The New Delhi, Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the jurisdiction of customs authorities to take action against contraventions of foreign exchange laws is not inherent in the Customs Act, 1962, but was historically derived from a ‘deeming provision’ present in the erstwhile FERA, 1947 and 1973. The CESTAT went on to clarify that the Foreign Exchange Management Act (FEMA), 1999, deliberately omitted this deeming provision, thereby rescinding the jurisdiction of customs authorities to initiate proceedings for confiscation and penalty under the Customs Act, 1962, for violations of FEMA regulations.
Consequently, any contravention of FEMA can only be addressed within the procedural and substantive framework of FEMA itself, and customs officers can only act if specifically delegated powers under FEMA, not by resorting to the provisions of the Customs Act, 1962, added the Tribunal.
The CESTAT held that the proceedings initiated against the appellants, which resulted in the confiscation of foreign currency and the imposition of penalties under Section 113(d) and Section 114 of the Customs Act, 1962, were conducted without valid legal authority. It asserted that invoking Section 113(d) of the Customs Act by ‘reading it with’ FEMA is impermissible because FEMA lacks a provision that deems its restrictions to be prohibitions under the Customs Act.
Accordingly, the CESTAT characterised the actions of the adjudicating and first appellate authorities as an ‘extra-legal and egregious exercise of power’, and set aside the confiscation and penalties affirmed in the impugned order.
The Division Bench comprising Ajay Sharma (Judicial Member) and C J Mathew (Technical Member) traced the legislative history of foreign exchange regulation, noting that the erstwhile Foreign Exchange Regulation Act (FERA), 1973, and its predecessor, FERA, 1947, contained specific ‘deeming provisions’, which explicitly stated that restrictions under FERA were to be “deemed to have been imposed under Section 11 of the Customs Act”, thereby conferring jurisdiction on customs officers. The Bench observed that this deeming provision was the sole basis for the customs authorities’ power to adjudicate and penalize FERA violations.
Crucially, the Bench noted that FEMA, 1999, which was enacted to consolidate and amend the law with a new objective, deliberately omitted any such deeming provision. This omission was interpreted as a conscious legislative decision to rescind the dual enforcement machinery that existed under FERA and to make FEMA a self-sufficient code.
The Bench analysed internal government correspondence from 2000, which confirmed that upon FEMA’s enactment, it was recognized that customs officers had lost their authority to act against currency violations and would require specific authorization under FEMA to do so. Applying the legal principle leges posteriores priores contrarias abrogant, the Bench found that the special and later enactment, FEMA, 1999, must prevail over the general and earlier Customs Act, 1962, in matters of foreign exchange.
Lastly, the CESTAT concluded that mere inclusion of ‘currency’ in the definition of ‘goods’ under Section 2(22) of the Customs Act was deemed to have no significance without a specific empowering provision.
Briefly, the case originates from the interception of Amit Bali, an employee of Salt Experiences, at the IGI Airport, New Delhi, as he was about to board a flight, and a search resulted in the recovery of foreign currency equivalent to Rs. 81.01 Lakh. On query, it was found that Bali was tasked with managing the travel and business program for Shri Pawan Kant Munjal, Chairman & Managing Director of M/s Hero MotoCorp Ltd, with whom Salt Experiences had a long-standing arrangement to organize events and travel abroad.
The investigation alleged that over the years (2014-15 to 2018-19), employees of the company had carried foreign currency and travel cards in a manner that contravened RBI instructions. Therefore, the adjudicating authority ordered the absolute confiscation of the seized currency and imposed penalties under Section 114 of the Customs Act, 1962. The first appellate authority upheld the absolute confiscation of Rs. 81.01 Lakh and affirmed the confiscation of Rs. 21.35 Crores related to travel cards.
Appearances:
Advocates Prakash Shah, Vishnu Kant, Karan Luthera, and Shri Piyush Thanvi, for the Appellants/ Taxpayer
Commissioner Ranjan Prakash and Joint Commissioner Nikhil Mohan Goyal, for the Respondent/ Revenue
