Emphasizing that the activities of money changers are subject to audit by the Reserve Bank of India (RBI), the Bombay High Court affirmed the factual findings by the CESTAT that a penalty under Sections 112 & 114 of the Customs Act can be imposed on the Full-Fledged Money Changer (FFMC) only if it stands established that there was conscious abetment or attempt to smuggle foreign exchange.
The Division Bench comprising Justice M.S. Sonak and Justice Jitendra Jain observed that moneychangers (Respondents) only came to the picture for the issue of traveller’s cheques for which the payment was made from the accounts operated by a third party. Since the notice for confiscation does not allege any connection between them and the acts relating to such smuggling, the Bench refused to uphold the penalty levied on the FFMCs under Section 112 of the Customs Act.
In this case, the dispute arose when the CESTAT held that if the sale proceeds of smuggled goods have changed form and lost their character, the confiscation of the same cannot be ordered when the available evidence indicates that the cash amounts, i.e., sale proceeds of smuggled gold were deposited in the fictitious accounts in the bank and Full Fledged Money Changer (FFMC) and the amount lying in the pay order account of the bank were intercepted before the money could be credited to the account of FFMC.
The Customs Department alleged that when the CESTAT itself held that when the money was put into the bank, it was sale proceeds of smuggled gold, attracting Section 121 of the Customs Act, then it could not have deleted the penalty imposed on the FFMC under sections 112 and 114 of the Customs Act, since the available evidence indicates that FFMC’s had consciously dealt and released foreign exchange to apparent fictitious entities and added smuggling of the goods.
Although the Respondent furnished a Bank guarantee in the amount of ₹ 26.86 lacs to secure the claims of the Customs Authorities, the same was returned to the Respondent with a direction to file an undertaking to the effect that it would make payments as decided by the High Court.
Now, as per the decision of the Apex Court in an SLP (C) No.3534 of 2023 to expedite the matter, the High Court referred to the factual findings by the CESTAT whereby it had distinguished between possible negligence on the part of the moneychanger and its knowing involvement in smuggling of foreign exchange abroad. Therein, dealing with the provisions of penalty under Section 114 and the confiscation of currency under Section 113 of the Customs Act, the CESTAT opined that no penalty can be imposed on FFMCs under Section 114 unless it can be shown that they, by doing so, abetted the export of the foreign currency.
Therefore, observing that clear findings have been recorded by the CESTAT to the effect that there was no material on record to sustain the charge of abetment by the money changer, the High Court answered the reference in favour of the Respondent.
Appearances:
Advocate J B Mishra, for the Appellant
Advocate Abhishek Adke and Deepali Joshi, for the Respondent
