Export of fish from Exclusive Economic Zone: FEMA and Customs obligations apply, Regulation 14C breach found but penalties reduced.

Application of the Customs Act to the Exclusive Economic Zone and concurrent applicability of FEMA to export proceeds were affirmed: exports of fish caught in the EEZ and deliveries to a foreign buyer fell within Customs and foreign exchange regulation, so FEMA obligations applied. Deduction of charges by an intermediary without prior RBI approval contravened Regulation 14C, and that contravention was established. Penal liability under the relevant FEMA provisions was applied without a mens rea requirement because the statute lacks willful or intentional language. Vicarious liability of a director was considered. On proportionality grounds the monetary penalty on the exporter company and individual was reduced and pre-deposits adjusted.

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Issues: (i) Whether the officers of the Enforcement Directorate have competency to enquire and adjudicate contraventions under Section 7 of FEMA and the Regulations thereunder; (ii) Whether the provisions of FEMA can be extended to the Exclusive Economic Zone (EEZ) of India; (iii) Whether vessels operating in the EEZ and fisheries caught within the EEZ, when taken out of the EEZ for destinations abroad, constitute exports under FEMA and its Regulations.

Issue (i): Whether the officers of the Enforcement Directorate have competency to enquire and adjudicate contraventions under Section 7 of FEMA and the Regulations thereunder.

Analysis: Section 16(1) and (2) of FEMA permit the Central Government to appoint multiple officers of the Central Government as Adjudicating Authorities and to specify their jurisdictions. Notifications issued by the Central Government (including S.O. 4990(E) dated 27.09.2018 and earlier notifications) designate officers of the Enforcement Directorate as adjudicating authorities with monetary limits; no notification restricts those officers from adjudicating contraventions of specified sections. The statutory scheme thus contemplates appointment of several adjudicating authorities across departments and does not confine adjudication exclusively to Customs and Central Excise officers.

Conclusion: The officers of the Enforcement Directorate have competency to enquire and adjudicate matters relating to Section 7 of FEMA and the Regulations thereunder.

Issue (ii): Whether the provisions of FEMA can be extended to the Exclusive Economic Zone (EEZ) of India.

Analysis: The EEZ Act empowers the Central Government to extend enactments to the EEZ by notification. The Customs Act has been extended to designated areas of the EEZ by such notifications, creating a deeming fiction for specified purposes. Section 1(3) of FEMA provides extra-territorial application to contraventions committed outside India by persons to whom FEMA applies. Given the extension of the Customs Act to the EEZ and FEMA's express extra-territorial application, a separate notification specifically extending FEMA to the EEZ is not necessary in the present factual matrix to invoke FEMA where activities have implications for foreign exchange and have been regulated under Customs-related notifications.

Conclusion: The provisions of FEMA apply to the EEZ for the facts and purposes of this case; a separate notification extending FEMA to the EEZ was not required to invoke FEMA in the circumstances before the Tribunal.

Issue (iii): Whether vessels operating in the EEZ and fisheries caught within the EEZ, when taken out of the EEZ for destinations abroad, constitute exports under FEMA and its Regulations.

Analysis: FEMA and its Export Regulations require exporters to furnish declarations and to realize and repatriate export proceeds in prescribed manner (Regulation 3). The Export Regulations and FEMA definitions encompass goods taken out of India and transactions that affect foreign exchange realizations. The records showed filing of bills of entry for import of vessels and subsequent removal of vessels and transfer of fish consignments to foreign buyers with implications for foreign exchange. Regulation 14C mandates prior RBI approval for arrangements adjusting imports against exports; obtaining a Loan Registration Number does not substitute for prior approval under Regulation 14C. Compounding by RBI for certain earlier contraventions reduces the quantification but does not negate liability for remaining contraventions. Mens rea is not required for imposition of civil penalties under Section 13(1) of FEMA.

Conclusion: The removal of the vessels and the export of fish consignments as recorded amounted to exports under FEMA and its Regulations; contraventions of Section 7(1) read with Regulation 3 and of Regulation 14C were established against the appellants, with vicarious liability under Section 42(1) for the individual in his capacity as managing director.

Final Conclusion: The adjudicatory competence of the Enforcement Directorate is upheld; FEMA applies to the EEZ in the circumstances of this case; export-related contraventions under Section 7(1) read with Regulation 3 and under Regulation 14C are established. Relief is limited to reduction of penalties: penalty on the company reduced to Rs. 8,00,000 and on the individual reduced to Rs. 20,000, with pre-deposits adjusted; appeals are partly allowed.

Ratio Decidendi: Where the Customs Act has been extended to designated areas of the EEZ and FEMA contains express extra-territorial application (Section 1(3)), adjudication under FEMA for activities in the EEZ affecting foreign exchange may be sustained without a separate notification extending FEMA to the EEZ; adjudicating authorities designated under Section 16 may include Enforcement Directorate officers unless a notification expressly restricts their competence.

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