Tribunal overturns penalties against Company for FEMA violations, MD absolved of liability

The tribunal found in favor of the Company, setting aside the penalties imposed for alleged violations of FEMA. It was determined that the Company had lawfully conducted transactions through an authorized dealer and had obtained exemptions from RBI, rendering the contraventions null. The Managing Director was absolved of vicarious liability as they were not in charge during the relevant period. The tribunal concluded that the allegations were unfounded, overturning the penalties and allowing the appeal with no costs.

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Issues Involved:
1. Contravention of Section 10(5) and 10(6) of FEMA, 1999.
2. Non-submission of Bill of Entry for advance remittance.
3. Ex-post facto exemption by RBI.
4. Vicarious liability of the Managing Director under Section 42 of FEMA.
5. Applicability of Regulation 6(1) of Foreign Exchange Management (Realisation, Repatriation, and Surrender of Foreign Exchange) Regulations, 2000.

Detailed Analysis:

1. Contravention of Section 10(5) and 10(6) of FEMA, 1999:
The appeal was filed against the Adjudication Order for alleged violations of Section 10(5) and 10(6) of FEMA, 1999. The Adjudicating Authority imposed penalties on the Company and its Managing Director for failing to submit documentary evidence for the import of goods against an advance remittance of US $433661.76. However, it was argued that the transaction was conducted through an authorized dealer (HSBC Bank), and the foreign exchange was used for the declared purpose. The tribunal noted that Section 10(5) applies before the transaction, and since the transaction was conducted lawfully, Section 10(5) and consequently Section 10(6) were not applicable.

2. Non-submission of Bill of Entry for Advance Remittance:
The Company failed to submit the Bill of Entry for the advance remittance, which led to the issuance of a Show Cause Notice. The Company argued that they had sought exemption from submitting import documents from the RBI, which was granted. The tribunal noted that the RBI had indeed granted a no-objection certificate to HSBC Bank, advising them not to insist on the Bill of Entry. This factual position was not denied by the respondent, and the tribunal found that the ex-post facto exemption granted by the RBI negated the contravention.

3. Ex-post Facto Exemption by RBI:
The respondent argued that the RBI's exemption was "without prejudice" to actions by the Enforcement Directorate (ED). However, the tribunal held that the RBI's exemption should be considered final and binding, and the ED's investigation should not override the RBI's decision. The tribunal referenced previous judgments supporting this view, emphasizing that the RBI is the custodian of foreign exchange and its permissions and exemptions cannot be questioned.

4. Vicarious Liability of the Managing Director under Section 42 of FEMA:
The Managing Director was held liable under Section 42 of FEMA. However, the tribunal found that the Managing Director, appointed on 27/08/2015, was not in charge during the relevant period. The person responsible during the period had already left the Company. Therefore, the tribunal concluded that the imposition of penalty on the new Managing Director was without valid reason and set aside the penalty.

5. Applicability of Regulation 6(1) of Foreign Exchange Management (Realisation, Repatriation, and Surrender of Foreign Exchange) Regulations, 2000:
The tribunal found that Regulation 6(1) applies to residents who do not use acquired foreign exchange for the declared purpose and must surrender it within 60 days. Since the Company used the foreign exchange for its declared purpose, the tribunal held that Regulation 6(1) was not applicable. The tribunal also noted that the respondent failed to provide additional evidence against the Company beyond what was already available with the RBI.

Conclusion:
The tribunal concluded that the allegations against the Company were unfounded and set aside the order passed against the Company. Consequently, the penalty on the Managing Director was also set aside. The appeal was allowed with no costs.

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