2025 (8) TMI 411 - AT - FEMA

Penalty Upheld for Export Proceeds Non-Realization and Delayed Import Bill Remittance Under FEMA Rules

The AT under SAFEMA at New Delhi upheld the penalty against the appellant company for contraventions under FEMA related to non-realization of export ... Offence under FEMA - non-realization of the export proceed against 737 bills and at the same time outward remittance towards the import - penalty imposed - HELD THAT:- The import bills were found due for outward remittance initially to the extent of 17 bills and later on it remained with 9 as per the report of AD Bank. Non-realization of export proceed is concerned, the last letter of AD Bank shows it to be against 9 bills and accordingly we find that based on the information shared by the AD Bank, the total amount now remains towards the unrealized export proceed is to a sum of Rs1,27,17,387/- and for the outward remittance towards the import, a sum of Rs. 40,85,145/- according to the appellants whereas according to the respondents it is Rs. 1.50 Crores. It is, however, a fact that as against 9 such import bills, the AD Bank has called for the NOC as against 6 bills for which outward remittance said to have been made but certificate was not issued in absence of the NOC by the ED. Thus, reason to cause interference in the impugned order only in respect to the amount of penalty. It is for the reason that contravention of the provisions of the Act and Regulations has not been disputed by the appellants but the money involved therein has been disputed in view of the latest report of the AD Bank. If NOC would have been given by the ED, even amount towards outward remittance of import would have been 40 crores and odd and otherwise towards the unrealized export bills to a sum of Rs. 1.27 Crores and odd. The total amount comes to nearly about Rs. 1.68 Crores. Looking to the aforesaid but realizing that the show cause notice for the transaction for the year 2009 to 2015 was issued in the year 2021. It caused difficulty to the appellants to produce the documents regarding non-realization of the export proceed and even outward remittance but finally given by the AD Bank. We find it appropriate to impose the penalty of Rs. 80 lakhs on the appellant company in regard to the contravention of different provisions of the Act and Regulations for which show cause notice was given. The penalty aforesaid has been imposed taking into consideration the unrealized export proceed to a sum of Rs. 1.27 and odd crores and outward remittance of Rs. 1.50 Crores due to non-issuance of the NOC otherwise Rs. 40 Lakhs and odd. To make an appropriate penalty, we have made it for Rs. 80 Lakhs cumulatively to make it proportionate to the allegation against the appellant company. So far as the appeal preferred by the Director is concerned, we find that he was not operating and holding the position at the relevant time of which the allegation exists for non-realization of export proceed and outward remittance towards the import. Thus, the imposition of the penalty on the Director cannot sustain and accordingly interfered ISSUES: Whether penalty can be imposed for contravention of Section 7 of FEMA, 1999 read with relevant Regulations relating to non-realization of export proceeds and outward remittance towards import.Whether delay in issuance of show cause notice (7 to 12 years after transactions) affects the ability to maintain records and impacts penalty imposition.Whether the quantum of penalty imposed corresponds correctly to the actual amount involved in the contraventions as per updated bank reports.Whether penalty can be imposed on a Director who was not holding the relevant position at the time of alleged contraventions. RULINGS / HOLDINGS: The penalty for contravention of Section 7 of FEMA, 1999 and related Regulations was upheld against the appellant company, but the quantum of penalty was modified based on the actual unrealized export proceeds and outward remittance amounts as per the latest AD Bank report.The delay in issuance of the show cause notice (7 to 12 years) was recognized as causing difficulty in maintaining records, which was taken into consideration in determining the penalty amount.The penalty was reduced to Rs. 80 lakhs cumulatively, reflecting the total unrealized export proceeds of Rs. 1.27 crores and outward remittance issues involving Rs. 1.50 crores (subject to issuance of NOC), to make the penalty 'proportionate to the allegation.'The penalty imposed on the Director was quashed on the ground that he was not holding the relevant position at the time of the alleged contraventions, and thus the imposition of penalty on him 'cannot sustain.' RATIONALE: The Court applied the provisions of Section 7 and Section 10(6) of the Foreign Exchange Management Act, 1999, along with Regulations 9, 10, 11, 12, 13 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 and 2015, and Regulation 6(1) of the Foreign Exchange Management (Realization, Repatriation & Surrender of Foreign Exchange) Regulations, 2000.The Adjudicating Authority's post-hearing inquiry with the Authorized Dealer Bank revealed a significant reduction in the number and amount of unrealized export bills and import remittances, prompting reassessment of penalty quantum.The Court acknowledged the principle that penalty must be 'proportionate to the allegation' and took into account the practical difficulties caused by the delayed show cause notice affecting record-keeping.The Court distinguished liability of the company from that of the Director, emphasizing that penalty cannot be imposed on an individual not responsible or not holding office at the relevant time, reflecting a doctrinal adherence to personal liability principles under FEMA.