LexDIRECTOR, ENFORCEMENT DIRECTORATE, MINISTRY OF FINANCE AND ANOTHER versus K. 0. KRISHNASWAMY
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1092
DIRECTOR, ENFORCEMENT DIRECTORATE,
MINISTRY OF FINANCE AND ANOTHER
V. I
K. 0. KRISHNASWAMY
October 26, 1979
[N. L. UNTWALIA, P. N. SHINGHAL AND A D. KosHAL, JJ.]
Foreign Exchange Regulation Act, 1947.,...-Section 12(2)(b)-Scope of-
Exporter over invoicing for the purpose of obtaining import licence-If violt>
five of section· 12(2)(1>).
An exporter exporting goods outside India is required to furnish a declara-
tion under section 12(1) of the Foreign Exchange Regull>tion Act, 1947 affim1 ..
ing 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
bas the el!ect of securing that .... (b) "payment for the goods is made other·
wise than in the. prescribed manner or does not represent the /nil
amount
payable by the foreign buyer in respect of the goods.'"
An J-i.xport Promotion Scheme for textile goods and handicrafts promulga-
ted by the Government of India envisaged the 'issuance of import licences to
the exporters solely on the basis of the decl~rcd value of the exported goods.
On receiving the impo~t 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 Jakhs, while against the invoice yalue 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 Regula-
tion 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 q~hed
the order on the view that there would be contravention of section 12(2)'{ll)
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only \Vhen the foreign buyer was under an obligation to pay a certain sum o~
money and there was non-payment of that amount or part thereof in conse-
quence of son1ething 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
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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.
DJRECTOR ENFORCEMENT V. K. 0. k'RISHNASWAMY
(Koshal, J.)J093
Dismissing the appeal,
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HELD : The expression "full amount payable by the foreign.
buyer in
respect of the goods" occurring in clause· (b) \vould ·mean
n1crcly
the total
amount which is due froni the. fereign buyer in respect of the goods actually
exported, and 'Nhat 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
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aJJY ulterior n1otives.
The foreign buyer cannot be held to be liable to pay
any amount O\'er and above the price which he has promised to pay for the
{l;oods receiYed 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 hi1n. If the price agreed upon had been paid to the exporter, clause
(b) does not come into operation. [1096F-G]
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.
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M. K. Banerjee, Additional Sol. Gen], R. B.
Datar and
Girish
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Chnndra for the Appellants:
Shyama/a Pappu, Vincet 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
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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') cnal-
Jenges an order of the Mysore High Couru dated the 4th of June, 1969,
allowing two petitions preferred by the respondents for the issuance of
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writs under article 226 of the Constitution of India.
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