2009 (9) TMI 1089 - AT - FEMA

Tribunal Quashes Penalties for Alleged Foreign Exchange Violations; MMTC Ltd. Found Responsible for Repatriation.

The Tribunal allowed the appeals, quashing the penalties against the appellants for alleged contraventions of sections 18(2), 18(3), and 8(1) of the ... - Issues Involved:1. Penalty for contravention of sections 18(2) and 18(3) of the Foreign Exchange Regulation Act, 1973.2. Unauthorized acquisition and transfer of foreign currency under section 8(1) of the Foreign Exchange Regulation Act, 1973.Issue-wise Detailed Analysis:1. Penalty for Contravention of Sections 18(2) and 18(3) of the Foreign Exchange Regulation Act, 1973:The appellants were penalized for failing to take reasonable steps for the repatriation of export proceeds after exporting goods worth US dollars 510,463.28. The appellants argued that the exports were actually made by Mines & Minerals Trading Corporation Ltd. (MMTC), who had an agreement with the appellants to manufacture goods. The appellants did not have an export code number, and the export proceeds were to be realized in MMTC's account. The appellants were only responsible for manufacturing the goods and were to receive 30% of the return as their wages.The Tribunal noted that MMTC Ltd. was responsible for signing the GRIs, obtaining the export code number, and receiving the export proceeds. MMTC Ltd. also took all export benefits, such as duty drawback and income-tax exemption. The Tribunal concluded that MMTC Ltd. was the exporter and bore the responsibility for repatriation of export proceeds under section 18 of the FER Act, 1973. The legal obligation under sections 18(2) and 18(3) is cast on the exporter, and since the appellants did not file an undertaking under section 18(1), no adverse presumption under section 18(3) could arise against them.The Tribunal emphasized that 'reasonable steps' depend on the circumstances of each case and that MMTC Ltd., as the exporter, had the obligation to take such steps. The Tribunal found that the appellants could not be held responsible for the contravention of sections 18(2) and 18(3) of the FER Act, 1973, and quashed the penalties imposed on them.2. Unauthorized Acquisition and Transfer of Foreign Currency under Section 8(1) of the Foreign Exchange Regulation Act, 1973:Appellant J.B.S. Bakshi was penalized for unauthorizedly acquiring US dollars 1 lakh from M/s. Omran Italian Jewellery, Sharjah, UAE, and transferring the same to M/s. Al Abdulla Jewellery Trades, UAE, as well as acquiring and transferring Dhiram 168,000 to M/s. Omran Italian Jewellery, Sharjah. The Tribunal examined section 8(1) of the FER Act, 1973, which restricts dealing in foreign exchange without the previous permission of the Reserve Bank.The Tribunal found that the appellant did not acquire the foreign currency for personal use but acted as a carrier for M/s. Omran Italian Jewellery, who paid the money to M/s. Al Abdulla Jewellery Trades for the release of shipment. The Tribunal concluded that mere possession of foreign currency as a carrier does not amount to acquisition or transfer under section 8(1). The Tribunal stated that the burden of proof beyond reasonable doubt lies with the Enforcement Directorate, which failed to provide viable proof of guilt against the appellant.The Tribunal quashed the penalty imposed on appellant J.B.S. Bakshi, finding that the allegations of contravention of section 8(1) were not substantiated.Conclusion:The Tribunal allowed the appeals, quashing the penalties imposed on the appellants for contravention of sections 18(2) and 18(3) and section 8(1) of the Foreign Exchange Regulation Act, 1973. The Tribunal found that MMTC Ltd. was the exporter responsible for repatriation of export proceeds and that the appellant J.B.S. Bakshi did not unauthorizedly acquire or transfer foreign currency. The impugned order was based on wrong assumptions and was set aside.