 6% per annum from the date of encashment of the pay orders till pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the provisions of the Foreign Exchange Regulations Act, 1973 (FERA, for short). 3. In July, 1997 the assessee in the ordinary course of the business sold foreign currency to hotel Zam Zam and M/s. Tiruchi Enterprises on receipt of pay orders equivalent to the Indian Currency. Before the said pay orders could be encashed, the Officers from the Directorate of Revenue Intelligence (DRI, for short) seized the pay orders from the custody of the assessee on 16th/17th July, 1997 and later on encashed the same. According to the DRI, the amounts under the pay orders were the sale proceeds of the smuggled goods which were liable to be confiscated under the provisions of the Customs Act, 1962 (1962 Act, for short). 4. Accordingly, show cause notices were issued to the assessee calling upon them to show cause as to why the amounts specified under the pay orders should not be confiscated under the provisions of Section 121 of the 1962 Act and why penalty should not be imposed under Sections 112 114 of the 1962 Act. The assessee opposed the claim by filing detailed reply. However, by the orders-in-original dated 21st August, 1998 and 31st March, 2000 the adjudicating authority confis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Street Finance Ltd. v. Union of India being O.S. Writ Petition No. 493 of 2000 decided on 25th April, 2006 [2006 (202) E.L.T. 776 (Bom.) = 2008 (9) S.T.R. 419 (Bom.)]. Similarly, Counsel for the assessee relied upon a decision of this Court in the case of Commissioner of Customs (Preventive), Mumbai v. LKP Merchant Financing Ltd. reported in 2010 (254) E.L.T. 615 (Bom.), wherein it is held that the amounts under the pay-orders, which were seized from the custody of an assessee, would represent the sale proceeds of the foreign currency sold by the assessee in the regular course of business and, therefore, the assessee would be entitled to receive the amount under the pay orders. Accordingly, Counsel for the assessee submitted that the appeals be allowed by answering the question in favour of the assessee. 7. Mr. Jetly, learned Counsel appearing on behalf of the respondents fairly stated that as regards the locus standi of the appellant to receive the amounts under the pay orders seized, encashed and confiscated by the Customs Authorities is concerned, the issue stands concluded in favour of the assessee. However, he submitted that the decision of this Court in the case of LKP Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two purchasers in the ordinary course of business and that there is nothing to suspect that the assessee had any prior knowledge that the foreign currencies sold by the assessee would be utilized for smuggling the foreign currency outside India. Thus the findings recorded by the adjudicating authority clearly show that the pay orders received by the assessee were the sale proceeds of the foreign currency sold by the assessee to the two FFMC s in the ordinary course of business without any knowledge that the amounts to be realised under the pay orders could be the sale proceeds of the smuggled goods. 12. The argument of the Revenue is that where a purchaser delivers a pay order to an assessee for purchasing the foreign currency and before the said pay order could be encashed, if it found that the pay order has been issued out of the sale proceeds realised by the purchaser by smuggling the goods out of India, then, it is open to the customs authorities to attach bank account and confiscate the amounts in bank account of the purchaser. We see no merit in the above contention, because, once the pay orders are handed over by the purchaser to the assessee on receiving the foreign curre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o sell smuggled goods. Moreover, in the present case, the adjudicating authority has declined to impose penalty on the assessee on the ground that the assessee had no knowledge that the foreign currencies were going to be smuggled out of India and that there was no breach of the provisions of the 1962 Act committed by the assessee. Therefore, if the assessee has neither sold the smuggled goods (foreign currencies) nor the assessee had any knowledge that the foreign currencies are going to be smuggled out of India, the question of invoking Section 121 of the 1962 Act does not arise at all. 15. In our opinion, the decision of this Court in the case of LKP Merchant Financing Ltd. (supra) would be squarely applicable to the facts of the present case. Counsel for the revenue sought to distinguish the aforesaid decision on the ground that in that case the assessee had encashed the pay orders whereas in the present case the pay orders were not encashed when the said pay orders were seized. We see no merit in the above contentions because, so long as the pay orders represent the sale proceeds of the foreign currencies sold by the assessee in the ordinary course of business and the foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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