Full Judgment Text
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PETITIONER:
SOUTH INDIA COIR MILLS POOCHAKKAL
Vs.
RESPONDENT:
THE ADDITIONAL COLLECTOR OF CUSTOMS AND CENTRAL EXCISE ANDAN
DATE OF JUDGMENT25/03/1976
BENCH:
UNTWALIA, N.L.
BENCH:
UNTWALIA, N.L.
CHANDRACHUD, Y.V.
KRISHNAIYER, V.R.
CITATION:
1976 AIR 1527 1976 SCR (3) 905
1976 SCC (3) 354
ACT:
Foreign Exchange Regulation Act (7 of 1947), s. 12(1)
as amended by Act 40 of 1969-Scope of.
HEADNOTE:
The appellant is a dealer and exporter in coir yarn. On
its behalf a shipp ing bill for export of 150 bales of coir
yarn to a port in Italy was filed, but the consignee was
shown to be a firm of Yugoslavia. The invoice and the form
of declaration prescribed under the Foreign Exchange
Regulation Act. 1947, were drawn up by the appellant on
rupee terms in accordance with the contract with the
Yugoslav firm. The Collector of Customs, after issuing a
show cause notice to the appellant and considering the
explanation of the appellant, held that the appellant had
misdeclared the material particulars regarding the
prescribed manner of payment, and that there was a
contravention of s. 12(1), Foreign Exchange Regulation Act
read with s. 11 Customs Act, and ordered the confiscation of
the goods under s. 113 and imposed a penalty of Rs. 25.000/-
under s. 114, Customs Act. The High Court upheld the order.
Dismissing the appeal to this Court,
^
HELD: In the circumstances of the case, the quantum of
penalty is reduced to Rs. 15,000/-.[912 F]
(1) By virtue of s. 23A, Foreign Exchange Regulation
Act the prohibition imposed under s. 12(1) of the Act
becomes a prohibition imposed under s. 11, Customs Act.
Section 11, Customs Act, empowers the Central Government to
prohibit the export of goods absolutely or conditionally and
s. 113, Customs Act, provides for confiscation of goods
exported contrary to any prohibition imposed, and the person
attempting to export is liable to penalty under s. 114. [908
D, F-G]
(2) Section 12(1), Foreign Exchange Regulation Act, as
amended by Act 40 of 1969, consists of 3 parts: (a) Issuance
of a notification by the Central Government prohibiting the
export of certain goods to any place specified in the
notification. (b) The prohibition is relaxed and export is
permitted when the exporter furnishes a declaration in the
prescribed form which must be true in all material
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particulars including the amount representing the full
export value of the goods or the expected exported value of
the goods. (c) Apart from furnishing the declaration
containing the true statements in all material particulars,
the exporter is also required to affirm in the said
declaration, that is, in the document or paper containing
the declaration, that the full export value of the goods
will, within the prescribed period be paid in the prescribed
manner. This affirmation is not required to be in any
prescribed form. Until and unless the exporter so affirms,
he cannot, in the interests of conserving the foreign
exchange, be allowed to export the goods. [910 B-D]
(3) In the present case there was no affirmation that
the full export value of the goods has been or will, within
the prescribed period, be paid in the prescribed manner,
and, the absence of the affirmation is tantamount to failure
on the part of the appellant to comply with the requirements
of law engrafted in s. 12(1), Foreign Exchange Regulation
Act. [912 D]
(a) The declaration of the buyer’s name as the Yugoslav
firm was found to be wrong, but that did not attract the
provisions of s. 12(1), because, in the prescribed form, the
buyer’s name was not to be inserted. [910 G-H]
906
(b) The High Court was wrong in holding that because
the mode of payment mentioned in the declaration is contrary
to r. 7 of the Foreign Exchange Rules, 1952. there was a
misdeclaration of material particulars. The appellant has
managed to get the payment in Indian rupees through the
Yugoslav firm. Therefore, even after the statement that the
country of destination was Italy, the statement that the
payment was to be received in India in Indian rupees was not
unture, although it was contrary to the mode prescribed in
r. 7. But the absence of the affirmation is significant.
[911 E-G; 912 B]
(c) Rule 7 provides that the amount representing the
full value of the goods exported to the countries specified
in the 2nd schedule shall be paid through an authorised
dealer and unless authorised by the Reserve Bank, shall be
paid in the manner specified in the schedule. The approved
methods of payment in the case of Italy, which is in Group A
of the schedule, are : (i) currency of any country in the
sub-group; (ii) sterling from an ’External Account’ as
defined under the U.K. Exchange Control Regulations; and
(iii) Rupees from the accounts of a bank in any country in
the Convertible Account group. [911 G-912 A]
(d) The appellant could not have affirmed that the full
export value of the goods would be paid in one of the
prescribed modes. If such affirmation was made it would have
been false because of the statement in the declaration that
the value of the goods was to be received in India in Indian
rupees. If in the affirmation the appellant had stated that
for the value of the goods exported to Italy it was to
receive payment in Indian rupees, then the affirmation would
have violated s. 12(1) as it would not have been an
affirmation stating that the export value would be paid in
the prescribed manner. Hence, the decision of the High Court
that the appellant had attempted to export goods in
violation of s. 12(1) is correct, though it is upheld on a
different basis. [912 B-E]
(4) Though it is an economic offence and relates to the
law of foreign exchange since the law was not clear either
to the Customs authorities or the High Court and has
resulted in the recording of finding against the appellant
on a wrong basis, although not affecting the substance of
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the view that the appellant violated s. 12(1), the quantum
of penalty is reduced.[912 F-G]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 244 of
1976.
Appeal by Special Leave from the Judgment and Order
dated 9-10-74 of the Kerala High Court in W. A. No. 142 of
1972.
M. N. Phadke, S. K. Mehta, K. R. Nagaraja and P. N.
Puri, for the Appellant.
G. L. Sanghi and Girish Chandra, for Respondent No. 1.
D. N. Misra, for Respondent No. 2.
The Judgment of the Court was delivered by
UNTWALIA, J.-In this appeal by special leave an
important question of law falls for our determination. It
concerns the interpretation of section 12(1) of the Foreign
Exchange Regulation Act, 1947, Central Act 7 of 1947 as it
stood amended at the relevant time by Act 40 of 1969.
The appellant is a firm, one of the partners or
proprietors of which is Shri T. K. Seethy. It is a dealer in
Coir Yarn and exports the said commodity to foreign buyers
also. On March 24, 1971 a shipping bill was filed on behalf
of the appellant for the export of 150 bales of Coir Yarn to
Trieste a port in Italay. The consignee’s name in the
shipping bill was shown as M/s Ferolektro, Sarajavo,
Yugoslavia. Indisputably the Central Government had
published a notification in
907
the official gazette under section 12(1) of the Foreign
Exchange Regulation Act prohibiting the export of coir yarn
from India to certain places specified in the notification
including Italy unless certain conditions were fulfilled.
The exporter was, therefore, required to comply with the
requirement of the said provision of law and file a
declaration in the prescribed form. The relevant prescribed
from in the Foreign Exchange Regulation Rules, 1952-
hereinafter referred to as the Rules-framed under section 27
of the Act of 1947 was Form G.R.I. The Invoice and G. R. I.
Form were drawn up by the appellant on rupee terms in
accordance with the contract dated 1.3.1971 which it claimed
to have had with M/s Ferolektro, Sarajavo, Yugoslavia. The
Customs Authority found that the goods were attempted to be
exported to Italy while payment, according to the form, was
to be received in rupees. So the appellant was asked to
explain the discrepancy in the declaration. A request was
made on behalf of the appellant to amend the Invoice and
G.R.I. showing payment in Sterling. It was not allowed to do
so. On April 20, 1971 the premises of the appellant firm and
the house of its owner were simultaneously searched and
certain documents including some letters exchanged between
the appellant and some foreign firms of Italy were seized.
It appeared to the Assistant Collector of Customs, Customs
House, Cochin that the goods in question were being bought
by M/s Tobia Giacomini, Italy while the buyer shown in the
shipping document was M/s Ferolektro, Sarajavo, Yugoslavia.
Such a discrepancy in the bill was against the provisions of
section 50 of the Customs Act, 1962-Central Act 52 of 1962.
The Assistant Collector further found that in the
declaration furnished by the appellant in accordance with
section 12(1) of the Foreign Exchange Regulation Act the
manner of payment for the goods sought to be exported was
contrary to Rule 7 of the Rules. The misdeclaration or
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untrue declaration made by the appellant in the shipping
bill and G.R.I. Form was prima facie not true in material
particulars and violated section 12(1) of the Foreign
Exchange Regulation Act. In view of the 11th section in the
Customs Act, the violation attracted the confiscation of the
goods under section 113 (d) and imposition of penalty under
section 114 of the said Act. A showcause notice dated May
19, 1971 was issued by the Assistant Collector to the
appellant. The appellant filed a long reply to the show
cause notice. The Additional Collector of Customs by his
order dated July 6, 1971 held:
"By declaring the buyer’s name as FEROELETRO
YUGOSLAVIA and the port of discharge and country of
final destination as ’Trieste’ and Italy respectively
in the shipping bill and the mode of payment as in
rupees in the shipping bill as well as in the G. R. I.
form, the exporters have misdeclared the material
particulars regarding the prescribed manner of payment
and have thus clearly contavened the provisions of
Section 12(1) of the F.E.R.A. read with section 11 of
the Customs Act. The goods are, therefore, liable for
confiscation under section 113(d) and 113(i) of the
Customs Act and the exporters are liable for penalty
under section 114 of the Customs Act."
908
He accordingly confiscated the goods, giving an option to
the appellant to redeem them on payment of Rs. 5,000/- in
lieu thereof. A penalty of Rs. 25,000/- was imposed under
section 114 of the Customs Act.
The appellant filed a writ petition in the Kerala High
Court to challenge the order of the Additional Collector. It
had exercised its option of getting the goods released on
payment of Rs. 5,000/-. The fine of Rs. 25,000/- was also
paid. A learned single Judge of the High Court took the view
that there was no violation of section 12(1) of the Foreign
Exchange Regulation Act and quashed the order of the
Additional Collector.
The Customs Authority took the matter in appeal before
a Bench of the High Court. The Bench has allowed the appeal
and up held the order of the Additional Collector. Hence
this appeal was filed after obtaining special leave of this
Court.
Section 23A of the Foreign Exchange Regulation Act
provides, inter atia, that the restrictions imposed by or
under sub-section (1) of section 12 shall be deemed to have
been imposed under section 11 of the Customs Act and all the
provisions of that Act shall have the effect accordingly.
Section 11 of the Customs Act empowers the Central
Government to prohibit either absolutely or subject to such
conditions as may be specified in a notification the import
or export of goods of any specified description. Section 113
says:
"The following export goods shall be liable to
confiscation.-
....................
(d) any goods attempted to be exported or brought
with in the limits of any customs area for
the purpose of being exported, contrary to
any prohibition imposed by or under this Act
or any other law for the time being in
force;"
By virtue of Section 23A of the Foreign Exchange Regulation
Act the prohibition imposed under section 12(1) of that Act
becomes a prohibition imposed under section 11 of the
Customs Act. And if the goods were attempted to be exported
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contrary to the said prohibition the goods became liable to
confiscation under section 113(d) of the Customs Act.
Consequently the person attempting to export the goods also
became liable to pay penalty under section 114. There has
been no difficulty in correct appreciation of the law so far
either by the Customs Authority or the High Court. A good
deal of difficulty and confusion however cropped up in the
interpretation of section 12(1) of the Foreign Exchange
Regulation Act. Sub-section (1) of section 12 as it stood
prior to the amendment brought about by Act 40 of 1969 read
as follows:
"The Central Government may, by notification in
the Official Gazette, prohibit the taking or sending
out by land, sea or air (hereinafter in this section
referred to as export)
909
of any goods or class of goods specified in the
notification from India directly or indirectly to any
place so specified unless a declaration supported by
such evidence as may be prescribed or so specified, is
furnished by the exporter to the prescribed authority
that the amount representing the full export value of
the goods has been, or will within the prescribed
period be paid in the prescribed manner."
In Union of India & Ors. v. M/s Raj Bahadur Shree Ram Durga
Prasad (P) Ltd. & Ors.(1)., Hegde, J. speaking for himself
and Bachawat, J gave a narrow interpretation to section
12(1) as it stood then. Sikri, J, as he then was, in his
dissenting judgment said:
"I have to construe an Act which was enacted in
the interest of the national economy. A deliberate
large-scale contravention of its provisions would
affect the interests of every man, woman and child in
the country. Such an Act, I apprehend, should be
construed so as to make it workable; it should,
however, receive a fair construction, doing no violence
to the language employed by the Legislature. It was
said that if two constructions are possible the one
that is in favour of the subject should be accepted. It
is not necessary to pronounce on this proposition for I
have come to the conclusion that there is one true
construction of s. 12(1). But I should not be taken to
be assenting to this proposition in so far as it is
applicable to an enactment like the Exchange Act, for
no subject has a right to sabotage the national
economy."
Section 12(1) was, thereafter, amended by Act 40 of 1969. It
then read as followins:
"The Central Government may, by notification in
the Official Gazette, prohibit the taking or sending
out by land, sea or air (hereinafter in this section
referred to as export) of all goods or of any goods or
class of goods specified in the notification from India
directly or indirectly to any place so specified unless
the exporter furnishes 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-
(i) the full export value of the goods; or
(ii) if the full export value of the goods is not
ascertainable at the time of export, the value which
the exporter, haveing regard to the prevailing market
conditions, expects to receive on the sale of the goods
in the course of international trade,
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and affirms in the said declaration that the full
export value of the goods (whether ascertainable at
the time of
910
export or not) has been, or will within the prescribed
period be, paid in the prescribed manner."
Under the changed law the Exporter was required to furnish a
declaration in the prescribed form which must be true in all
material particulars including the amount representing the
full export value of the goods or the expected export value
of the goods. Apart from the furnishing of the declaration
containing the true statements in all material particulars
the exporter under the amended section 12(1) of the Foreign
Exchange Regulation Act was also required to affirm in the
said declaration, i.e. in the document or the paper
containing the declaration, that the full export value of
the goods will within the prescribed period be paid in the
prescribed manner. The affirmation under the last part of
section 12(1) is not required to be in any prescribed form.
Therefore, in the form prescribed for the declaration no
form of affirmation has been specified.
Broadly speaking section 12(1) consists of 3 parts (1)
issuance of a notification by the Central Government
prohibiting the export of certain goods to any place
specified in the notification; (2) the prohibition is
relaxed and export is permitted when the exporter furnishes
a declaration and (3) when he affirms in the said
declaration that the payment will be in the prescribed
manner. Until and unless the exporter affirms that the
payment would be in the prescribed manner, he cannot be
allowed to export the goods. This is for the purpose of
conserving and preserving the foreign exchange so that by a
subterfuge no person may be able to harm the national
economy by exporting the goods without such affirmation.
In the instant case on the findings of fact recorded by
the Additional Collector which were accepted to be correct
by the High Court, both by the single Judge and the Division
Bench, the stress seems to have been laid on the alleged
violation of the requirement of giving true material
particulars in the declaration. And that enabled Mr. M. N.
Phadke to strenously attack the decision of the High Court
in appeal. Counsel submitted that whatever the appellant had
stated in the declaration was all true and nothing but true.
It may well be, he submitted, that it violated certain
provisions of the Customs Act or the Foreign Exchange
Regulation Act. But surely the material particulars
furnished by the appellant in its declaration not being
untrue in any respect, there was no infraction of section
12(1) of the Foreign Exchange Regulation Act. The argument
as presented had substance and force but did not merit
acceptance on close scrutiny.
The declaration of the buyer’s name even if wrong in
the shipping bill and invoice did not attract the provisions
of section 12(1) of the Foreign Exchange Regulation Act. In
the form prescribed under Rule 3 of the Rules (G.I.R. being
one such form) the buyer’s name was not to be inserted. It
was not given in the declaration furnished by the appellant
in that form. But the finding of the Additional Collector is
that the destination of the goods was Trieste in Italy andin
the declaration furnished in form G.I.R. the appellant had
stated that the payment was to be received in India in
Indian rupees and this statement was untrue as being against
the prescribed manner.
911
It is to be noticed that under section 12(1) as it
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stood prior to the amendment by Act 40 of 1969 the
declaration had to contain a statement that the amount
representing the full export value of the goods will be paid
in the prescribed manner. But now this is not to be a part
of the declaration but has to be separately affirmed
although in the declaration itself. The learned single Judge
noticed in his judgment that section 12(1)(ii) will not
apply and the obligation of the exporter was:
"(a) to furnish to the prescribed authority a
declaration in the prescribed form supported
by such evidence as may be prescribed:
(b) which declaration must be true in all
material particulars and that among others
shall include ’the amount representing the
full export value of the goods’ and
(c) he must affirm in the said declaration that
the full export value of the goods will,
within the prescribed period, be paid in the
prescribed manner."
Stating that "There is no case that there is no affirmation
in the declaration" the single Judge held that section 12(1)
was not violated. The Division Bench, however, noted the
fact that the declaration furnished by the appellant "did
not contain an affirmation as required by the last portion
of the said sub-section". Yet because of the mode of payment
mentioned in the declaration being contrary to Rule 7 of the
Rules the Division Bench upheld the view of the Additional
Collector that the appellant "had misdeclared the material
particulars and attempted to export the goods in question in
contravention of the prohibition contained in section 12(1)
of the Act." On the facts and in the circumstances of this
case we are constrained to hold that even after the
statement in column 2 of Form G.R. I that the country of
destination of goods was Italy the statement in column 5
that the payment was to be received in India in Indian
Rupees was not untrue. The appellant had managed or
manouvered to get the payment through the firm of Yugoslavia
in Indian Rupees. The statement therefore, was not untrue
although it was against the mode prescribed under Rule 7 of
the Rules. But here comes in the importance of the
affirmation in the declaration.
Rule 7 of the Rules says:
"The amount representing the full value of goods
exported to the countries specified in the Second
Schedule shall be paid through an authorised dealer and
unless otherwise authorised by the Reserve Bank, shall
be paid in the manner specified in the said Schedule."
In the Second Schedule Italy occurs in Group A-"Convertible
Account Countries". In that case the approved methods of
payment are:
"(a) Currency of any country in this sub-group.
(b) Sterling from an ’External Account’, as
defined under the U. K. Exchange Control
Regulations.
912
(c) Rupees from the account of a bank in any
country in the Convertible Account group."
Yugoslavia in the Second Schedule finds place in Group B
"Bilateral Account countries" where the approved method of
payment is "Rupees from the account of a bank in the country
of import."
In the present case the absence of affirmation had its
own signficance. It was difficult, almost impossible, for
the appellant to affirm that the full export value of the
goods was to be paid in one of the three modes prescribed in
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the Second Schedule to the Rules for the export of the goods
to Italy. We are, therefore, of the opinion that although
the statement in the declaration that the value of the goods
mentioned in column 4 at Rs. 63,301.50 was to be received in
India in Indian rupees for the export of goods to Italy was
not untrue, the affirmation, if made, would have been either
false or contrary to the requirement of the law. If in the
affirmation the appellant had stated that for the value of
the goods exported to Italy it was to receive the payment in
Indian rupees through the Chartered Bank Ltd. Cochin as per
the declaration, then the affirmation would have violated
section 12(1) as it would not have been an affirmation
stating that the export value would be paid in the
prescribed manner. Absence of affirmation in the declaration
furnished by the appellant is tant amount to failure on the
part of the appellant to comply with the requirement of the
law engrafted in section 12(1) of the Foreign Exchange
Regulation Act. That being so, the decision of the Division
Bench of the High Court that the appellant had attempted to
export goods in violation of the restrictions imposed under
section 12(1) of the Foreign Exchange Regulation Act is fit
to be upheld, but on a different basis.
In cases of economic offences and specially in relation
to the law of Foreign Exchange no leniency in the quantum of
punishment is warranted. But on the facts and in the
circumstances of this case we feel persuaded to reduce the
amount of penalty imposed upon the appellant from Rs.
25,000/- to Rs. 15,000/-. The direction as to the payment of
Rs. 5,000/- in lieu of confiscation of the goods is upheld.
Since the law engrafted in the amended Section 12(1) of the
Foreign Exchange Regulation Act was not very clear either to
the Custom Authorities or to the High Court resulting in the
recording of the findings against the petitioner on a wrong
basis, although not affecting the substance of the view that
the appellant had violated Section 12(1) of the Foreign
Exchange Regulation Act, we have thought it fit to reduce
the quantum of penalty by Rs. 10,000/-
Before we part with this case we may just mention that
now the Foreign Exchange Regulation Act in force is an Act
of 1973-Central Act 46 of 1973. Section 18(1)(a) is almost
the same as Section 12(1) of the Act of 1947.
In the result the appeal is dismissed but subject to
the modification in the quantum of penalty imposed under
Section 114 of the Customs Act 1962. In the circumstances we
shall make no order as to costs in this Court.
V.P.S. Appeal dismissed.
913