Direct buyer-paid export commission need not form repatriable proceeds, and penalty fails without personal knowledge evidence.

FEMA proceedings were held maintainable notwithstanding an earlier Customs Act settlement because the enforcement inquiry rested on independent statutory material. The Tribunal further held that commission paid directly by an overseas buyer to an overseas agent was not shown to be an amount due to the exporter or part of its repatriable export proceeds, and the exporter was not bound to repatriate it. The Master Circular on commission remittance was found inapplicable on those facts. Penalty was also set aside because the reliance placed on a witness without personal knowledge was unsafe and the alleged non-repatriation and foreign exchange loss were not established.

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Issues: (i) Whether the proceedings under FEMA could be reopened notwithstanding the Settlement Commission order under the Customs Act; (ii) whether commission paid by an overseas buyer to an overseas agent formed part of the export value or amount required to be repatriated by the exporter under FEMA and the Export Regulations; (iii) whether the Master Circular governing commission remittance applied where the exporter itself had not paid the commission; (iv) whether penalty could be sustained for the alleged contraventions and selective reliance on the statement of a witness without personal knowledge.

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

Analysis: The earlier settlement under the Customs Act did not bar the enforcement authority from proceeding on the basis of evidence independently gathered under FEMA. The finality attached to a settlement order under Section 127J of the Customs Act did not extinguish FEMA action where the adjudication was founded on an independent statutory inquiry. The question was therefore examined on its own footing under FEMA rather than as a reopening of the customs settlement.

Conclusion: The proceedings under FEMA were maintainable and this objection failed.

Issue (ii): Whether commission paid by an overseas buyer to an overseas agent formed part of the export value or amount required to be repatriated by the exporter under FEMA and the Export Regulations.

Analysis: The record showed that the exporter had not paid the commission amount to the foreign agent and that the amount was paid by the overseas buyer directly. The Tribunal also held that the witness relied upon by the enforcement authority had no personal knowledge of the relevant export transactions and his statement, to that extent, was hearsay. On the materials accepted by the Tribunal, the commission was not shown to be an amount due or accruing to the exporter, nor an amount the exporter was bound to repatriate as part of the export proceeds. The Tribunal further held that the amount could not be treated as foreign exchange leakage in the hands of the exporter.

Conclusion: The commission amount was not liable to be treated as part of the exporter's realizable export proceeds and this issue was decided in favour of the appellants.

Issue (iii): Whether the Master Circular governing commission remittance applied where the exporter itself had not paid the commission.

Analysis: The Master Circular contemplated remittance or deduction of commission at the instance of the exporter and presupposed a commission arrangement attributable to the exporter. Since the Tribunal found that the commission was not paid by the appellants and the alleged payment was made directly by the overseas buyer, the regulatory conditions for invoking the circular against the appellants were not attracted on the facts accepted by the Tribunal.

Conclusion: The Master Circular was held inapplicable to the appellants and this issue was decided in their favour.

Issue (iv): Whether penalty could be sustained for the alleged contraventions and selective reliance on the statement of a witness without personal knowledge.

Analysis: The Tribunal held that the witness statement relied upon by the enforcement authority could not safely be used against the appellants for the relevant period because the witness joined the company after the export transactions had already occurred and had no personal knowledge of them. The Tribunal further held that, on the facts accepted by it, the alleged under-valuation and non-repatriation were not established and no loss of foreign exchange was shown. In those circumstances, the foundation for penalty under FEMA and the Export Regulations was not made out.

Conclusion: The penalty could not be sustained and this issue was decided in favour of the appellants.

Final Conclusion: The impugned penalty order was set aside and the appeals succeeded in full.

Ratio Decidendi: A commission paid by a foreign buyer directly to a foreign agent, when not shown to be an amount due to the exporter, does not form part of the exporter's repatriable export proceeds under FEMA, and penalty cannot be sustained on hearsay evidence unsupported by personal knowledge or independent proof.

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