Report No. 47

15.21. Foreign Exchange Act-Stoppage of business recommended.-

Besides the punishments provided in the Foreign Exchange Act, we think that the court should have power to order stoppage of a particular business which facilitates violations of the Act. We think that the power should be exercisable only on second conviction. We, therefore, recommend the insertion of the following section in the Foreign Exchange Act:-

"Where a person having been convicted of an offence under this Act, is again convicted of another offence under this Act, and the Court by which such person is convicted is satisfied that in order to prevent repetition of the offence by him such a direction is necessary, the Court may, in addition to any penalty which may be imposed on him under this Act, by order direct that that person shall not carry on such business which is likely to necessitate or facilitate the commission of an offence under this Act, for such period, not exceeding three years as may be specified by the Court in the order1."

1. Cf. section 7(3), Essential Commodities Act, 1955.

15.22. Prosecutions as well as departmental proceedings.-

The above points relate to prosecutions proper. The Study Team on Leakage1 of Foreign Exchange made the following observations regarding adjudications and prosecutions under the Foreign Exchange Act:-

"like the Customs Act, there should be a provision that for an offence under the Foreign Exchange Regulation Act, both adjudication by the Director of Enforcement and conviction by a court of law are possible. The two should not be alternatives as at present. We would also suggest that in more and more cases, prosecution should also be launched apart from adjudication so as to have a deterrent effect. At present, the Enforcement Directorate does not have the necessary expertise and staff for pursuing prosecution cases. Organisational changes in this respect are also therefore, necessary. While some important cases calling for prosecution will get referred to the Economic Offences Wing of the C.B.I., the Enforcement Directorate itself should have the wherewithal to deal with the majority of prosecution cases."

We understand that this question2 is being considered separately. Moreover, we express our agreement with the above recommendation.

1. Study Team on Leakage of Foreign Exchange through Invoice Manipulation (Ministry of Finance) Report, (1971), p. 97, para. 9.12.

2. Question of providing for simultaneous prosecution and department adjudication under the Foreign Exchange Act.

15.23. Foreign Exchange Act-Recovery of penalties.-

It appears that some difficulty is felt in the realisation of penalties imposed in administrative adjudications under the Foreign Exchange Act. The problem could arise under other Acts also; but the power to confiscate goods is, in practice, sufficient for customs and excise cases, and the Income-Tax Act has a self-contained schedule for recovery, so that the problem would not be of a serious magnitude under that Act.

To meet any possible difficulty a suitable provision is needed not the Foreign Exchange Act so that the amount ordered to be paid as penalty shall, on an order made in that behalf by a Magistrate on application made to him, be recoverable by the magistrate as fine. We discuss below this question in some detail.

15.36.15.24. Three principal types of provisions seem to have been employed in State laws to achieve recovery of state or municipal taxes (or penalties) through proceedings before magistrates. (1) General provision for recovery through Magistrate, (2) provision for recovery through Magistrate by a particular mode, (3) order by Magistrate on conviction.

15.24A. First, one finds a general provision under which the collecting officer has merely to apply to a magistrate, and the magistrate has then to recover the tax or other amount due "as if it were a fine imposed by him". An example of this is furnished by section 13(3) of the Mysore General Sales Tax Act1.

1. See State v. G.L. Udayavar, (1963) 14 STC 628.

15.25. The second type may also be illustrated. While, in the provision of the first category, the process of recovery by the magistrate is not limited to a particular mode, there is another type of provision in which the magistrate, on an application being made to him, has jurisdiction to take steps for recovery but only by a particular process-e.g., distress and sale of immovable property. Thus, section 234 of the Ajmer Mewar Municipalities Regulation authorises a machinery to recover all taxes due to the Municipal Committee by an application made to a magistrate having jurisdiction, by distress and sale of any immovable property within his jurisdiction1. A provision for distress and sale of movable property is found in section 161(2) of the Bombay District Municipal Act2.

1. See Dargaha Committee v. State of Rajasthan, AIR 1962 SC 274.

2. See Din Bai (in re:), AIR 1919 Born 93.

15.26. While, in the above two cases, it is not necessary that there should be a prosecution before the magistrate, there is a third type of provision which operates only when the magistrate convicts a person for contravention of the provision of the particular Act. On such conviction, the Magistrate becomes competent to direct recovery of the tax, fee or other amount evaded as fine. Such a provision is contained in section 19(4) of the Kerala General Sales Tax Act1. A similar provision is contained in section 15(h) of the Madras General Sales Tax Act, 1939, extracted below2:-

"Any person who-

(g) fails to pay the amounts specified in section 8B sub-section (2), within the prescribed time, or

(h) wilfully acts in contravention of any of the provisions of this Act, shall, on conviction by a Presidency Magistrate or a Magistrate of the First Class, be liable to a fine which may extend to one thousand rupees, and in the case of a conviction under clause (b), (d), (f) or (g), the Magistrate shall specify in the order the tax, fee or other amount, which the person convicted has failed or evaded to pay or has wrongfully collected, and the tax, fee or amount so specified shall be recoverable as if it were a fine."

1. See Subramaniam v. Commissioner of Police, AIR 1964 Mad 185 (187), para. 5 (reviews cases).

2. P.1/2 Muhammed v. Collector of Palghat, AIR 1967 Ker 254 (255).

15.27. The first type of provision1 which is the most comprehensive would be useful in the present case. We, therefore, recommend the insertion of a provision on the following lines, in the Foreign ExChange Act:-

Section to be inserted in the Foreign Exchange Act

"Any tax assessed, penalty levied or any other amount due under this Act from a person may, without prejudice to any other mode of collection, be recovered, on application to any Magistrate, by such Magistrate, as if it were a fine imposed by him2."

1. Para. 15.24, supra.

2. This could be inserted as section 23FF, Foreign Exchange Act.

15.28. Benami transfers.-

In order that the suggested remedy concerning recovery is not thwarted, it may become necessary to check transfers of property benami in anticipation of recovery proceedings. We do not make any recommendations in this regard, as the subject requires separate study in relation to the entire field of taxation law.

15.29. Tender of pardon under Foreign Exchange Act.-

The Study Team on the Leakage of Foreign Exchange made the following recommendation1 as to the tender of pardon for offences under the Foreign Exchange Act:-

"9.14. Foreign Exchange contraventions involving invoice manipulations are serious offences, but difficult to establish before a court of law. Quite often, in important and big cases it is difficult to prosecute these cases successfully without the help of an accomplice who may not be forthcoming to help the authorities, unless they are in a position to tender pardon to the accomplice. Section 337 of the Criminal Procedure Code, provides for tendering of pardon in the case of any offence punishable with imprisonment extending upto seven years and some of the offences under the Indian Penal Code.

Since the contravention of the Foreign Exchange Law, or the Customs Act, do not fall in any of these categories, this provision would not apply to them. We suggest that in the interest of justice, and with a view to making it possible to obtain the evidence of a person who is supposed to have been directly or indirectly concerned in or privy to the offence, power should be available for tendering pardon, to such persons in court cases relating to contravention of Customs and Foreign Exchange laws. Since the Code of Criminal Procedure is otherwise applicable to these proceedings, sections 337, 338, 339 and 339A may be suitably amended for conferring this power in relation to customs and foreign exchange offences."

We have discussed this question (tender of pardon) generally separately2, and do not consider necessary to repeat what we have stated already.

1. Report of the Study Team on Leakage of Foreign Exchange through Invoice Manipulation (Ministry of Finance) (1971), para. 9.14.

15.30. Presumption regarding documents.-

The Study Team on Leakage of Foreign Exchange1 made the following recommendation as to documents:-

"9.18. It has been noticed that in complicated and important cases where prosecutions are launched, documents obtained from abroad from various sources are tendered as evidence. These documents are vital for proving the case. However, according to the provisions of the Evidence Act, the execution of the documents has to be proved first, before these are admitted in evidence. For that purpose, it becomes necessary to call for witnesses from abroad, which, apart from being disproportionately expensive, is alone not always practicable. In the matter of establishing the offences of under-invoicing and over-invoicing the evidence which can be collected from abroad will be of particular importance, and if such evidence were to be shut out merely for technical reasons of admissibility, it would make the task of the investigation agencies even more difficult.

We, therefore, suggest that the provisions of the Customs Act and Foreign Exchange Regulation Act should be suitably amended to provide for admissibility, an evidence in court, of the documents received from abroad, and for raising similar presumption in respect of them, as are now raised under section 139 of the Customs Act and section 24A of the Foreign Exchange Regulation Act in respect of the documents which are either produced before the Customs Officers or Enforcement Officers, or are seized by them."

The principle of the suggestion appears to be acceptable. Further, the relevant section-section 24A-should apply to documents seized under other laws also2.

1. Report of the Study Team on Leakage of Foreign Exchange through Invoice Manipulation (Ministry of Finance), 1971, para. 9.18.

2. See para. 12.2, supra.