AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (3) TMI 1517
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.... D.M. Buckle of Rs. 25 lakhs has been imposed on Shri K.B. Dadiseth and S.M. Dutta each as whole time directors of Hindustan Lever Ltd., in connection with the non-realization of certain export sale proceeds by Hindustan Lever Ltd. of which the Appellant was Whole Time Director. 3. The brief facts are that the Appellant is one of the Largest Exporters in this country. The export turnover of the Appellant and its wholly owned subsidiary Ind Export Ltd. for the relevant period, i.e., 1982-1991, was approximately Rs. 967 crores. The outstanding amount in respect of which the Show Cause Notice was issued and the order passed, amounted to 0.3% of the total export turnover for the relevant period. 4. The case of Appellant was that in commercial transactions, whether domestic or exports, debts and business risks are inherent and inevitable though the Appellant had aexcellent track record in respect of recovery of export sale proceeds and the Appellant had achieved an export sale recovery position of more than 99.9% over the last 20 years. It was alleged that the Appellant Company is a Super Star Trading house which has won numerous export awards and it has opened up export markets in no....
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....versally known. Not only the Appellant but also several other Exporters to Iraq were constantly following up the matter for the recovery of exports proceeds through the Government of India, who in turn, had taken up the matter with the concerned authorities. 9. When it was explained, the hearings had been adjourned from time to time by the Special Director, to ascertain the factual position with regard to the embargo imposed by the United Nations on Iraq and also to note the existence of extension of time by the Reserve Bank of Indian with regard to the recovery of export proceeds from Iraq, and also the status on the approval for waiver / write off of the balance export proceeds by the Reserve Bank of India. The Reserve Bank of India had granted the necessary extensions for Iraq mainly on the ground that in ordinary circumstances, it was not possible for any individual exporter to take steps against any Iraqi importer. 10. At the last personal hearing, which was held on 24.6.99, the matter was adjourned for 6.9.99. When the matter was adjourned to 6.9.1999, the Appellant Company's Representatives did not appear for the hearing asaccording to him they were under the bonafide impr....
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....visions of Section 18 of FERA, on the basis that the Appellant had failed to take legal proceedings and / or steps through the Indian Embassy well in time despite the best efforts made by the Appellant Company as alleged by the appellant. 14. It is stated by the Appellant that even if the Special Director had decided to raise a point in dispute that the Appellant was at default of not having taken "reasonable steps", he ought to have given the Appellant a fresh opportunity to place on record the latest factual position and evidence, and the Appellant would have brought the following facts on record. a) Exports to State Company for Foodstuff Trading, Iraq, Rs. 2,01,25,000/-. The Appellant Company made exports to Iraq of an aggregate value of Rs. 2,01,25,000/- under GR Nos GK 530946, GR Nos. GK 530949 and GR Nos.148919 respectively. The items exported were food stuff (tea). These shipments were made in May/June 1989 on 365 days L/C terms under the Export Promotion Guarantee Scheme. The payment of a part of this amounting to $ 6,25,000/- fell due on 18.5.1990 and the balance amount of $ 5,25,000 fell due on 27.6.1990. Both the Appellant Company and its Authorised Dealers maintaine....
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....xport sale proceeds. C) Non-realisation of Export Sale Proceeds from Russia - Rs. 21,30,319/-. These exports were made to State sponsored Co-Operative Societies at Moscow, USSR. The amount of Rs. 3,72,728.00 was deducted due to quality problem and an amount of Rs. 17,57,591 was defaulted by the overseas buyers. The shipments were effected during the Period 1987 to 1991 and shortly thereafter, the USSR went through an unprecedented upheaval and disintegration which lead to a complete collapse of its governmental system as well as economy. The Co-Operative Societies which had purchased the goods were State sponsored bodies which were part of the old State controlled regime. With the collapse of the said system, these Co-Operative Societies became defunct and it was impossible to realize any money from them. The Appellant has, by its letters dated 25.1.95, 8.7.99 and 25.8.99, submitted details/clarifications to RBI, Mumbai and the Authorised Dealers for GR Waiver and has also made repeated attempts to expedite this waiver which, however, is still pending. D) Export to C&J International of USA-Rs.9,69,255/- This was an export of shoes under GR No.931336 and GR No.931338 The export ....
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....ceeded on the assumption that follow up through the Indian Embassy would have helped in recovery of the export sale proceeds notwithstanding the said prevailing conditions. H) The ECGC on behalf of the Appellant and various other exporters, was pursuing the matter on a Government to Government level for the recovery of debts from all Iraqi companies. In respect of the exports made from India to Iraq by the Appellant Company as well as the large number of other exporters of merchant goods and construction projects, the issue of recovery of the outstanding exports realisations has been taken up periodically by the Govt. of India on behalf of all Indian Exporters with the Govt. of Iraq, during the meetings of the INDO-IRAQ Joint Commission held annually. The last meeting was held on 19.7.1999 when the issue of the outstanding export dues from Iraq was once again taken up by the Government of India on behalf of the Indian Exporters. The Appellant Company was informed that the Iraqi Authorities had taken note of the said outstanding issue and reaffirmed their commitment to positively address the same soon after lifting of the U.N. sanction from Iraq. The Appellant Company has received....
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....the alternatives available to the Exporter, the Special Director ought to have taken into consideration is whether any funds were recoverable or whether the legal expenses is a further drain on the Country's valuable foreign exchange reserves. The Appellant, therefore, submits that the only practical recourse available to the Exporter was to apply to the Reserve Bank of India, through the Authorised Dealers for write off of the amount; which applications were made to the Reserve Bank of India in 1995 and then followed up. 17. It was stated by the appellant that the following developments were of paramount importance which ought to be considered in order to avoid miscarriage of justice, which are as follows: a) The Appellant Company received further formal extension of G.R. from Reserve Bank of India, vide, their letter dated 12.8.1999, extending the time upto 31.12.2000, for realisation of sales proceeds on exports made to Iraq. b) The Appellant Company had once again approached the Reserve Bank of India through the Authorised Dealers on 8.7.1999, for G.R. waiver of the entire balance export outstandings of Rs. 87,72,517/- the Reserve Bank of India, vide its letter dated 7.8.19....
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.... being involved in the said non-realisation of export sale proceeds. 19.1 It was alleged by them that in the absence of any clear and specific allegation in this regard, the notice must fail. However, by the impugned order, the Special Director has ignored the legal mandate and judicial decisions, which assume finality and are binding on him, and erroneously proceeded to impose a penalty on the Appellant herein. 19.2. The existence of the requisite ingredients for imposition of vicarious liability under S.68 of the FERA was also not averred or alleged in the Show Cause Notice or in the Opportunity Notice. 19.3. If the Special Director had decided to proceed on the assumption that the Appellant was at default, he ought to have given the Appellant an opportunity to show cause against the same and if he had done so, the Appellant would have brought the relevant facts on record. They were not incharge of and responsible for the conduct of the alleged business of the Appellant Company but for the reasons best known to the Respondent the same has not been dealt with and instead an order without giving them a reasonable opportunity has been passed wherein it has been stated that the Ap....
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.... Authorised Dealers. 23. The hearing in the above appeal took place on 02.08.2018. At the said hearing reference was made to the letter dated 11.10.2006 sent to the Appellant by the Authorised Dealer, State Bank of India, Commercial Branch, 24, Park Street, Kolkata, communicating that the appropriate authority has approved 'writing off' the captioned export collection bills on 27.09.2006, which related to the GR Numbers referred to therein for exports made to Iraq. 24. This Tribunal sought further clarification regarding the approval referred to in the aforesaid letter dated 11.10.2006 sent by the authorised dealer to the Appellant but the letter issued by the RBI is not placed on record. Later on, an affidavit of Senior Manager has filed who deposed that the Appellant approached the officials of the State Bank of India, Park Street Branch at Kolkata to seek further clarification regarding the said letter conveying the approval of waiver, from the file and records in their office. However, since the said letter relates to the year 2006, the officials of the State Bank of India were unable to locate the old records,which are about 12 years old and in the absence of the relevant fi....
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....sed dealer handling the relevant shipping documents may allow requests to write off unrealized portion of export bills subject, inter-alia, to the condition that the aggregate amount of 'write-off' during the calendar year should not exceed 5% of the total export proceeds realized by the concerned exporter through its medium during the previous calendar year. Though, there is no letter produced before us written by RBI to the authorised dealer, but it is the admitted position that RBI has passed the circular in this respect and there is no denied in this regard. 26. The appellant in the present case has produced the letter from authorised dealer who in clear terms in the year 2006 when 'write-off' was communicated by the authorised dealer, the State Bank of India, Park Street, Kolkata Branch, the said authorised dealer was itself authorised to grant write-off in respect of the amount of Rs. 2.01 crores relating to exports to Iraq. 27. Thus, the approval communicated by the authorised dealer by letter dated 11.10.2006 is valid and binding even if it is taken as an approval granted by the authorised dealer, the State Bank of India itself. A true copy of the said Circular dated 31.0....
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....ecome irrecoverable are set out in a chart, to indicate that the question of recovery of such amounts did not arise and as such no action in respect thereof was called for, more so, in the background that the said non-recoverable amount were only a minis cule percentage of less than 0.05% of the total exports of about Rs. 967 Crores made by the Appellant, during the relevant period. A copy of the said Chart is filed as ANNEXURE-G alongwith an appeal. 34. Since these small amounts were not recoverable and even the cost of resorting to legal action would have been disproportionate, the conduct of the appellant company was bonafide and reasonable. There is no case for imposition of penalty. 35. In the case of M/s. Hindustan Steel Ltd. Vs. State of Orissa - 1969 (2) SCC 627 Para 8. ".........But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted....
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....e 'waiver' application is still pending. 38. By the impugned order passed by the Special Director on 17.07.2000 a composite penalty of Rs.1.25 Crores was imposed against the Appellant Company, in respect of the aforesaid non-recovery of Rs. 2.43 crores [consisting of Rs. 2.01 Crores relating to export to Iraq and Rs. 41 Lakhs relating to exports to several other countries]. 39. In view of the 'waiver' already granted with regard to the major amount of export to Iraq in the sum of Rs. 2.01 Crore, by letter of SBI dated 11.10.2006, the issue to be considered in the present Appeal relates to the remaining amount of Rs. 41 Lakhs towards export to various countries in small lots. 40. No penalty in respect thereof could be imposed as the 'waiver' application in respect thereof was pending when the impugned order dated 17.07.2000, was passed. 41. In the following decisions, it was hold that where (i)extension of time for recovery of outstanding amounts against exports, is granted, no penalty could be imposed. There is no breach till the expiry of the extended period and (ii) no penalty can be imposed in respect of outstanding amount against exports where applications for waiver are pe....
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....t the learned Additional Director has gone by the allegation made in the letter of Syndicate Bank of 8-12-1981 and the RBI's letter, a portion of which has been extracted in the impugned order. If an allegation is made and explanation sought, it will be a traversity of justice to rely on the allegation without considering the explanation given in reply to the allegation. In any case, these letters were not at all relevant as subsequent to these letters, the RBI itself had granted extension of time. b. Cosmique Exports Ltd. Vs. Director of Enforcement 1994 (96) Taxman 299. It is to be noted that in order to bring home the charge of contravention of section 18(2), it is necessary for the department to initially prove that the prescribed period for realisation of the export proceeds has expired, that the export proceeds are still outstanding and that there is no approval or permission of the RBI for nonrealisation of the export proceeds. The Special Director failed to take into consideration without any cogent reasons the evidence of writing off of 49 GRIs and the receipt of export proceeds in respect of two GRIs. The initiation of adjudication proceedings was not at all called for....
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....oncerned bank. The RBI has power to entertain an application even after the expiry of 6 months or after expiry of the period previously extended. It would, therefore, follow that unless and until the RBI grants or rejects the application for extension of time is not possible to determine whether the prescribed period has expired or not. In view thereof there cannot be a presumption, and a for tiorarian allegation, of contravention of section 18(2) during the pendency of an application for extension of time. It is only when the RBI, and if it decides to do so, rejects the application that a presumption of delayed payment can be made and the person can be proceeded against in adjudication proceedings, where he will be given an opportunity to rebut the presumption by producing evidence, if any, to prove that he has taken the steps as may be reasonably called for in the facts and circumstances of the case. 14. It would further be seen that a contravention of section 18(2) occurs when a person, except with the permission of the RBI, does or refrains from doing or takes or refrains from taking any action which causes or results in delayed payment or non-payment of export proceeds. In v....
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.... taken as stands judicially settled by the following observations of the Supreme Court in the case of LIC v. Escorts Ltd. AIR 1986 SC 1370:- "... The provisions of the Foreign Exchange Regulation Act are so structured and woven as to make it clear that it is for the Reserve Bank of India alone to consider whether the requirements of the provisions of the Foreign Exchange Regulation Act and the various rules, directions and orders issued from time to time have been fulfilled... under the scheme of the Act, it is the Reserve Bank of India that is constituted and entrusted with the task of regulating and conserving foreign exchange. If one may use such as expression, it the 'custodian general' of foreign exchange. The task of enforcement is left to the Directorate of Enforcement, but it is the Reserve Bank of India and the Reserve Bank of India alone that has to decide whether permission may or may not be granted under section 29(1) of the Act. The Act makes its exclusive privilege and function. On other authority is vested with any power nor may it assume to itself the power to decide the question whether permission may or may not be granted or whether it ought or ought not to ha....
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....fused extension of time or the permission for writing off, as the case may be. If any adjudication proceedings are initiated during the pendency of such applications before the RBI, such proceedings would be pre-mature and without jurisdiction. 11. While on the question of contravention it is also to be noted that the burden is on the Department to substantiate, by proper evidence, the charge of contravention of the provisions of section 18(2). However, as stated earlier, this question will arise only in those cases where no application has been made to the RBI for the purpose stated above or where the RBI has refused the permission contemplated under section 18(2) or the extension of time contemplated under the second proviso to rule 8 of the Foreign Exchange Regulation Rules, 1974. Even where the RBI has refused the permission or the extension of realisation period and thereupon a contravention is presumed, in terms of section 18(3), merely on the fact of non-realisation of full amount of export proceeds, it is open to the exporter to rebut the presumption under section 18(3) by proving that he had taken all reasonable steps to realise the export proceeds and that the realisat....