Understated FOB valuation: exporter and officers liable; penalties payable but reduced due to mitigation and prior deposits.

Understated FOB valuation by omitting agent commissions was held to breach disclosure and realisation obligations under FEMA and export regulations; 12 of 18 consignments found contravening while six under long term contracts were not. Individual officers were held liable under the statutory deeming rule absent proof of lack of knowledge or due diligence; director admissions and conduct negated exoneration. Civil penalties are payable irrespective of mens rea, but quantum is subject to proportionality and mitigation; the Tribunal reduced penalties reflecting prior Settlement Commission deposits and contract scope, directing adjustment of pre deposits against imposed penalties.

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Issues: (i) Whether the Appellant exported consignments at understated FOB value by giving discounts to accommodate commissions to overseas protective agents and thereby contravened the disclosure and realization obligations under FEMA and the Export Regulations; (ii) Whether the individual directors are liable for the contraventions of the company; (iii) What is the appropriate quantum of penalty having regard to the findings, the Settlement Commission deposit and the nature of the consignments.

Issue (i): Whether the Appellant under invoiced export value by giving discounts to cover overseas agents' fees and thereby breached the disclosure and realization obligations under FEMA and related regulations.

Analysis: The Tribunal examined the recorded statement of the company director admitting negotiated prices lower than initial offers for the 18 disputed consignments, the Settlement Commission's finding and the company's voluntary deposits of differential duty, interest and penalty. The Tribunal analysed the commercial nature of FOB valuation (expenses up to loading on board inclusive of commissions for services at load/discharge ports) and the RBI-prescribed method for declaring full export value and showing commission as permissible deduction. The Tribunal considered appellants' submissions on long term formulaic pricing and spot contract bidding records for some consignments and balanced these against admissions and the conduct of voluntarily depositing sums with the Settlement Commission.

Conclusion: The Tribunal held that for 12 of the 18 consignments the export value was understated and that the arrangement effectively kept part of the consideration offshore, resulting in contravention of the disclosure and realization obligations; charges relating to 6 consignments executed under long term contracts were dropped.

Issue (ii): Whether the individual directors (the managing director and the director/CFO) are liable for the company's contraventions.

Analysis: The Tribunal applied the statutory principle that where a company commits a contravention its officers in charge are deemed liable unless they prove lack of knowledge or exercise of due diligence. The Tribunal reviewed the appellants' pleadings, the absence of evidence showing due diligence or lack of knowledge, and the director's admitted role in finalizing negotiated prices.

Conclusion: The Tribunal held both individual appellants liable under the statutory provisioning and not entitled to exoneration on the facts; penalties were therefore maintainable against them.

Issue (iii): What penalty is appropriate having regard to the nature of contravention, prior Settlement Commission deposit and mitigating considerations.

Analysis: The Tribunal considered the statutory ceiling for penalty in civil contraventions, the absence of mens rea as a prerequisite for penalty, the voluntary payment to the Settlement Commission (treated as admission by conduct), and the limited scope for price variation under long term contracts. The Tribunal exercised discretion to reduce the quantum from that imposed by the Adjudicating Authority, taking into account prior deposits and proportionality.

Conclusion: The Tribunal reduced the penalties to Rs. 30,00,000 on the company and Rs. 3,00,000 on each of the two individual appellants and directed adjustment of any pre deposits against the imposed penalty; the appeals were partly allowed to this extent.

Final Conclusion: The Tribunal affirmed contraventions in respect of selected consignments, imposed reduced penalties on the company and its directors, and disposed of the appeals partly in favour of the appellants while dismissing other reliefs sought.

Ratio Decidendi: Where an exporter's declarations omit integral components of FOB value and the omissions are corroborated by admissions and conduct (including voluntary deposits), a civil penalty under FEMA is payable irrespective of mens rea, though the quantum of penalty is subject to proportionality and mitigating considerations such as prior settlement and limited scope of contractual price variation.

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