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2. For the above purpose, they entered into an agreement with M/s. Time Travel & Cargo (hereinafter referred to as TTC), on 21/03/97, appointing them as their sub agent for stocking and selling TCs of VISA brand. The said M/s. TTC is duly licensed to operate as FFMC by RBI. In terms of the said agreement, blank stock of TCs were to be issued by the appellants to TTC at any given time within the overall limit agreed. The TCs so received by TTC were to be sold by them as per the terms and conditions of the licence granted to them as FFMC by RBI and as per the guidelines and instructions given in the memorandum of instructions issued by RBI from time to time. The appellants also informed the RBI about appointing of TTC as their sub agent and claimed that if the facilities by other FFMCs are miss-used by them, the appellants is not responsible for the same, inasmuch as the RBI is the only authority to monitor such use or misuse of the TCs. Various clauses in the agreement entered by the appellants with TTC also elaborated that TTC would sell such TCs to genuine passengers only against the purchase agreement forms (hereinafter referred to as PAF). The agreement also contained a clause containing caution about money laundering. The settlement between the appellants and TTC, as regards the consideration for the sold TCs was to be made by TTC an weekly basis daily settlement advice. It is also seen that before entering into the agreement, TTC furnished security of Rs. 55.5 lakhs to the appellants in terms of fixed deposit by one of the partners of TTC, Shri Riyaz Retiwala. Thereafter, the appellants started selling foreign currency in the shape of Travelers' Cheque to the said TTC.

5. As a result of the above developments, proceedings were initiated against all the concerned persons, including the appellants herein, by way of issuance of show cause notice dated 04/11/97. Apart from proposing confiscation of the seized foreign currency, including TCs and the vessel and proposing imposition of personal penalty upon the various persons, notice proposed confiscation of the amount of Rs. 58 lakhs and Rs. 10 lakhs lying in the pay order account of TTC, when pay orders stands deposited by the appellants in their bank account. The notice also proposed confiscation of an amount of Rs. 23 lakhs adjusted by the appellants out of the security of Rs. 54 lakhs given by TTC in terms of the contract entered into between the two. The said show cause notice was responded to by the appellants raising various contentions and submitting that since the amount of Rs. 68 lakhs was received by them by way of pay order in the normal course of their business with TTC, it was not open to the revenue to seize and confiscate the same as sale proceeds of smuggled TCs. It was contended that the appellant is a bonafide FFMC in terms of the licence issued by the RBI and entered into business relation with TTC, with the due knowledge and consent of RBI. All the precautions required to be taken by FFMC were incorporated in the agreement and the TCs were sold to TTC in terms and conditions of the agreement, the appellants has neither any control nor any check of further transactions of TCs by TTC. Inasmuch as there is neither any allegation, much less any evidence against the said appellants, as regards their involvement in the further fraudulent sales of TCs, the consideration of the genuine sale made by them cannot be confiscated.

9. We have heard Shri. Nankani, Ld. Advocate, appearing for the appellants and Shri. Pramod Kumar, Ld. DR appearing for the revenue.

10. Shri Nankani, Ld. Advocate appearing on behalf of the appellants strongly contested the confiscation of consideration of the TCs sold by the appellants to TTC in terms of the provisions of Section 121 of the Customs Act. Elaborating his arguments he submits that the said TCs were sold by the appellants, a FFMC, under the scheme "Basic Travel Quota" (BTQ). In terms of the said scheme TCs which sold to bonafide passenger for travel against photocopy of the passport, airline ticket and application from the passenger. In case the amount of foreign exchange equivalent to Indian rupees is more than Rs. 50,000/-, FFMC is required to receive the payment against pay order/demand draft and not in cash. The appellants had sold TCs to TTC, against which the said TTC had made payment to the company as per the agreement in respect of the TCs supplied on 21 & 22/05/97, cheque of Rs. 68,11750/- dated 26/05/97 was issued by the TTC. Inasmuch as the same were dishonoured on 27/05/97, two pay orders dated 28/05/97 were drawn by TTC, given to the appellants, who deposited the same with their banks and sent for dealing, when on account of instructions from DRI, payment was not made to the company. Ld. Advocate submits that the confiscation of the said amount in terms of provisions of Section 121 was not justified, inasmuch as the said Indian Currency cannot be termed to be sale proceeds of smuggled TCs inasmuch as the amounts were received by the appellants before the TCs were smuggled out and encashing of TCs after smuggling out of India through an act posterior to the act of sale of TCs by the appellants and receipt of consideration of the same. Drawing our attention to the provisions of Section 121, Ld. Advocate submits that the said Section provides for confiscation of the sale proceeds of the smuggled goods, by a person having knowledge with the goods are smuggled and such proceeds are liable to confiscation in the hands of the person, who has sold the smuggled goods. Inasmuch as admittedly in the present case, the paying and selling of TCs was a bonafide business and preceeded the subsequent smuggling out of the said bought TCs, consideration of the sale by the appellants to TTC cannot be held to be tainted being sale proceeds of the smuggled goods. The act of smuggling must precede the sale of the goods. Drawing our attention to the statements of various persons, Ld. Advocate submits that appreciation of the same leads to inevitable conclusion that the amount of Rs. 68 lakhs and 23 lakhs were sale proceeds of the local transaction, which happened in India and for which the payments were made in advance. Sale proceeds of the TCs would be the amount received by the holder of the TCs when he encashes the same and inasmuch as admittedly the TCs were encashed abroad, the amounts in dispute cannot be held to be sale proceeds of the smuggled goods. In any case, since the amounts were given in advance, they cannot acquire the characteristic of sale proceeds of the smuggled goods. The same had already been deposited in the company bank account and was the property of the appellants. Reliance was placed upon the Tribunal's decision in the case of B.P. Nayak v. Commissioner of Customs (Prev.), Mumbai 2001 (136) ELT 605 (Tri) and LKP Merchant Financing Ltd. v. Commissioner of Customs (P), Mumbai . As regards the penalty, Shri Nankani submits that there being no violation on the part of the appellants, invocation of penal provisions was not justified. He also drew our attention to another adjudication order dated 25/05/2003 by the Commissioner, dropping penal charges against the appellants, by taking note of the affidavit dated 02/05/2000 given by the financial authorities.

From the foregoing discussions and also from the evidence available on record, it is obvious that WSFL, an FFMC license holders, while selling the impugned foreign exchange to M/s.Time Travel & Cargo, Mumbai, another FFMC in the instant case, had, scrupulously followed the procedures required to be followed for that purpose and hence have not violated any of the provisions of FERA 1973 or rules framed there under or instructions contained in the ECM issued by the RBI, particularly, the Memorandum FLM being instructions of FFMCs. Accordingly, the charges leveled against WSFL Mumbai, in the impugned SCN would not sustain and are hereby dropped.