Foreign currency credit for imports beyond six months breaches exchange regulations; penalty reduced despite upheld contravention.

Import of consignments on credit was treated as falling within the foreign exchange borrowing framework rather than a mere current account transaction for purposes of the regulatory breach. The Tribunal held that where an importer avails foreign currency credit beyond the permitted six-month period and remittance is made after expiry of that period, Regulation 5(3) of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 is contravened; proof of a separate loan contract was not necessary. The breach was considered technical because the remittance had been completed, so the penalty was reduced substantially while the finding of contravention was maintained.

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Issues: (i) Whether import of consignments on credit is a current account transaction or a capital account transaction; (ii) whether the appellants contravened Section 6(3)(d) of the Foreign Exchange Management Act, 1999 read with Regulation 3 and Regulation 5(3) of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000; (iii) whether the penalty required reduction.

Issue (i): Whether import of consignments on credit is a current account transaction or a capital account transaction.

Analysis: The definition of current account transaction excludes capital account transactions, while capital account transaction covers borrowing or lending in foreign exchange and transactions altering assets or liabilities. Import on credit, where remittance is deferred beyond the stipulated period, was treated as falling within the capital account side of the transaction framework for the purposes of the regulatory breach found in the case.

Conclusion: Import of consignments on credit was not accepted as a mere current account transaction for the purpose of the impugned contravention.

Issue (ii): Whether the appellants contravened Section 6(3)(d) of the Foreign Exchange Management Act, 1999 read with Regulation 3 and Regulation 5(3) of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000.

Analysis: Regulation 5(3) permits an importer to avail foreign currency credit for a period not exceeding six months. The remittances against the import were made after expiry of the permissible six-month period, and the Tribunal held that proof of a separate loan contract was not necessary where the credit-based import and delayed remittance were apparent on record. Regulation 3 was treated as not technically applicable, but Regulation 5(3) squarely applied.

Conclusion: The appellants were held to have contravened the said provisions.

Issue (iii): Whether the penalty required reduction.

Analysis: The breach was treated as a technical violation arising from delay in remittance, and the entire remittance had already been made. On that basis, the Tribunal considered the original penalties excessive and reduced them substantially.

Conclusion: The penalty was reduced.

Final Conclusion: The appeals succeeded only to the limited extent of reduction of penalty, while the finding of contravention was maintained.

Ratio Decidendi: An importer who avails foreign currency credit for import beyond the prescribed six-month period contravenes Regulation 5(3) of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, and the absence of a separate loan contract does not negate the breach where the delayed credit-based remittance is established on record.

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