Foreign exchange repatriation fails where buyer-paid agent commission is not shown to be due to the exporter.

A foreign buyer's direct payment to a foreign agent was held not to be commission payable by the exporter where the record showed no contractual obligation or proof that the agent was engaged by the appellants. A director who joined after the exports lacked personal knowledge, so his statement was treated as hearsay and could not by itself support liability. On those facts, the amount was not foreign exchange due to or accrued in favour of the exporter under FEMA, so it was not required to be repatriated and the related export-regulation theory failed. The Tribunal also held that FEMA action was not barred merely because of a Customs settlement order on connected facts, but no penalty could survive without a proved contravention.

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Issues: (i) Whether the appellants were liable to pay the commission amount to the overseas agent and whether the overseas agent was engaged by the appellants; (ii) whether reliance could be placed on the statement of a director who had no personal knowledge of the export transactions; (iii) whether the commission paid by the foreign buyer to the foreign agent formed part of the export value and was required to be repatriated by the exporter under Sections 7 and 8 of FEMA, and whether the Master Circular and Export Regulations were attracted; (iv) whether the prohibition under Section 127J of the Customs Act barred proceedings under FEMA on the same facts; (v) whether the provisions of FEMA could be invoked to penalise the appellants on the facts of the case.

Issue (i): Whether the appellants were liable to pay the commission amount to the overseas agent and whether the overseas agent was engaged by the appellants?

Analysis: The record did not show that the appellants had paid any commission to the overseas agent. The materials instead showed that the foreign buyer made the payment directly to the overseas agent. The agreements and invoices did not establish any contractual obligation on the appellants to pay commission or certification charges to that agent. In the absence of evidence that the agent was engaged by the appellants for the disputed payment, the alleged commission could not be treated as an amount payable by the appellants.

Conclusion: The issue is answered in favour of the appellants.

Issue (ii): Whether reliance could be placed on the statement of a director who had no personal knowledge of the export transactions?

Analysis: The director whose statement was relied upon had joined the company only after the relevant exports had taken place. He therefore had no personal knowledge of the transactions from the relevant period. His statement on matters predating his appointment was treated as hearsay and was not supported by authentic contemporaneous records. Selective reliance on that statement, without corroboration and without eliciting comparable facts from the director actually connected with the transactions, was not justified.

Conclusion: The issue is answered in favour of the appellants.

Issue (iii): Whether the commission paid by the foreign buyer to the foreign agent formed part of the export value and was required to be repatriated by the exporter under Sections 7 and 8 of FEMA, and whether the Master Circular and Export Regulations were attracted?

Analysis: The obligation under Section 7 is to declare the full export value of goods, and the obligation under Section 8 is to realise and repatriate foreign exchange that is due to or accrued in favour of the exporter. On the facts found, the commission amount was neither payable to the appellants nor due to them as export proceeds. The amount was a payment between two non-resident parties and did not constitute foreign exchange due to the appellants. The Master Circular governing agency commission presupposed a commission arrangement to be handled by the exporter, which was not established here. The reasoning that the commission should have been included in the export value and repatriated by the appellants was therefore unsustainable, and the alleged contravention of the Export Regulations also failed.

Conclusion: The issue is answered in favour of the appellants.

Issue (iv): Whether the prohibition under Section 127J of the Customs Act barred proceedings under FEMA on the same facts?

Analysis: The Tribunal held that FEMA proceedings could proceed on the basis of independent material collected during the FEMA investigation and were not barred merely because the Customs Settlement Commission had passed an order on connected facts. The conclusiveness of a settlement order under the Customs Act did not prevent action under FEMA where the enforcement authority relied upon its own evidence and statutory mandate.

Conclusion: The issue is answered against the appellants.

Issue (v): Whether the provisions of FEMA could be invoked to penalise the appellants on the facts of the case?

Analysis: Since the commission was not shown to be an amount payable by or due to the appellants, there was no failure to repatriate foreign exchange belonging to them, and no sustainable basis for treating the disputed amount as part of the appellants' export proceeds. The second charge had already been dropped by the adjudicating authority, and the remaining charge also failed on the Tribunal's findings on payment, knowledge, and liability. In the absence of a proved contravention, the penalty could not stand.

Conclusion: The issue is answered in favour of the appellants.

Final Conclusion: The penalty order was unsustainable and the appeals succeeded, with the impugned penalties set aside and the deposit directed to be returned.

Ratio Decidendi: A payment made by a foreign buyer directly to a foreign agent, when not shown to be due to the exporter, does not constitute foreign exchange due or accrued to the exporter under FEMA and cannot be penalised as non-repatriated export proceeds on the basis of uncorroborated hearsay alone.

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