Calcutta High Court
Golden Machinery Corporation vs Union Of India (Uoi) And Ors. on 5 February, 1993
Equivalent citations: [1995]82COMPCAS460(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. These 23 appeals are directed against the orders all dated November 18, 1989, passed by the Foreign Exchange Regulation Appellate Board dismissing the appeals preferred by the appellant against the orders passed by the Deputy Director of Enforcement, Calcutta, all dated October 20, 1987.
2. Shortly stated, the facts leading to these appeals are as under :
The appellant, Golden Machinery Corporation, a partnership firm deals mainly in the sales and export of machinery. Acting on the information that the appellant firm was concerned in illegal under-invoicing of their exports to Bangladesh, unauthorised collection of the said amount of under-invoicing and making payment to various parties, the business premises of the said firm were searched by the officers of the Enforcement Directorate on March 2, 1987, resulting in seizure of various files and documents. It may also be mentioned that the residential premises of Jitraj Agarwal, a partner of the said firm, were also searched by the enforcement officers on the same day resulting in the recovery of some foreign currency and small amount of foreign exchange. A statement of the said Jitraj Agarwal was also recorded.
3. On September 11, 1987, the Deputy Director, Enforcement Directorate, Calcutta, issued 23 several show-cause notices to the said firm and its partners in regard to different consignments for contravention of Sub-section (2) of Section 18 of the said Act read with Sub-section (3) of Section 18 on the ground that the said firm had failed to realise and did not take appropriate steps to realise the amounts of the invoices for the goods from the buyers in Bangladesh in the prescribed manner within the prescribed period of six months without the permission of the Reserve Bank of India in this behalf.
4. In response thereto, the appellant-firm sent a common reply dated October 5, 1987, denying their liability in respect of the charges and asserting that the amounts as shown in the various invoices had been realised through letters of credit in respect of various exports and as such there was no contravention of either Section 18(2) or Section 18(3) of the Act.
5. The adjudicating authority, after considering the material available on record, passed 23 several orders dated October 20, 1987, holding the appellant-firm liable for contravention of Sections 18(2) and 18(3) of the Act and imposed penalty in respect of each show-cause notice.
6. Being aggrieved, the appellant preferred appeals against those orders under Section 52 of the Act, after depositing the amounts of penalty with the Enforcement Directorate, before the Foreign Exchange Regulation Appellate Board.
7. The Foreign Exchange Regulation Appellate Board by its order dated November 18, 1988, confirmed all the orders passed by the adjudicating authority and dismissed the said appeals holding that the charges against the appellant were fully proved. Hence, the appellant has preferred 23 several appeals which are heard analogously as the issues of fact and law are identical.
8. At the hearing before us, it has been contended by learned counsel for tbe appellant that, firstly, the facts disclosed in the show-cause notices did not substantiate the charge of contravention of Sections 18(2) and 18(3) of the Foreign Exchange Regulation Act and that, secondly, the show-cause notices dated September 11, 1987, issued by the authority under the Foreign Exchange Regulation Act are without jurisdiction.
9. In each of the said show-cause notices it has been alleged as follows:
I. That the firm at the time of export of machinery to Bangladesh, declared less value in GRI Forms, though none of the GRI Forms were either collected from the Customs Department or the Reserve Bank of India, Calcutta ;
II. Golden Machinery Corporation had indulged in under-invoicing of exports made to Bangladesh parties ; and III. It also appears that the full value of the machinery as declared in GRI Forms and the invoices was not correct and did not represent the real value of the goods and thereby the firm contravened the provisions of Sections 18(2) and 18(3) of the Foreign Exchange Regulation Act of 1973.
10. The sum and substance of the allegations made in the show-cause notices is that the exporter (appellant) by under-invoicing various consignments exported to Bangladesh, failed to declare the real value of the goods but declared a lesser value.
11. Section 18(1) of the Foreign Exchange Regulation Act, 1973, casts an obligation upon the exporter to furnish to the prescribed authority a declaration in the prescribed form supported by such evidence as may be prescribed or so specified and true in all material particulars which, among others, shall include the amount representing, inter alia, the full export value of the goods. The exporter is also required to affirm in the said declaration that the full export value of the go&ds has been, or will within the prescribed period be paid in the prescribed manner,
12. Rules 5 and 6 of the Foreign Exchange Regulation Rules, 1974, provide that an exporter shall furnish a declaration at the time of exporting the goods otherwise than by post, to the Collector of Customs. The word "declaration" in Section 12(1) of the Foreign Exchange Regulation Act, 1947, and Section 18(1)(a) of the Foreign Exchange Regulation Act, 1973, means that the declaration must be a true declaration.
13. Section 12(1) of the 1947 Act has been construed by this court as well as by the Supreme Court. In Additional Collector of Customs v. Toolsidass Jewraj [1975] 79 CWN 461, the Division Bench of this court held that Section 12(1) of the Foreign Exchange Regulation Act, 1947, requires that a declaration containing the full export value of the goods to be exported is to be given in the declaration under that section. When there is a declaration which is not true but contains undervaluation of the goods which is neither a minor mistake nor a bona fide or avoidable inaccuracy, such a declaration cannot be accepted as a declaration under the provisions of the said section. Such a declaration is to be treated as non est or a false declaration. In either case, there is absolute non-compliance with the provisions of Section 12(1) aforesaid and accordingly under Section 23A such breach is to be treated as an offence under Section 19 read with Section 167(8) of the Customs Act, 1878.
14. The aforesaid decision of the Division Bench, was affirmed by the Supreme Court in Toolsidass Jewraj v. Additional Collector of Customs, .
15. Our attention has also been drawn to a decision of the Supreme Court in Director, Enforcement Directorate, Ministry of Finance v. K. O. Krishnaswamy, . There the Supreme Court was construing the provisions of the Foreign Exchange Regulation Act, 1947, in particular the expression "the full amount payable by the foreign buyer in respect of the goods" occurring in Section 12(2)(b) of the 1947 Act. There the Supreme Court held as follows (at page 1971 of AIR) :
"The argument advanced on behalf of the director before the High Court has been reiterated before us and we are clearly of the opinion after hearing learned counsel for both the parties, that the interpretation placed upon Sub-section (2) of Section 12 by the High Court is unexceptionable.
The expression 'the full amount payable by the foreign buyer in respect of the goods' occurring in Clause (b) would mean merely the total amount which is due from the foreign buyer in respect of the goods actually exported ; and what would be due from a foreign buyer has to be merely the price which he has agreed to pay and not any fanciful, unreal or inflated price which the exporter may choose to falsely incorporate in the invoice with any ulterior motives. The foreign buyer cannot, by any stretch of imagination, be held to be liable to pay any amount over and above the price which he has promised to pay for the goods received by him and any difference between that price and the price given in the invoice can, therefore, not have the attribute of having become 'payable' by him. And if that be so and the price actually agreed upon has been paid to the exporter, Clause (b) does not come into operation in the case of the latter.
Sub-section (1) of Section 12 no doubt makes it imperative for the exporter to specify in his declaration the full (and true) export value of the goods but then a breach of this mandate is not covered by the contraventions embraced by Sub-section (2). It may be that the false declarations made by the respondent-firms in the invoices submitted by them in respect of the goods exported make them liable under some provision (other than Section 12(2) of the Act) of the penal law of the country, but that is an aspect of the case with which we are not here concerned."
16. Our attention has been drawn to a Full Bench decision of this court in Euresian Equipments and Chemicals Ltd. v. Collector of Customs, . In that case, a notice was issued by the Deputy Collector of Customs asking the exporter to show cause why penal action should not be taken against the exporter under Section 114 of the Customs Act, 1962. In the said show-cause notice, it was alleged that the exporter exported 11 consignments and the description and the value of the goods covered by the shipping bills were incorrectly and untruly declared in the shipping bills as well as in the relative GRI Forms. The question was whether by virtue of Section 23A of the Foreign Exchange Regulation Act, 1947, the provisions of Sections 113 and 114 of the Customs Act, 1962, are attracted for the contravention of Section 12(1) of the Foreign Exchange Regulation Act, 1947, in relation to goods which had been exported beyond India. There, the Full Bench answered the said question in the affirmative. Accordingly, the challenge to the show-cause notice was not sustained.
17. Our attention has also been drawn to the decision of the Supreme Court in South India Coir Mills v. Additional Collector of Customs and Central Excise, . In that case, the validity of an order of imposition of penalty and confiscation of goods with the direction of payment of Rs. 5,000 in lieu of confiscation of the goods was challenged and in that case the Supreme Court had to consider Section 12(1) of the Foreign Exchange Regulation Act, 1947, after its amendment. The Supreme Court held that the Collector of Customs was justified in its order in imposing the penalty and in relation to the confiscation of goods ; the Supreme Court, however, reduced the amount of penalty imposed. The effect of the decision of the Supreme Court appears to be that any untrue declaration in all material particulars will amount to a violation of Section 12(1) of the Foreign Exchange Regulation Act as amended and the infraction of Section 12(1) of the Foreign Exchange Regulation Act will, by virtue of the provisions contained in Section 23A of the said Act, result in contravention of the prohibition or restriction contained in Section 11 of the Customs Act.
18. Our attention has also been drawn to the decision of the Supreme Court in P and S Export Corporation v. Deputy Director of Enforcement . In that case, the appellant has been carrying on the business of exporting goods to the various parts of the world. During the year 1966, it effected shipment of brassware goods to a foreign buyer in the United States valued at US $5976, out of which the appellant repatriated US $2931.42 leaving a balance of US $3044.58. Since the appellant failed to repatriate the entire value of the exported goods a show-cause notice was issued under Section 12(2) of the Act initiating adjudication proceedings contemplated by Section 23D of the Act against the appellant and its partners. In reply to the notice, the appellant submitted that the goods had been exported to the Oriental Imports, New York, who did not pay the entire amount but, instead, the buyer set up a counter-claim against the appellant on account of devaluation of the Indian rupee. The appellant further asserted that since the consignee had not paid, full export value of the goods could not be repatriated. The Deputy Director, Enforcement Directorate, by his order dated November 20, 1975, rejected the defence set up by the appellant, on the findings that there was no evidence to show that the foreign buyer had raised counter-claim against the appellant. The Reserve Bank of India had advised the appellant to get the goods returned to India or to approach the Indian Embassy at Washington, for its intervention. The appellant made no attempt to adopt either of the two courses of action advised by the Reserve Bank of India. The National and Grindlays Bank who were the appellant's bankers informed that the goods were privately disposed of by Mr. Sarna, a partner of the appellant-firm. The Deputy Director found the appellant guilty of having contravened Section 12(2) of the Act and imposed a fine of Rs. 30,000 under Section 23(1)(a). In appeal, the Foreign Exchange Regulation Appellate Board confirmed the order of the Deputy Director but it reduced the amount of penalty from Rs. 30,000 to Rs. 22,824. The appellant thereafter preferred appeal under Section 23EE of the Act before the High Court against the appellate order. The High Court dismissed the appeal on the findings that the order of the Appellate Authority did not suffer from any error of law.
19. In that case, the contention on behalf of the appellant was that there was no contravention of Sub-section (2) of Section 12. There the Supreme Court observed as follows (at page 487 of 61 Comp Cas) :
"Under the aforesaid provision, an exporter who exports goods notified under Sub-section (1) of Section 12 shall not do anything or refrain from doing anything which may have the effect of delaying the sale of goods to an unreasonable period or which may have the effect of ensuring payments otherwise than in the prescribed manner or it has the effect of securing the payment not representing the full amount payable by the foreign buyer. Section 12(2) ensures prompt sale of goods exported to a foreign buyer and repatriation of the full value of the goods. If an exporter sells the goods to a foreign buyer and if he fails to realise the full amount payable by the foreign buyer in respect of goods so exported, he would be contravening Section 12(2)(b) of the Act. The appellant exported goods to the foreign buyer in the United States but he failed to repatriate the full amount payable by the foreign buyer. The findings recorded by the Deputy Director of Enforcement and the Appellate Authority leave no room for doubt that the appellant took delivery of goods himself when he was in the U.S.A., and sold the same by private sale in a surreptitious manner disregarding the directions of the Reserve Bank of India and keeping it in the dark about it. The appellant has not proved how much value and foreign exchange he realised by such private sale. In the first place, he could not have sold the goods privately in a secretive manner contrary to the directions of the Reserve Bank of India. In the next place, he should have candidly come forward to state how much he realised and ought to have repatriated the said amount. Instead, the appellant resorted to manipulations to show that the importer had paid only 50 per cent. of the value which fact is established to be untrue. The full export value is reflected in the transaction which was made with the foreign buyer at $5976 but he has repatriated only $2931.42. He has thus clearly violated Section 12(2). The order under appeal is unassailable."
20. In our view, the principles laid down in the aforesaid decisions will apply to the facts of this case. It is clear that if the exporter does not declare the real value, but declares a lesser value in the GRI forms or underinvoices the value of the goods exported, the provisions of Sections 18(2) and 18(3) of the Foreign Exchange Regulation Act, 1973, will not be attracted. Under Section 18(2) an exporter who exports the goods notified under Sub-section (1) of Section 18 shall not do anything or refrain from doing anything which may have the effect of delaying the sale of goods to an unreasonable period or which may have the effect of ensuring payments otherwise than in the prescribed manner or which has the effect of securing payments not representing the full export value of the goods; Section 18(3) ensures prompt sale of goods exported to a foreign buyer and repatriation of the full export value of the goods. If an exporter sells the goods to a foreign buyer and if he fails to realise the full export value in respect of goods so exported, he would be contravening Sub-section (2) of Section 18. In this case, there is no allegation that the appellant failed to realise the full value as declared from the foreign buyer. As a matter of fact, the statements of account of the appellant's banker clearly indicated that the entire payment according to the declaration furnished by the appellant before the prescribed authority in the prescribed form under Section 18(2) of the Foreign Exchange Regulation Act, 1973, has been realised. The customs authorities did not initiate any proceeding for alleged underinvoicing of the goods exported to Bangladesh. In our view the Foreign Exchange Appellate Board failed to appreciate the meaning of the expression "full export value of the goods" as contained in Section 18(2) of the said Act.
21. Even assuming that the allegations contained in the show-cause notices attract the provision of Section 18(1), still then the Enforcement Directorate has no authority or jurisdiction to initiate any proceedings against the exporter. Section 67 of the Act of 1973 is a bar to the initiation of any such proceedings by the authorities under the Foreign Exchange Regulation Act.
22. Section 67 of the Act of 1973 reads as under :
"67. Application of the Customs Act, 1962. The restrictions imposed by or under Section 13, Clause (a) of Sub-section (1) of Section 18 and Clause (a) of Sub-section (1) of Section 19 shall be deemed to have been imposed under Section 11 of the Customs Act, 1962 (52 of 1962), and all the provisions of that Act shall have effect accordingly."
23. In our view, therefore, the proceedings initiated by the authorities under the Foreign Exchange Regulation Act, 1973, are without jurisdiction as the allegations made in the show-cause notice at best can make out a case for contravention of Section 18(1) of the said Act. In the case of such a contravention, the customs authorities are empowered to initiate appropriate proceedings against the exporter. As indicated earlier, the customs authorities did not make any complaint nor did they initiate any proceedings for the alleged misdeclaration or for the alleged underinvoicing under Section 18(1) of the Act. Inasmuch as the full export value as declared in the prescribed GRI forms has been admittedly repatriated in the prescribed manner and within the prescribed period, it must be held that there was no contravention of Section 18(2) and Section 18(3) of the Act.
24. For the reasons aforesaid, it must be held that the facts disclosed in the show-cause notice do not substantiate the charge of contravention of Sections 18(2) and 18(3) of the said Act; the show-cause notices issued by the authorities under the Foreign Exchange Regulation Act are, therefore, without jurisdiction.
25. In the result, the appeals succeed and the orders under appeal are set aside and quashed. It is stated that the amounts of penalty had been deposited with the Enforcement Directorate. The Enforcement Directorate shall refund the amounts of penalty so deposited within four weeks from date of communication of the operative part of this judgment and order.
26. All parties including the Enforcement Directorate to act on a signed copy of the operative part of the minutes of this judgment/order on the usual undertaking.
Shyamal Kumar Sen, J.
27. I agree.