Director, Enforcement Directorate,
Ministry of Finance Anda Vs. K. O. Krishnaswamy [1979] INSC 221 (26 October
1979)
KOSHAL, A.D.
KOSHAL, A.D.
UNTWALIA, N.L.
BHAGWATI, P.N.
CITATION: 1979 AIR 1969 1980 SCR (1)1092 1980
SCC (1) 280
ACT:
Foreign Exchange Regulation Act, 1947-Section
12(2)(b)- Scope of-Exporter over invoicing for the purpose of obtaining import
licence-If violative of section 12(2)(b)
HEADNOTE:
An exporter exporting goods outside India is
required to furnish a declaration under section 12(1) of the Foreign Exchange
Regulation Act, 1947 affirming that the full export value of the goods had been
or would be paid in the prescribed manner. Sub-section (2) of this section
provides that no person entitled to sell the said goods shall do so or refrain
from doing anything which has the effect of securing that .... (b)
"payment for the goods is made otherwise than in the prescribed manner or
does not represent the full amount payable by the foreign buyer in respect of
the goods." An Export Promotion Scheme for textile goods and handicrafts
promulgated by the Government of India envisaged the issuance of import
licences to the exporters solely on the basis of the declared value of the
exported goods. On receiving the import licences the exporters were able to
sell them at a profit ranging from 200 to 300 per cent of their face value.
This encouraged the exporters to prepare invoices showing the value far above
the market or contractual price for obtaining import licences for the inflated
amounts.
Against the invoice value of Rs. 21.97 lakhs,
one of the appellants received only Rs. 1.01 lakhs, while against the invoice
value of Rs. 17.06 lakhs in the case of goods exported by the other appellant
the amount repatriated was Rs. 38,000 odd. Both the appellants pleaded guilty
to the charge levelled against them.
Finding them guilty under section 12(2) of
the Foreign Exchange Regulation Act, the Director imposed a penalty of Rs. 3
lakhs on each of them.
In a petition under Article 226 of the
Constitution the High Court quashed the order on the view that there would be
contravention of section 12(2)(b) only when the foreign buyer was under an
obligation to pay a certain sum of money and there was non-payment of that
amount or part thereof in consequence of something done by the exporter and
that if the contractual value of the goods had been realised by the exporter,
he could not be held guilty of any contravention merely by reason of fact that
he had shown an inflated price in the invoice and thus received undeserved
benefit in the form of import licence.
1093 Dismissing the appeal,
HELD : The expression "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, un- real or inflated price which the exporter may choose to falsely
incorporate in the invoice with any ulterior motives. The foreign buyer cannot
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. If the price agreed upon had been paid to the
exporter, clause (b) does not come into operation. [1096 F-G]
CIVIL APPELLATE JURISDICTION : Civil Appeal
Nos. 2595 and 2596 of 1969.
From the Judgment and Order dated 4-6-1969 of
the Mysore High Court in Writ Petition Nos. 441 and 443/66.
M. K. Banerjee. Additional Sol. Genl, R. B.
Datar and Girish Chandra for the Appellants.
Shyamala Pappu, Vineet Kumar and A. K.
Srivastava for the Respondents.
The Judgment of the Court was delivered by
KOSHAL, J. By this Judgment we shall dispose of Civil Appeals Nos. 2595 and
2596 of 1969 in each one of which the Director, Enforcement Directorate,
Ministry of Finance, Department of Revenue, Government of India (hereinafter
referred to as the 'Director') challenges an order of the Mysore High Court
dated the 4th of June, 1969, allowing two petitions preferred by the
respondents for the issuance of writs under article 226 of the Constitution of
India.
2. The facts giving rise to the two appeals
may be briefly stated. The Government of India promulgated an Export Promotion
Scheme under which exporters of textile goods and handicrafts were issued
licences for import of raw materials on the basis of their export performance.
The Scheme envisaged the issuance of import licences solely on the basis of the
declared value of the exported goods. Since exporters were able to earn a
handsome profit (ranging in some cases between 200 and 300 per cent of the face
value) by sale of such import licences, the Scheme brought into existence a
mushroom growth of textile exporters and parties acting benami on behalf of
established exporters. Most of the exporters had abroad their own branches or
representatives who acted as consignees of the goods exported from 1094 India.
The easy-profit motive led numerous exporters to prepare invoices showing the
value of exported goods far above the market or contractual price there of in
order to obtain import licences for the inflated amounts. Getting scent of the
practice the Enforcement Directorate carried out a surprise search of the
premises of one of the leading textile exporters of Madras State in March,
1965. The documents seized as a result thereof and the statement of the exporter
confirmed the information earlier received by the Directorate. In consequence
notices were issued to almost all the textile and handicrafts exporters in the
State of Madras calling upon them to explain the reasons for not realising the
entire amount shown in the invoices submitted by them as the price of the goods
exported to various parties outside India. Two of such exporters were M/s. K.
O. Krishnaswamy the respondent in Civil Appeal No. 2595 of 1969) and M/s.
Nagaraja Overseas Traders (respondent in Civil Appeal No. 2596 of 1969) and the
proceedings held against them under section 19(2) of the Foreign Exchange
Regulation Act, 1947, (hereinafter referred to as the 'Act') by the Director
revealed that in between them they had exported 53 consignments of textile
goods and handicrafts to Singapore and other places as per details given below
:
------------------------------------------------------------
Name Value of export No. of Amount Amount as shown in ship- repatriated
outstanding the GR. 1.forms ments
------------------------------------------------------------
1. M/s. K.O. 21,97,046.62 31 1,01,165.70
20,95,880.92 Krishnaswami
2. M/s. Naga- 17,06,159.00 22 38,510.25
16,67,648.75 Overseas Traders ------------------------------------------------------------
The Director arrived at the finding :
"From the above statement, it will be
clear that, as regards that the first two firms, the total sum shown as
outstanding (which is non-existent) and hence non-repatriable, due to
deliberate over-invoicing, is Rs 37,63,529.67".
He added that in their confessional
statements dated the 7th of April, 1965 (made in reply to the show cause
notices served on them) and in their pleas at the hearing, the two firms had
pleaded guilty to "the charges framed against them". Finding both of
them guilty under section 12(2) of the Act, the Director, by his order dated
the 27th May, 1965, imposed on each of them a penalty of Rs. 3 lakhs and it was
that order which each of the two convicted firms challenged as illegal in a
petition under article 226 of the Constitution of India.
1095 The Division Bench of the High Court
accepted the two petitions through the impugned order holding that on the facts
as found by the Director, no offence under sub-section (2) of section 12 of the
Act was made out. The relevant portion of that section is reproduced below:
"12(1) 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, having 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 of export or
not) has been, or will within the prescribed period be, paid in the prescribed
manner.
(2) Where any export of goods has been made
to which a notification under sub-section (1) applies, no person entitled to
sell, or procure the sale of, the said goods shall, except with the permission
of the Reserve Bank, do or refrain from doing anything or take or refrain from
taking any action which has the effect of securing that- (a) the sale of the
goods is delayed to an extent which is unreasonable having regard to the
ordinary course of trade, or (b) payment for the goods is made otherwise than
in the prescribed manner or does not represent the full amount payable by the
foreign buyer in respect of the goods, subject to such deductions, if any, as
may be 1096 allowed by the Reserve Bank, or is delayed to such extent as
aforesaid:
Provided that no proceedings in respect of
any contravention of this sub-section shall be instituted unless the prescribed
period has expired and payment for the goods representing the full amount as
aforesaid has not been made in the prescribed manner." The argument raised
on behalf of the Director before the High Court was that the two firms, by
"over-invoicing" the price of the goods exported had been guilty of
taking action which had the effect of securing that payment for the exported
goods did not represent the full amount payable by the foreign buyer in respect
thereof and that therefore they had contravened clause (b) of sub-section (2)
of section 12 of the Act. The argument was repelled by the High Court after a
full discussion of the findings arrived at by the Director in his order dated
the 27th of May, 1965, and all the ingredients of sub-section (2) of section
12. It was of the opinion that the said clause (b) would be contravened only
when the foreign buyer was under an obligation to pay a certain sum of money
and there was non-payment of that sum or a part thereof in consequence of
something done by the exporter and that if the contractual value of the goods
had been realized by the exporter he could not be held guilty of any such
contravention merely by reason of the fact that he had shown an inflated price
in the invoice and thus received undeserved benefits in the form of an import
licence for the invoiced amount. The High Court, therefore, while accepting
both the petitions, quashed the order of the Director dated the 27th May, 1965.
3. 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.
1097 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.
4. 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.
5. In the result the appeals fail and are
dismissed but with no order as to costs.
P.B.R. Appeals dismissed.
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