FEMA export proceeds and agency commission: foreign buyer payments to overseas agents are not automatically the exporter's receivable.

Under FEMA, export proceeds are limited to foreign exchange due or accrued to the exporter, so commission paid by a foreign buyer to a foreign agent did not become the exporter's receivable or a sum required to be repatriated. The Tribunal distinguished FEMA valuation from customs valuation, holding that customs settlement findings did not bar independent FEMA proceedings and did not control determination of full export value. It also found the RBI Master Circular on agency commission inapplicable because the exporter had not paid the commission. On the facts, hearsay reliance and the absence of any proven foreign-exchange loss left no sustainable contravention or penalty.

---

---

Issues: (i) Whether proceedings under FEMA could be reopened notwithstanding the settlement order under the Customs Act; (ii) whether customs valuation principles govern determination of full export value under FEMA; (iii) whether commission paid by an overseas buyer to an overseas agent was required to be repatriated by the exporter under Sections 7 and 8 of FEMA and the export regulations; (iv) whether the RBI Master Circular on agency commission applied where no commission was paid by the exporter; (v) whether the penalty and the invoked contraventions could survive on the facts, including selective reliance on statements and the alleged extraterritorial nature of the commission payment.

Issue (i): Whether proceedings under FEMA could be reopened notwithstanding the settlement order under the Customs Act.

Analysis: The settlement order under the Customs Act was not treated as an absolute bar to FEMA action. Independent evidence collected in the FEMA investigation could support adjudication, and the statutory finality attached to settlement proceedings under the Customs Act did not disable enforcement under FEMA as a self-contained code.

Conclusion: The objection based on Section 127J of the Customs Act failed, and the FEMA proceedings were maintainable.

Issue (ii): Whether customs valuation principles govern determination of full export value under FEMA.

Analysis: The Tribunal distinguished the concept of transaction value under the Customs Act from full export value under FEMA. It accepted that commission paid to an overseas agent is not automatically includible in export value merely because customs valuation principles were applied in the settlement proceedings. On the record, the commission was not shown to be part of the export value to be realised by the appellants.

Conclusion: The customs valuation parameters were held not to control FEMA valuation, and this issue was decided in favour of the appellants.

Issue (iii): Whether commission paid by an overseas buyer to an overseas agent was required to be repatriated by the exporter under Sections 7 and 8 of FEMA and the export regulations.

Analysis: The obligation to declare and repatriate extends only to foreign exchange due or accrued to the exporter. The commission in question was payable to the overseas agent and not shown to be money due to the appellants. On the facts, there was no loss of foreign exchange to the appellants and no basis to treat the commission as export proceeds required to be repatriated by them.

Conclusion: No repatriation obligation arose in respect of the commission amount, and the issue was decided in favour of the appellants.

Issue (iv): Whether the RBI Master Circular on agency commission applied where no commission was paid by the exporter.

Analysis: The Master Circular governed remittance of commission by an exporter and compliance with declaration requirements where the exporter had paid or arranged payment of commission. Since the commission was not paid by the appellants but was paid directly by the overseas buyer to the overseas agent, the circular was not attracted on the facts found.

Conclusion: The Master Circular was held inapplicable, and the issue was decided in favour of the appellants.

Issue (v): Whether the penalty and the invoked contraventions could survive on the facts, including selective reliance on statements and the alleged extraterritorial nature of the commission payment.

Analysis: The statement of a director who had no personal knowledge of the earlier export transactions was treated as hearsay and was not accepted as the foundation for liability. The Tribunal also held that the commission transaction between non-residents did not establish a FEMA contravention against the appellants, and in any event no loss of foreign exchange was shown. The dropped second charge further supported the absence of a sustainable penal basis.

Conclusion: The invoked contraventions and penalty could not stand, and this issue was decided in favour of the appellants.

Final Conclusion: The impugned penalty order was set aside and the appeals were allowed, with consequential relief to follow.

Ratio Decidendi: Under FEMA, only foreign exchange due or accrued to the exporter can be treated as export proceeds subject to declaration and repatriation, and commission payable to a foreign agent by a foreign buyer does not become the exporter's receivable merely because it is connected with the export transaction.

---