PETITIONER:
DIRECTOR, ENFORCEMENT DIRECTORATE, MINISTRY OF FINANCE ANDAN
Vs.
RESPONDENT:
K. O. KRISHNASWAMY
DATE OF JUDGMENT26/10/1979
BENCH:
KOSHAL, A.D.
BENCH:
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.
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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]
JUDGMENT:
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
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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.
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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
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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.
1098