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TMI Blog2024 (9) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.1,00,000/- (Rupees One lakh only) on Shri K.M. Shankar. (vii) Penalty of Rs.1,00,000/- (Rupees One lakh only) on Shri S. Srinivasan. 2. So far as M/s ETKIF America Inc and M/s ETK Exports Consultants are concerned, they have preferred the present appeals against the Prohibitory Orders issued by the Respondent Directorate in terms of Section 37(3) of FEMA 1999 read with Section 132 (3) of the Income Tax Act, 1961 dated 09.05.2001. The case of each noticee and now appellants before us would be dealt with separately. However, while arguing the appeals, the learned counsel for the appellants prayed for placing reliance on the facts of the appeal in the case of Dr. N.M. Parthasrthy (since deceased) represented by legal heirs. Accordingly, while dealing with legal and factual aspects, we would be referring to the facts narrated by the counsel for the appellants from the case file of Dr. N.M. Parthasarthy v. Directorate of Enforcement, Chennai (FPA-FE-417/CHN/2004). Brief facts of the case narrated by the appellants 3. The learned counsel for the appellants submits that M/s ORJ Electronic Oxides Ltd is having its factory in District Pudukottal (Tamil Nadu) and M/s ETK Softech is ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation to the Collector of Customs, Chennai. Since the shipment and the bill was not only for the plant and machinery but also for the Auto CAD drawing, computer software and other catalyst and the value was determined accordingly. The goods initially imported by IPTE, Singapore were re-exported and taken to be a contravention of the Act of 1973 on the ground that the consignment was overvalued, rather it was nothing but first import of the plant and machinery by M/s ETKIF, Ranipet to IPTE Inc, C/o Travindo Trading Pvt Ltd, Singapore and the same consignment was re-exported from Singapore to India without even opening the seal. The re-export was thus of the same plant and machinery from Singapore to India. 7. The learned counsel for the appellants submits that while taking up the case, the respondent failed to consider that the agreement between M/s ORJ Electronics Oxides and IPTE was for supply of turnkey plant which was not only to export the plant and machinery but the drawings, computer software and other services as per the 'scope of contract'. In fact, on re-export of Plant from Singapore to India, the value of drawing, computer, software, etc. was also added, and for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftech from Singapore to India on a higher invoice price and, therefore, allegation of contravention of Section 8(1), 8(3), 8(4) read with Section 64(2) of the Act of 1973 was made. 11. The learned counsel for the appellants submits that there was no contravention of any of the provision, rather if the Special Director would have taken note of all the invoices and the scope of agreement for the turnkey supply of plant and machinery for establishing 100% export oriented unit for manufacturing of electronic grade invoices, the penalty would not have been imposed. 12. Coming to the facts again, it was submitted that M/s ETKIF, Ranipet was granted subcontract by IPTE and exported two consignments of Venturi Scrubber, Absorber, Solar Collectors and other materials for 1,71,500 US Dollars each against two different orders. The plant and machinery exported thereunder was reimported by IPTE towards the two contracts with M/s ORJ Electronic Oxides and M/s ETK Softech. The facts and figures in reference to the amount involved therein has also been given. It is with further statement that the Customs Commissioner upheld the valuation report and proceeded to demand duty though re-imported goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y penalty has been imposed on him. He was only an arbitrator between two companies and made introduction of the parties. The import from Singapore was made by the Bank of Madura and not by the appellant Parthasarthy or other appellants, so as to allege gain of foreign exchange against the invoices of the import from Singapore to India, which was earlier exported by M/s ETKIF, Ranipet to IPTE Singapore and, therefore, the penalty imposed against the appellants is wholly illegal. 17. In contrast to the argument raised by the counsel for the appellant deceased Parthasarthy, the counsel appearing for the other appellants made serious allegation against Parthasarthy for cheating by supplying locally manufactured machinery showing it to be imported machinery of USA from IPTE. It was submitted that Dr. Parthasarthy was authorized Vice-President and Chairman of M/s ETKIF America Inc and also the nominee Director of ETK Softech. In fact, he was involved in entire scam whereby he became instrument to supply locally manufactured machinery by M/s ETKIF, Ranipet to IPTE Singapore, re-exported the same consignment by overvaluing it and that too without opening the seal of plant and machinery of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1973. The prayer was accordingly made to first refer to the facts available on record with proof and then to analyze the legal issues. We would accordingly first refer to the facts, as stated by the counsel and would simultaneously analyze the legal issues. 23. The arguments raised by the counsel for the respondent would be taken into consideration while taking up the factual and legal issues raised by the appellants but before that it would be necessary to narrate the facts and the provisions contravened by the appellants. Findings. 24. The genesis of the case relates back to the year 1997 when M/s ETK International Ferrites Ltd. having its factory at Ranipet exported consignments of Venturi Scrubber, Code VSI- 1 No., Heat Air Oxidation Equipment (Absorber) 1- No., and Concentrating Solar Collectors-24 no., for the total invoice value of 1,71,300 US Dollars to M/s IPTE Inc. c/o M/s Travindo Trading Pvt. Ltd. at Singapore vide shipping bill dated 09.04.1997. 25. The exporter submitted necessary AR-4 form to the Central Excise Department for duty exemption and the consignment was thereafter shipped to Singapore vide Bill of Lading dated 11.04.1997 and Shipping Bill dated 09.04.19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipping Bills dated 09.04.1997 and 07.09.1998 proves these to have been re-shipped to the Indian companies named above. The fact further remains that the machinery exported to Singapore were not opened as the 'one-time seal' numbers on the export-import containers were found one and the same. The fact of 'one time seal' affixed on the containers was confirmed by the shipping company M/s APL (India) Pvt. Ltd. At this stage, it would be necessary to further add that for re-shipment/re-export to the Indian companies without opening the seal of the container, the invoice value of the items for import were raised to 72,00,000/- US Dollars and 71,64,993/- US Dollars, respectively. It was for the shipment from Singapore to India of the same machinery which were earlier sent to Singapore on an invoice value of 1,71,300 and 1,71,500 US Dollars. The facts aforesaid clarify that re-shipment of the same machinery was on a higher value with the multiplication of amount to 40 times. 29. To cover over-invoicing referred to above, the appellant has submitted that it was not simply re-export of the machinery initially exported from India to Singapore by M/s ETKIF but while it was ree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33. During the course of DRI investigation, the imported machinery installed at the factory premises of M/s ORJ Electronic Oxides as well as M/s ETK Softech were inspected by Prof. A.K. Lahari of the Department of Metallurgy, Indian Institute of Science, Bangalore. Prof. A.K. Lahari gave an investigation report which forms part of the relied upon documents. It is to the effect that imported machinery declared to be meant for production of iron oxide of electronic grade of 5000 metric tons per annum was not designed for regular operation or production of any item and not capable of producing electronic grade iron oxide. It is also that the Venturi Scrubber and Wet Air Oxidation Equipment (Absorber) were not in conformity with the specifications furnished by the exporter as well as the supplier. The report also reveals that the machinery was not in a condition to be supported online. 34. During the course of investigation, M/s ETK Softech with an ulterior motive to nullify the inspection report caused the inspection of the machinery by an approved valuer of M/s Anbu Sivam Valuers, Chennai. The valuation report was sought and given to value the machinery to justify the cost on which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho is ORJ Jaffar Batcha who was Managing Director of M/s ORJ Electronic Oxides and Mr. V. Sundaram, Director of the same Company while Dr. R. Raghavan and Mr. S. Kannan to be the Managing Director and Director, respectively of M/s ETK Softech. They were personally responsible for the company business during the relevant period and thus charges were made against them also in terms of Section 68 of the Act of 1973. They contested the show cause notice but failed to make out a case in their favour. 37. Now, the issue comes in reference to the financial institutions. As regards the role played in the entire transaction by Bank of Madura now known as ICICI Bank was in providing lease finance of 72,00,000 US Dollars to M/s ORJ Electronic Oxides. It was revealed from the evidence on record that an agreement was entered between M/s International Product and Technology Exchange Inc., USA and M/s ORJ Electronic Oxides for supply of machinery for invoice value of 72,00,000 US Dollars and another technology transfer agreement for USD 12,00,000 US Dollars. The Indian Company submitted application to the Govt. of India to obtain necessary permission which was taken by M/s ORJ Electronic Oxides. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ura Ltd., but it was only A17, the Deputy General Manager of M/s Sundaram Finance Ltd. signed the warehouse bill of entry. But on perusal of the said document, it is seen that M/s ETK Softech Pvt. Ltd. is shown as importer and its Managing Director has signed the document and M/s Sundaram Finance Ltd. is shown as lessor and A17 had signed only as its authorized signatory. 15. From the materials filed by the prosecution, it is only Ist accused, who is the brain behind in the act of cheating. As far as the Bank of Madura and M/s Sundaram Finance Ltd. are concerned, being financial institutions, they have extended the financial assistance and the accused concerned with these financial institutions have acted only in that process. Of course, there was omission on their part, such as failure to inspect the factory unit and check the viability of the project and failure to carry out pre-shipment inspection. From all these omissions by these financial institutions, it cannot be said that either they had conspired with the main accused or they had role to play in the commission of fraud. Absolutely, there is no material to show that persons concerned with these two financial institutions h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 999 that a large scale abuse of benefits given to the company under 100% EOU scheme and evasion of custom duty by the petitioner and the modes apprehendi had been adopted by A3 with A9, A10, A11. For the consignment ought to have been dealt through, the authorized bank, State Bank of India. Instead it was dealt through M/s.Sundaram Finance, who entered into a lease and finance. The transaction which was routed through Bank of Madura. 15. In this case the conspiracy link has been cut. The prime conspirator and the beneficiaries have been relieved from the case, either the case against them was abated or quashed by this Court. The offences alleged against the petitioners is a chain of events and they cannot be prosecuted for isolated incident when the chain link at the beginning and the end have been snapped. This Court while quashing the proceedings against some of the accused by order dated 17.10.2012 in Crl.O.P.Nos.22976 of 2004, 24250 of 2007 25986 of 2012 observed that It is only 1staccused who is the brain behind in the act of cheating and he is no more and the documents showing inflated value of imported machiners under the bills of entry is said to be have been filed by M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in fixing the duty liability jointly and severally on two persons, who are jointly the importers in the eyes of the Customs law. M/s. SFL and M/s. ICICI Bank have to be considered as importers and liable to pay duty as they were the owners of the goods having retained such ownership during import as well as afterwards till repayment of such amounts. In the eyes of the customs law, bring owners, they were importers and under the income tax law bring owners, they along were eligible for claiming depreciation in respect of the impugned imported machinery. They cannot be considered as owners only when it comes to getting some benefits and they cannot be held to have given up the ownership when it comes to discharging the duty liability. It makes no difference to the legal position that in respect of one Bill of entry, the financing institution had signed the Bill of Entry and in the other case, the bank had not signed it, since in both the case, the Bills of Entry were filed in the joint name, the ownership was retained with SFL/Bank, the purchase order was placed by SFL/Bank, the Bill of Lading was in the name of SFL/Bank and the commercial invoice was also in the name of SFL/Bank. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said judgment(s) arises from the Madras High Court jurisdiction over criminal matters, and therefore, observations made by the High Court in the Common Order dated 17.10.2012 and the Judgment dated 05.06.2020 would not be germane to the Appellate Tribunal which has jurisdiction arising from the Adjudication (civil) proceedings. 47. We would rely on the decision of the Hon'ble Supreme Court in Radheshyam Kejriwal v. State of West Bengal [2011 AIR SCW 1479] which had observed that the Parliament had intended to treat the criminal proceedings, that is the prosecution and the adjudication proceedings as independent of each other. In other words, the scheme of the Act of 1973 makes it clear that the adjudication by the concerned authorities and the prosecution are distinct and separate. In view of the ratio laid in the above-mentioned judgment coupled with the fact that presently the impugned order which is under examination has arisen out of the adjudication proceedings, we are unable to persuade ourselves that the outcome of the prosecution proceedings and its subsequent appeals in the criminal side should have a binding effect in the present proceedings. 48. From the stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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 USDopened 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. In the background aforesaid, it can be analyzed as to whether there was contravention of Section 8(1), 8(3) and 8(4) of the Act of 1973 and for ready reference, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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