Reasonable steps to realise export proceeds can defeat penalty where recovery efforts and documentary compliance are shown.

The article examines whether an exporter took all reasonable steps to realise export proceeds so as to avoid penalty under section 18(2) read with section 18(3) of the Foreign Exchange Regulation Act, 1973. It notes that the original buyer declined delivery, the dispute was pursued, an alternative buyer was found with Reserve Bank of India permission, and repeated recovery efforts were made through the banker and other channels. The non-realisation was attributed to the banker's failure to forward documents, the need for fresh ECGC cover, and cancellation by the new buyer. On these facts, the burden under section 18(3) was treated as discharged and penalty as unwarranted.

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Issues: Whether the appellant had taken all reasonable steps to realise the export proceeds so as to avoid liability for penalty for contravention of section 18(2) read with section 18(3) of the Foreign Exchange Regulation Act, 1973.

Analysis: The appellant showed that the original buyer declined delivery, efforts were made to resolve the dispute, an alternative buyer was found with permission of the Reserve Bank of India, and repeated attempts were made through the banker and other channels to obtain payment. The non-realisation of the balance amount was explained by the failure of the banker to forward documents, the need for fresh ECGC cover, and the eventual cancellation of the contract by the new buyer. On these facts, the appellant had discharged the burden under section 18(3) by demonstrating reasonable steps for recovery of the export proceeds.

Conclusion: The penalty was not justified and the impugned order was liable to be quashed.

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