2005 (98) ECC 58 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

West Regional Bench -- Mumbai

Ms. Jyoti Balasundaram, Vice President and Moheb Ali M., Member (T)

LKP Merchant Financing Ltd.

Versus

Commissioner of Customs (P), Mumbai

Appeal No. C/50/99-Mum

[Arising out of Order-in-Original No. CC(P)/SSS/ADJN/32/98 dated 21.8.1998 passed by the Commissioner of Customs (P), Mumbai]

Order No. A/1687/WZB/2004/C-I, dt. 25.11.2004, Certified on 29.11.2004

Confiscation (Customs)

Amounts, seized and later confiscated, cannot be considered to be sale proceeds of smuggled foreign exchange unless the investigation does not reveal complicity of the appellants with the nefarious activities of the persons concerned -- Section 121, Customs Act.

Appeal allowed

PRESENT :

Shri V.M. Doiphode, Advocate for the appellant.

Shri S.V. Parelkar, JDR for the respondent.

Case Cited :

B.P. Nayak v. CC(P), Mumbai, 2001 (75) ECC 115 (T).......................................... [Para 8]

Per : Moheb Ali M.

This appeal arises out of order-in-original No. CC(P)/SSS/ADJN/32/98 dated 21.8.1998 passed by the Commissioner of Customs (Preventive), Mumbai.

2. The appellants are a full-fledged money changer licensed by Reserve Bank of India. The appellants sold foreign currency to another FFMC called Hotel Zam Zam Money Changing Division. The latter is also licensed by RBI to deal in foreign currency, buy and sell.

3. There have been regular transactions between the two FFMCs during the relevant period. The procedure followed by the appellants, for that matter, all FFMCs is, FC is sold to another FFMC against Indian currency when a pay order issued by a bank is tendered across the counter. After verifying the authenticity of the pay order, genuineness of the FFMC (whether licensed by RBI), who tendered it, FC is sold. Hotel Zam Zam Money Changing Dn. through their representatives presented five pay orders to the appellants totally amounting to Rs. 42,37,750, the latter deposited these five pay orders in their current account maintained by them in Karnataka Bank Ltd. on 10.7.1997. The appellants also deposited pay orders amounting to Rs. 18,79,350 in their current account maintained with Bombay Mercantile Co-operative Bank were also received from Hotel Zam Zam Money Changing Dn. As it could be seen that against the pay orders favouring the appellants, the latter sold the foreign currency to Hotel Zam Zam Money Changing Dn.

4. Investigations into the activities of Hotel Zam Zam Money Changing Dn. FFMC revealed that persons connected with the said FFMC were smuggling out foreign currency and were depositing the sale proceeds of foreign currency in the accounts maintained by Hotel Zam Zam Money Changing Dn. The said persons thereupon obtain pay orders, from the banks in which the sale proceeds are deposited, in favour of another FFMC, such as the appellant, present those pay orders to the FFMC, obtain FC against the pay orders, smuggle it out, deposit the sale proceeds again in Hotel Zam Zam Money Changing Dn. Account and repeat the cycle all over again. The persons who actually did this type of operation against whom penalties are imposed are not the appellants before us. The Commissioner in the impugned order confiscated Rs. 42,32,750 and Rs. 18,79,350 lying in the appellants' account under Section 121 of the Customs Act which renders sale proceeds of smuggled goods liable to confiscation. It is not disputed that the above-said amounts represented the sale proceeds of foreign currency sold by the appellants. The foreign currency sold by the appellants is not tainted in any way as it has been regularly obtained from RBI. Another important aspect is that the Indian currency confiscated by the Commissioner was lying in the appellants bank account. It appeared that during the course of investigation the officers of DRI instructed the Banks (Bombay Mercantile Co-op. Bank and Karnataka Bank) to deposit the said amounts with the Commissioner of Customs in favour of Government of India as the said amounts represented sale proceeds of smuggled FC and is therefore liable to confiscation under Section 121 of the Customs Act.

5. Heard both sides.

6. The Commissioner in his order says that the said amounts represented sale proceeds as they are lying in the accounts maintained by Hotel Zam Zam Money Changing Dn. in which sale proceeds of smuggled foreign currency are deposited and are therefore liable to confiscation under Section 121 of the Customs Act. The finding of the Commissioner that the impugned amounts were lying in Hotel Zam Zam's bank accounts is factually not correct. In fact the Indian currency confiscated by him was lying in the appellants' bank accounts. The appellants deposited these amounts in their accounts after selling foreign exchange equivalent.

7. Further the Commissioner himself at one stage gives reasons as to why such amount is not liable to confiscation under Section 121 of the Customs Act. We quote: "This Section 121 of the Customs Act cannot be stretched to be applied to sale proceeds when changed in form, it can only be applied to the immediate sale proceeds (emphasis added) for the goods smuggled i.e. if it is found that foreign currency is smuggled out by Shambu and its associates, then the sale proceeds received from Shambu and its associates i.e. Indian currency received from him would be liable to confiscation under the provisions of Section 121 of the Customs Act." Applying this test to the appellants' case, it is evident that the Indian currency confiscated by the Commissioner is the sale proceeds of FC which are not alleged as smuggled. This Indian currency is a result of a genuine transaction of foreign currency and therefore cannot be called sale proceeds of smuggled FC. We also observe that unlike some other instances which have become a subject matter of appeal before us, in this case the transaction is complete and the remuneration for sale of foreign currency has come into the account of the appellants. The appellants therefore have a legitimate claim over the money confiscated from their accounts.

8. While dealing with the appeal in the case of B.P. Nayak v. CC(P), Mumbai, 2001 (75) ECC 115 (T) : 2001 (136) ELT 604 (T), the Tribunal held that it would lead to absurd results if monies are confiscated under Section 121 of the Customs Act even in genuine transaction holding that at some time in the past the monies involved were tainted. Para 28 of this order refers.

9. In view of the discussions above, we hold that the amounts, seized and later confiscated, cannot be considered to be sale proceeds of smuggled foreign exchange. This is particularly so when the investigation does not reveal complicity of the appellants with the nefarious activities of the persons concerned with Hotel Zam Zam Money Changing Dn.

10. The appeal is allowed. The order of the Commissioner confiscating the Indian currency belonging to the appellants is set aside.

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