2018 (9) TMI 193 - AT - FEMA

Tribunal overturns $30k penalty under FERA citing improper service, lack of evidence, and time limit breach.

M/s. ICOMM Tele Ltd. Versus The Joint Director, Directorate of Enforcement, Hyderabad

The Tribunal allowed the appeal, setting aside the penalty of Rs. 30 lakhs imposed under Section 50 of erstwhile FERA, 1973. The decision was based on ... Penalty u/s 50 of erstwhile FERA, 1973 for violation of the provisions - non service of the show cause notice upon the appellant prior to 1st June, 2002 under FEMA, 1999 - Held that:- The Adjudicating Officer was obliged to examine the steps taken by the respondent before concluding that the appellant did not comply with the obligation of producing exchange control copies. He ought to have appreciated that a show cause notice or letter of enquiry would have been issued to the appellant by the Enforcement Directorate and if only he had called for examined the record, the non-compliance alleged by the Enforcement Directorate would have been found to be incorrect. Since there was no service of the show cause notice upon the appellant prior to 1st June, 2002 under FEMA, 1999, the entire proceedings based on the show cause notice against the appellant is null and void and ab-initio. Therefore, the penalty imposed by the impugned order dated 8.9.2004 is untenable. Under these circumstances, the appeal filed by the appellant is allowed by setting aside, the impugned order dated 8.9.2004. Issues Involved:1. Legality of the penalty imposed under Section 50 of erstwhile FERA, 1973.2. Service of the adjudicating order and show cause notices.3. Compliance with documentary evidence requirements.4. Jurisdiction and limitation period for initiating proceedings under FERA.5. Financial hardship and undue burden on the appellant.Issue-wise Detailed Analysis:1. Legality of the Penalty Imposed Under Section 50 of erstwhile FERA, 1973:The appellant challenged the penalty of Rs. 30 lakhs imposed for violation of FERA provisions. The penalty pertained to the acquisition of foreign exchange for importing goods in 1995. The appellant argued that the penalty was imposed without considering the documentary evidence provided, which demonstrated compliance with FERA regulations.2. Service of the Adjudicating Order and Show Cause Notices:The appellant contended that the order dated 8.9.2004 was served on the company only on 24.07.2012. It was argued that the notices for the proceedings were not properly served, as evidenced by the affixation of notices at a location where the company was no longer present. The Tribunal noted that the service by affixation was not valid as the mandatory procedure under Order V Rule 17 and Rule 19 of the CPC was not followed.3. Compliance with Documentary Evidence Requirements:The appellant provided evidence showing the utilization of foreign exchange for importing telecommunication equipment from Rosendhal, Austria. The evidence included bills of entry and other documentation submitted to Indus Ind Bank Ltd. The appellant argued that this evidence was ignored by the adjudicating authority, and the order was passed without giving the appellant an opportunity to present their case.4. Jurisdiction and Limitation Period for Initiating Proceedings Under FERA:The appellant argued that the proceedings were initiated beyond the limitation period specified in Section 49 of FEMA, 1999, which replaced FERA. FEMA came into force on 01.06.2000, and no proceedings for violations under FERA could be initiated after two years from its repeal. The Tribunal found that the assumption of jurisdiction by the adjudicating authority was invalid as it was done after the expiry of the limitation period.5. Financial Hardship and Undue Burden on the Appellant:The appellant highlighted the financial difficulties faced by the company, including a cash crunch and poor collection of outstanding bills. It was argued that the penalty of Rs. 30 lakhs would cause undue hardship to the appellant. The Tribunal considered this argument and referred to precedents where undue hardship was a factor in vacating penalty orders.Conclusion:The Tribunal allowed the appeal, setting aside the impugned order dated 8.9.2004. It was concluded that the penalty was imposed without proper service of notices, ignoring the documentary evidence provided, and beyond the limitation period. The appeal was allowed with no costs.