AI Drafter 
TaxTMI 
TaxTMI 
2025 (6) TMI 602
X X X X Extracts X X X X
X X X X Extracts X X X X
....852 on Sh. T.K. Sreekumar Varma, ex- General Manager of the said company. Facts in brief 2. The brief facts of the case as narrated in the impugned order are that information was received by the Directorate of Enforcement (ED) that M/s BEML, Trading Division, Bengaluru had made an export transaction with an overseas buyer, M/s Nordbell Commercial Ltd., British Virgin Islands, for export of 55,000 wet metric tons (WMT) of iron ore. As per the terms of export, a Letter of Credit (LC) was opened by the said buyer for purchasing 55,000 WMTs of iron ore for a total invoice value of USD 24,75,000 from M/s BEML. The iron ore was exported from Goa Minor Port and the shipments were declared in GR (Goods Receipt) No. BD 786531 for USD 23,55,435/- and GR No. BD 786537 for USD 1,19,565/-. One M/s Prasanna V. Ghotage (a proprietorship concern) was a co-shipper and the iron ore was sourced through it. 3. After the goods were loaded at the load port, a company by the name M/s Shivnath Minerals & Chemicals obtained an injunction from a Goa court against the export and as per the court injunction, the shipment/ship was not allowed to leave Goa port. Subsequently, M/s BEML moved the Hon'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ML Ltd. for alleged contravention of the provisions of Section 7 of FEMA, 1999 read with Regulations 8, 9 & 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 to the extent of USD 11,26,554.25/- (equivalent to INR. 5,81,23,409/-). 8. The adjudication proceedings initiated by issue of the said SCN culminated in the impugned order dated 14.03.2023 whereby, the following penalties were imposed upon the appellants herein: (i) A penalty of Rs. 5,81,23,409/- on Noticee No.1, M/s BEML Ltd. for contravention of the provisions of Section 7 FEMA, 1999 read with Regulations 8,9 and 13 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000; (ii) A penalty of Rs. 58,12,341/- on Noticee No.2, Sh. V.R.S Natarajan, ex- CMD of M/s BEML Ltd. for contravention of the provisions of Section 7 FEMA, 1999 read with Regulations 8,9 and 13 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000; (iii) A penalty of Rs. 1,45,30,852 on Noticee No.3, Sh. T.K Sreekumar Varma, ex-General Manager, M/s BEML Ltd. for contravention of the provisions of Section 7 FEMA, 1999 read with Regulations 8,9 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....otage) obtained ex-parte ad-interim order of injunction from the Hon'ble District and Session Court, Panjim, Goa restraining the Appellant from proceeding with loading and sail of the vessel and the Appellant filed WP No. 108/2012 before the Hon'ble High Court of Bombay at Goa and got the temporary injunction vacated and made the vessel to sail after idling of the Vessel for almost a month. 15. Due to the said interim order, the loading of the ore was stopped from 13.01.2012 to 06.2.2012, which had resulted in levy of demurrage charges by the Port Authorities. 16. The Buyer, i.e., Nordbell, raised Debit Note dated 19.02.2022 on the Appellant BEML to the tune of USD 10,58,789.68/-, on account of demurrage incurred by the buyer. The said amount was deducted by buyer /Nordbell from the export proceeds while making payment to the Appellant. The Appellant had raised an invoice for USD 14,93,921.00 and Nordbell, after deducting the said demurrage charges of USD 10,58,789.68, paid USD 4,34,737.00 to the Appellant. Since Nordbell had incurred the said demurrage charges, the deduction from the invoice was proper as the liability to pay demurrage charges was on the Appellant as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llant had realized only USD 33,20,449.11 and an amount of USD 67,764.57 i.e., 2% of the Invoice value, has not yet realized and the said amount is not yet written off by the AD Bank and is still showing as outstanding in AD Bank's database. 22. With regard to Transaction No. 2 (export through MV REVA), it is submitted that the Appellant entered into contract for export of for 71928 WMT of iron ore with the Appellant as Seller, the aforementioned M/s. Prasanna V. Ghotage as Co-Shipper and Nordbell as the Buyer for value of USD 33,20,449.11. As per the relevant clauses of the LC ('Clause A' under the head 'For Provisional Payment') "98% of the cargo value shall be payable at sight against presentation of documents". Further, as per 'Clause B' under the head 'For Final Payment', "Balance of the cargo value shall be payable Based on Inspection Certificate of Quality and Inspection Certificate of Weight issued by CIQ at discharging Port. ". 23. As mentioned above, the contract dated 11.04.2011 stipulated that 98% of amount would be remitted upon raising provisional bill and balance 2% only upon furnishing of CIQ inspection report from the destin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tatus Holder Exporter', is entitled for self-write off up to 10% of the total export proceeds realized in the previous calendar year as per para-C 20 of RBI Master Circular No. 10/2011-12 on Export of Goods and Services dated 01.07.2011 (Annexure - A21 to the appeal). Further, as per para-C 21 of the said Master Circular, even if the Appellant is unable to realize the outstanding amount, the AD Bank can permit write off of such outstanding. Furthermore, as per para 16 of the said Master Circular, if the amount is reduced for any reason, AD Bank may approve such reduction subject to its satisfaction on the genuineness. Therefore, the AD Bank is only authorised to deal with the alleged outstanding amount and the Ld. AA has no role to play till AD Bank takes a decision in the matter. 28. An argument has also been raised on behalf of the appellant on procedural grounds. It is contended that that the Ld. AA has passed the impugned order without impleading or examining the evidence of the Authorised Dealer (AD) bank which in this case is the State Bank of India. Therefore, the Ld. AA has erred in appreciation of evidence and adjudication of the matter without taking into account t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y and are not repeated here. 31. It is pointed out that the Appellant was imposed with a penalty of Rs. 1,45,30,852 naming him a key person in the day-to-day affairs of BEML. Further, as the allegations are mainly against the company and the allegations against the present Appellant are by virtue of the position he held in the company, the Appellant has adopted the arguments and submissions being made by BEML on merits, and the arguments presented in the present appeal may be treated as submissions to supplement and in addition to the arguments presented on behalf of the company. 32. It is argued that the Appellant was only an employee of BEML and was not a 'person in charge' in terms of Section 42 of the Act. At the relevant time, the Appellant was the General Manager, Trading Division of BEML, tasked with the responsibility of the activities of the Trading Division and all the decisions pertaining to the financial aspect of the transaction were finalized in coordination with Finance Department and acted only after getting approval from the competent authority, in a specified manner and following the procedure at BEML. The Appellant was not the sole decision- making ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....behalf of the appellant, including certain additional details and contentions with regard to the export transactions in question. It is submitted that as regards to the 1st Consignment of iron ore export which was subject matter of the complaint, M/s Dream Logistics Co. Pvt. Ltd. (seller), and M/s Prasanna V Ghotage (Co-shipper) entered into a contract of sale and purchase of commodity with M/s Nordbell Commercial Ltd., dated 02.12.2010 bearing contract No. NRD/FOB/DLC/PVG/1M/2K10/0070 for export of 75000 (+/- 10%) Wet Metric Tons of Iron ore at the rate of USD 75 per Dry Metric Ton for FE 54%, which amounted to USD 33,88,228.68/-. M/s Dream Logistics Co. Pvt. Ltd. issued a letter of authorisation dated 25.03.2011 to M/s BEML to act on their behalf to negotiate the documents of Motor Vessel "REVA" through their banker. In this export, M/s BEML acted on their behalf, to negotiate and to realise the amount from M/s Nordbell Commercial Ltd. through their banker. 38. As per the contract, the iron ore weighting 71,928 WMT was delivered to Goa port awaiting export. The same was tested for quality and weight of the contents of iron ore at the Goa port and Quality Certificate No. QSS/02....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al of the Chairman and Managing Director. Accordingly, the decision taken as regards the first consignment was at the level of the Director, Finance without the same having been brought to the knowledge and approval of the Appellant. For this reason too, the Appellant has been wrongly held liable for any alleged violation of the provisions of FEMA, 1999. 41. With regard to the 2nd consignment, it is submitted that M/s BEML along with Co-shipper Prasanna V Ghotage, entered into a contract with M/s Nordbell Commercial Ltd., British Virgin Islands for export of 50000 (+/- 10%) WMT of iron ore as per the contract of sale and purchase of commodity dated 09.04.2011 bearing contract No. NRD/IMP/CNT/FOB/ 229 at the price of USD 95.00/- for FE content of 56% for a total amounting to USD 24,75,000/-. As per the contract, it was the responsibility of M/s Prasanna V Ghotage to procure, arrange and nominate the vessel for loading of iron ore into the ship designated by M/s Nordbell Commercial Ltd. The iron ore was loaded onto Motor Vessel (M.V) "AS Vincentia" at Goa port by the co-shipper. Subsequently, the first proforma invoice was raised on 29.11.2011 for 52,343 WMT for an amount of USD 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the demurrage amount shall be as per charter party/fixture note. It further states that the seller shall be responsible to pay the demurrage charges if any and that the demurrage shall be settled within 15 days after completion of loading, and vessel once on demurrage will always remain on demurrage. Accordingly, the buyer M/s Nordbell Commercial Ltd., raised invoice/debit note on M/s BEML claiming demurrage of USD 10,58,789.68/- as per clause 11.11 of the contract. M/s BEML, in accordance with clause 11.11, agreed to accept the demurrage charges of USD 10,58,789.68/-. The proposal for accepting demurrage payable to M/s Nordbell Commercial Ltd, was processed on file by export/trading division. In the approval note sheet, the proposal was first cleared by head of export, DGM (HQ), ED (Fin), Mr. Nellaiappan, Director HR also in charge of export/trading division and then by Director-Finance Mr. Pichaiah. Finally, the said proposal was cleared by Appellant on 13.03.2012, after receipt of mail dated 13.03.2012 on the file from M/s Prasanna V Ghotage (Co-shipper) confirming acceptance/debit of the demurrage. The entire demurrage charges were debited to the account of Co-shipper M/s Pras....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. AA without considering the facts in issue and the explanation given by the Appellant, has passed the impugned order. 46. Apart from the factual contentions as above, legal and procedural issues have also been raised by the appellant. Firstly, an issue of violation of principles of natural justice has been raised. It is submitted that the Appellant was not called upon to appear before the investigating officer, V.G. Thomas (the complainant) and no documents or explanation was sought from him with regard to allegations made in the complaint. During the preliminary enquiry, no notice was issued to the appellant, nor his statement was recorded. The complainant, without any basis, proceeded to name the Appellant in the complaint. It is submitted that the Appellant came to know about the preliminary enquiry, filing of the complaint as well as the proceedings before the Ld. AA only when he was informed over the phone by the representative of ED who had come to serve the notice of personal hearing directing him to appear before the Ld. AA on 23.01.2023. Thereafter, the Appellant approached the officials of M/s BEML and learnt that a complaint has been registered against the company a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....00. It is submitted that the basis for forming the opinion to conduct inquiry as contemplated under Rule 4 of Foreign Exchange Management (adjudication Proceedings and Appeal) Rules, 2000 was itself bad in law as the show cause notice dated 26.04.2018 was not served on the Appellant and the photocopy of the same was given to him when he appeared before the Ld. AA on 23.01.2023. On this ground also, the impugned order is liable to be set aside. It is also argued that the Ld. AA has not considered the statement adduced and documents produced by the Appellant and went on to pass a non-speaking order without assigning any reasons for levying penalty on the Appellant. The Ld. AA, in the impugned order, has only extracted the facts and the explanation given by the parties but failed to explain as to why the explanation given by the Appellant was not sufficient and how he was involved in the alleged violation of the provisions of FEMA, 1999. Also, the Ld. AA erred in levying penalty on the Appellant without establishing the exact role, if any, played by the Appellant in the alleged violation. Levy of penalty without establishing the complicity of the Appellant is illegal and contrary to l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d on the above submissions, it is prayed on behalf of the appellants that the present appeal be allowed. Arguments on behalf of the Respondent 54. The respondent Directorate has strongly contested the arguments raised on behalf of the appellants. It is submitted that no case for grant of any relief has been made out by the appellants though prayed for in the appeal. The Ld. AA has passed a well-reasoned order after due application of judicial mind which does not call for any interference. The impugned adjudication order discloses all the necessary ingredients with regard to the contravention of the provisions of FEMA, 1999 warranting adjudication and proceedings for the penalty to be initiated against the Appellant. 55. It is submitted that the contention of the appellant that the principles of natural justice were not followed is completely baseless and does not deserve any consideration as the appellants were given full opportunity to represent and present their case before the Ld. AA the rules of proceedings were adhered to, and after considering each and every contention of both the sides in the light of the material available record in the form of evidence and otherwi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lies in response to the show cause notice from No. 1 and 3 and no response from notice No. 2 the Ld. AA formed an opinion that an inquiry should be held as contemplated in rule 4 of Foreign Exchange Management Rules, 2000. It was specifically enquired from the appellant whether any application was filed before the Authorized Dealer/RBI for remittance of demurrage charges on account of delay. There was no clear reply from the appellant and it was found from the record that said amount was not written off by the AD bank as it was still showing as outstanding exports in their database. 58. It is also submitted that as per the terms of the agreement, the vessel was chartered by the buyer in terms of clause 11.2 of the agreement. Therefore, anything that caused the vessel to become incapable for loading or shipping was the concern of the buyer to be verified before engaging the vessel for export. Clause 11.2 of the agreement makes it very clear that vessel was to be engaged or hired by the buyer with the specifications as enumerated in clause 11.2 of the agreement. Therefore it is M/s BEML and the appellants who were in charge of the said company, failed to safeguard the interest by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the penalty imposed by the Ld. AA is just and reasonable in terms of the role of the appellant. They were aware of the transaction but did not raise any objection and let the proposal approved without objection and without calling for any explanation and without applying any mind and in a negligent and casual manner which has resulted in loss of foreign exchange and therefore the Ld. AA has rightly found the appellant guilty for the contravention of the FEMA laws as stipulated under section 42 of the FEMA, Act 1999 and imposed the penalties. It is also submitted that an effort is being made to give a picture that 88.78% of the invoice was realized in excess against the amount actually due which is contrary to fact that actually there is loss of foreign exchange for the reason of inaction and negligence on the part of the appellant. The contention that an amount was realised in excess is not correct as the amount that was realized was due to be realized and there was nothing that was realized in excess as being portrayed by the appellant to cover up the inaction that has resulted in realization of the foreign exchange. 62. It is also submitted that the Ld. AA has already dealt in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....into between the appellant company (M/s BEML), tbe Buyer M/s Nordbell and the Co- shipper M/s PVG. As such, the amount was not realizable by the appellant. It has further been submitted from the appellants' side that the demurrage amount was ultimately absorbed by the Co-shipper (M/s PVG) and as such, there was no loss caused to the appellant company in that regard. 67. No doubt, the matter in issue in the present case not whether there was any loss to M/s BEML (a public-sector undertaking), but whether there has been any contravention of FEMA, 1999 and the rules framed thereunder by the appellant company or the two individuals who are (also appellants herein) who stated to have been in charge of its affairs at the relevant time. Upon the facts stated in the preceding para, we are of the view that while there has undoubtedly been short-realization of export proceeds as against the invoiced value of the exports, the same was for reasons completely outside the control of the appellant company. Furthermore, the appellant company made appropriate efforts to mitigate the loss by moving the Hon'ble High Court and succeeding in obtaining relief in the matter. As regards the unrealized ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der that after consideration of the documents placed before him and the legal positions, he is of the view that the Noticees have contravened the provisions of the Act and the Regulations and proceeds to impose penalties upon all the noticees. No reasoning for arriving at the said view has been specified in the order. It appears that the authority was of the view that the very fact of short realisation of export proceeds invites a mandatory penalty. For the reasons discussed hereinabove, we are unable to agree with the Ld. AA and are of the view that no penalty was imposable on the appellants in respect of the first transaction. 70. Coming to Transaction No. 2, i.e., export through MV Riva, the facts briefly are that the Appellant company entered into contract for export of for 71928 WMT of iron ore with the Appellant as Seller, M/s. Prasanna V. Ghotage as Co-Shipper, and M/s Nordbell as the Buyer. As per the relevant clause of the LC, 98% of the cargo value was payable "at sight against presentation of documents" and the balance of the cargo value was payable based on Inspection Certificate of Quality and Inspection Certificate of Weight issued by China inspection and Quarantin....