South India Coir Mills Poochakkal v. The Additional Collector of Customs and Central Excise and Another

UNTWALIA, J.-In this appeal by special leave an important ques-tion of law falls for our determination .. It concerns the interpreta-tion of section 12 ( 1) of the Foreign Exchange Regulation Act, 19 4 7, Central Act 7 of 1947 as it stood ameniJed 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 Yam 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 shlJ?ping bill was shown as M/s Ferolektro, Sarajavo, Yugoslavia. IndtSputably the Central Government had published a notification in ( Untwalia, !.) the official gazette under section 12(1) of the Foreign Exchange Regu-lauon Act prohibiting the export of coir yarn from India to certain places specified in the notification including Italy unless ccrtacn con-ditions 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 Rule>-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, Sarajavc, Yugoslavia. The Customs Authority found that the goods were at-tempted 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 lnvoicc and G.R.i. shewing payment in Sterling. It was not allowed to do so. On April 20, !971 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 Cust0ms, 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 dis-crepancy in the bill was against the provisions of section 50 of the Customs Act, 1962-Central Act 52 of 1962. The Assistant Col-lector further found that in the declaration furnished by the appel-lant in accordance with section 12(1) of the Foreign Exchange Re-gulation Act the manner of payment for the goods sought to be ex-ported was contrary to Rule 7 of the Rules. The misdeclaration or untrue declaration made by the appellant in the shipping bill and G.R.I. Form was rrima facie not true in material particulars ;;nd 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 1 l3(d) and imposition of penalty under section 114 of the said Act. A show-cause notice dated May 19, 1971 was issued by the Assistant Collec-tor to the appellant. The appellant filed a long reply to the show cause notice. 'The Additional Collector of Customs by bis 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 contra-vened the provisions of Section 12(1) of the F.E.R.A. read with section 11 of the Customs Act. The goods are, there-fore, liable for confiscation under section 113(d) and 113(i) of the Cn<toms Act anrl the, exoorters are liable for penalty under section 114 of the Customs Act."

He accordingly confiscated the goods, giving an option to the appel-lant 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 Cus-toms Act.

The appellant filed a writ petition in the Kerala High Court to chal-lenge the erder 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 (l) 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 A~t provides, inter i alia, that the restrictions imposed by or under sub-section ( 1) of sec-tion 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 eit_her absolutely or subject to such conditions as may be specified in a notification the import or export of goods of a~ specified description. Section 113 says: ·

"The following export goods sha:ll be liable to confisca-tion.-

(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 virtlie of Section 23A of the Foreign Exchange Regnlation Act the prohibition imposed under section 12(1) of that Act becomes a pro-hibition imposed nnder section 11 of the Customs Act. And if the goods wete attempted to be exported contrary to the said prohibition the goods became liable to confiscation under section 113 ( d) of the Customl! 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 l 2 (1) of the Foreign Exchange Regulation Act. Sub-section ( l ) of sec-tion 12 as it stood prior to the amendment brought about by Act 40 of J 969 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) (Untwalia, /.) 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 pres-cribed period be paid in the prescribed manner."

In Union of India & Ors. v. M/s Rai Bahadur Shree Ram Durga Pra-sad (P) Ltd: & Ors.(')., 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 in-terest of the national economy. A deliberate large-scale con-travention 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 Legis-lature. 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 follows :

"The Central Govermnent 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 autho-rity 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 ascertain-able at the time of export, the value which the exporter, hav-ing regard to the prevailing market conditions, expects to receive on the sale of the goods in the course of international trade,

and affirms in the said declaration that the full export value of the goods (whether ascertainable at the time 0f

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 decla-ration in the prescribed form which must be true in all material parti-culars 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 ailirmation under the last part of section 12(1) is not required to be in any pres-cribed form. Therefore, in the form prescribed for the declaration no form of ailirmation 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 prohi-bition is relaxed and export is permitted when the exporter furnishes a declaration and (3) when he ailirms in the said deolaration that the payment will be in the prescribed manner. Until and unless the ex-porter 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 Addi-tional 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 strenonsly 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. Bnt surely the material particulars furnished by the appellant in its declaration not being un-true in any respect, there was no infraction of section 12 (1) of the Fon;ign 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 tha~ to:m. But the finding of t~e Ad~itional Col-lector is that the destmal!on of the goods was Tneste m Italy and in the declaration furnished in form G.I.R. the appellant had stated that the pavment was to be received in India in Indian rupees and this statement was untrue as being against the prescribed manner.

It is to be noticed that under section 12 ( 1) as it 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 materia,l parti-

culars and that among others shall include 'the amount representing the full export value of the goods' aud ( 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 mauner."

Stating that "There is no case that there is no affirmation in the dec-claration" 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 affir-mation in the declaration.

Rule 7 of the Rules says :

"The amount representing the full value of goods ex-ported to the countries specified in the Second Schedule shall be paid through an authorised dealer and unless other-wise 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.

( c) Rupees from the accouut of a bauk iu imy couutry

iu the Couvertible Accouut group."· Yugoslavia iu the Secoud Schedule fiuds place iu Group B "Bilateral Accouut couutries" where the approved method of paymeut is. "Rupees from the accouut of a bauk iu the couutry of import."

Iu the preseut case the abseuce of affinnatiou had its owu sigui-ficauce. It was difficult, ahuost impossible, for the appellant to· affirm that the full export value of the goods was to be paid in oue of the three modes prescribed iu the Secoud Schedule to the Rules for the export of the goods to Italy. We are, therefore, of the opiniou that although the statemeut in the declaration that the value of the goods mentioned iu column 4 at Rs. 63,301.50 was to be received iu Iudia in Iudian rupees for the export of goods to Italy was not untrue, the affirmation, if made, would have been either false or con-trary to the requirement of the law. If iu the affirmatiou the appellant had stated that for the value of the goods exported to Italy it was to receive the paymeut iu Iudian rupees through the Chartered Bank i 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 manuer. 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 beiug so, the decisiou of the Division Bench of the High Cqurt 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 uo 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 confiscatiou of the goods is upheld. Since the law eugrafted in the amended Section 12(1) of the Foreigu Exchange Regulation Act was not very clear either to the Custom Authorities or to the High Court resulting iu the recQiding of the findings against the petitioner ou a wrong b.asis, 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 quautum of penalty by Rs. 10,000/-.

Before we part with this case we may just mention that now the Foreign Exchange Regu.Jation Act iu force is an Act of 1973-Centrat Act 46 of 1973. Section 18(1) (a) is ahuost the same as Section 12(1) of the Act of 1947.

In the result the appeal is dismissed but subject to the modification iu the quautum of penalty imposed under Section 114 of the Customs Act 1962. In the circumstances we shall make no order as to costs iu this Court.

.E CIVIL APPELLATE JURISDICTION : Civil Appeal No. 244 of 1976.

Appeal by Special Leave from the Judgment and Order d;tcd 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. I.

D. N. Misra,. for, Respondent No: 2.

The Jlldgment of the Court was delivered by