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Issues: (i) Whether the officers of the Directorate of Enforcement were competent to adjudicate contraventions under FEMA; (ii) whether FEMA could be applied to activities in the Exclusive Economic Zone; (iii) whether the movement of fishing vessels and fish catch from the Exclusive Economic Zone to destinations abroad constituted export under FEMA and its Regulations.
Issue (i): Whether the officers of the Directorate of Enforcement were competent to adjudicate contraventions under FEMA.
Analysis: Section 16 of FEMA empowers the Central Government to appoint as many officers as it thinks fit as adjudicating authorities and to specify their jurisdictions. The notification appointing Customs and Central Excise officers did not exclude Enforcement Directorate officers, and the later notification expressly appointed officers of the Enforcement Directorate as adjudicating authorities under Section 13 of FEMA. The existence of multiple appointing notifications did not create any jurisdictional bar.
Conclusion: The officers of the Directorate of Enforcement were competent to adjudicate the matter.
Issue (ii): Whether FEMA could be applied to activities in the Exclusive Economic Zone.
Analysis: The Exclusive Economic Zone Act permits extension of enactments by notification, but the Tribunal held that FEMA operates on its own scheme and that its foreign exchange consequences extend beyond territorial India under Section 1(3). In the facts of the case, the fishing operations, import of vessels, and subsequent foreign exchange transactions had sufficient nexus with India, and a separate notification extending FEMA to the Exclusive Economic Zone was held unnecessary for invoking FEMA.
Conclusion: FEMA was held applicable to the transactions arising from the Exclusive Economic Zone operations.
Issue (iii): Whether the movement of fishing vessels and fish catch from the Exclusive Economic Zone to destinations abroad constituted export under FEMA and its Regulations.
Analysis: The Tribunal held that once the vessels had been imported into India and later taken out and handed over to a foreign entity, the transaction amounted to export for FEMA purposes. No declaration under Regulation 3 of the Export Regulations was filed. As to the netting off of export receivables against amounts spent on diesel, bait, crew salaries, and related services, the Tribunal held that Regulation 14C required prior RBI approval for such adjustment and that a loan registration number was not a substitute for such approval. The plea based on absence of mens rea was rejected in view of the civil nature of the penalty regime under Section 13 of FEMA.
Conclusion: The contravention under Section 7(1) read with Regulation 3 and the contravention of Regulation 14C were upheld, but the penalties were reduced.
Final Conclusion: The appeals succeeded only to the extent of reduction of penalty, while the findings of contravention under FEMA and its Regulations were sustained.
Ratio Decidendi: Where foreign exchange transactions arising from operations in the Exclusive Economic Zone have a direct nexus with India, FEMA can be applied without a separate extension notification; export formalities and prior RBI approval for netting-off of export receivables remain mandatory, and penalty under FEMA is attracted upon proof of contravention without proof of mens rea.
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