2024 (12) TMI 1311 - AT - FEMA

Tribunal reduces FEMA Section 10(6) penalty for copper scrap import fraud after containers arrived empty

Shri Rajesh Jhanwar, Shri Madhusudan Jhanwar Versus The Special Director Directorate of Enforcement Mumbai

The Appellate Tribunal under SAFEMA found contravention of Section 10(6) of FEMA where appellant imported copper scrap in 10 containers that arrived ... Contravention of Section 10(6) of FEMA - Penalty imposed - import of copper scrap in 10 containers but all the containers were found empty carrying no copper scrap - Remittance of the foreign exchange was made by M/s G. Tex Inc. even without receipt of the documents by their banker - HELD THAT:- On the receipt of the consignment of 10 containers, they were found empty and thereby copper scrap was not found therein. It is despite the fact that M/s G. Tex had already effected remittance of US$ 6,56,864 through Bank of India, Bangaluru. Since the sale of copper scrap was made on high seas sale basis M/s G. Tex could receive part consideration from M/s Maruti which could not get copper scrap because the containers were found empty. We do not find serious efforts to recover the amount from M/s Koya International, rather for that, the appellant should have lodged the claim to recover the amount through Court of Law. The appellant failed to do so. So far as the appellant Madhusudan Jhan Waris concerned, he was not responsible for conduct of the business and in charge under which foreign remittance was made by the appellant. The penalty of Rs. 7,50,000/- has been imposed without showing his role in the transaction. The material available on record shows it to be at the behest of appellant Rajesh Jhanwar who was mainly looking after the firm M/s G. Tex and made transaction to import the copper scrap. No reasons to impose penalty on appellant Madhusudan Jhanwar when he was not responsible for conduct of the business for import of copper scrap or for remittance of money. The penalty imposed on him is set aside. Appellant Rajesh Jhanwar made efforts to recover the amount though it cannot be said to be serious efforts to recover the amount because he did not lodge a claim for recovery of the amount. In the light of the aforesaid, while we find contravention of Section 10(6) of the Act of 1999, we find reasons to reduce the penalty which on the facts of the case seems to be excessive. The amount of penalty is reduced to 25% of the penalty. The amount of penalty to the extent of 25% has already been deposited to satisfy the condition of pre-deposit. We accordingly reduce the penalty and modify the order partially. With the aforesaid, appeal stands disposed of. It is made clear that if the amount to the extent of 25% of the penalty has not been deposited, the respondents would recover the said amount. Issues:1. Contravention of Section 10(6) of the Foreign Exchange and Management Act, 1999.2. Imposition of penalties on the appellants for contravention of the Act.3. Role and liability of each appellant in the transaction.4. Efforts made by the appellants to recover the remitted amount.5. Justification for the penalty imposed on each appellant.6. Consideration of previous judgments in similar cases.Detailed Analysis:Issue 1: The appellants were charged with contravention of Section 10(6) of the Act of 1999 for importing copper scrap in 10 containers that were found empty, leading to a penalty being imposed on them.Issue 2: The penalty of Rs. 30 lakhs was imposed on M/s G. Tex Inc. and Rs. 7,50,000 each on the appellants Rajesh Jhanwar and Madhusudan Jhanwar for their involvement in the transaction.Issue 3: The appellants argued that they entered into the transaction with M/s Koya International for the copper scrap, but the containers were received empty. The role and knowledge of each appellant in the transaction were also questioned.Issue 4: The appellants claimed to have made efforts to recover the remitted amount, including lodging complaints and seeking legal assistance, but were unable to recover the funds due to the fraudulent activities of M/s Koya International.Issue 5: The appellants contested the justification for the penalties imposed on them, arguing that the penalties were disproportionate considering their roles and efforts to recover the remitted amount.Issue 6: The appellants cited previous judgments to support their argument for a reduction in the penalty amount, emphasizing the fraudulent actions of M/s Koya International and the lack of serious efforts to recover the remitted amount.In conclusion, the Tribunal found contravention of Section 10(6) of the Act of 1999 in the import transaction but considered the efforts made by the appellants to recover the funds. The penalty imposed on Madhusudan Jhanwar was set aside, considering his lack of involvement in the transaction. The penalty on Rajesh Jhanwar was reduced by 25% due to the excessive nature of the original penalty. The Tribunal partially modified the order, requiring the deposit of 25% of the reduced penalty amount.