TaxTMI 
TaxTMI 
2026 (2) TMI 1160
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....umbai. The Ld. Adjudicating Authority (AA) imposed the penalty of Rs. 3,00,00,000/- on the Appellant Company M/s Fomento Resources Pvt. Ltd., vide the Impugned Order for the contravention of Section 7 of the Foreign Exchange Management Act, 1999 (FEMA) read with Regulation 3, 9 & 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 and Section 8 of the FEMA read with Regulation 3 of Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulation 2000, arising due to non-realization of the export proceeds to the extent of commission of the amount Rs. 29,19,04,657/- (USD 59,47,320) paid to the overseas agents. Penalty of Rs. 30,00,000/- was imposed on the Appellant Shri Ambar Timblo, Director and Rs. 30,00,000/- was imposed on the Appellant Shri Apoorva Misra, Director for the aforementioned contraventions in terms of Section 42 of FEMA. 2. Ld. Counsel for the Appellants stated that the Appellant Company is in the business of export of Iron Ore. The export is carried out in two ways (a) sale under a Long-Term Contract ("LTC") and (b) sale under a Spot Contract (Spot). The Customs Authorities received information th....
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.... Misra that discounts were given to the foreign buyers on the initial offer to the extent of the fees paid to the protective agents. b. The settlement of the demands raised by the Customs Authorities by the Settlement Commission under the Customs Act, 1962 amounted to the Appellants having accepted the violation committed. 4. Ld. Counsel for the Appellants made further submissions that the invoice price was the declared price. The invoiced price/declared price had been duly received by the Appellant Company within the time prescribed in law. The protective agents were appointed by the foreign buyers. The protective agents billed the foreign buyers for their services. There was no privity of contract between the Appellant and the protective agents. In other words, if the foreign buyer had not paid the protective agents, they could not have come to the Appellant for recovery of its fees. The sole allegation was that the Appellants had given discount to the foreign buyer equal to the fees paid by the foreign buyer to the protective agents, which discount if not given would have resulted in higher consideration being received and consequently the full export value had not b....
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....blishes that the only price finally offered by the foreign buyer was USD 80 and the shipment was exported at the said price. This further establishes that the price agreed in spot contracts was the highest price offered to the Appellant which must be regarded as the price demonstrative of the full export value of the cargo. The case of the Respondent that, had there been no discount the Appellant would have received higher consideration does not hold good. This also goes to show that the statement of Shri Apoorva Misra cannot be used blindly and must be read in the facts of the case. 7. Ld. Counsel for the Appellants contended that discount is a perfectly normal practice in business of International Trade. In this regard, he cited the Judgment of the Hon'ble Supreme Court in the case of Eicher Tractors Ltd., Haryana vs. Commissioner of Customs [(2001) 1 SCC 315]. In the present case as well, there is no allegation of any foul play, the only evidence relied upon is the statement of Shri Apoorva Misra where he admits to having given a discount. As held by the Apex Court giving of discounts is normal. There is nothing to show that, had the alleged discount not been extended the for....
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....on must not only be a possible conclusion, but must be the only conclusion that could be reached on the material before the Authorities. He cited the Judgments in UOI vs. Marcel Nevens, Shanti Prasad Jain vs. Director of Enforcement [(1962) SCC OnLine SC 167], Shashank Manohar vs. UOI [WP No. 5305 of 2013 (Bom)] and Hindustan Steel Ltd. He therefore pleaded to set aside the penalty and allow the Appeals. 11. Ld. Counsel for the Respondent Directorate stated that the Appellant Company indulged in under invoicing of Iron Ore Exports by diverting substantial portions of the export proceeds to overseas entities namely M/s Fallon Consultance Pvt. Ltd. and M/s Agrocom Ltd. These payments were, in fact, an integral part of the total sale price of the goods which was concealed from the Indian Authorities. Ld. Counsel argued that firstly, the Appellant Company violated its primary duty of disclosure. Section 7(1)(a) of FEMA, read with Regulation 3(1) of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, imposes an absolute obligation on every exporter to furnish a declaration containing the true and correct material particulars including the "full export va....
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.... an arrangement... for making payment of commission to the overseas commission agent." This admission by the Company's own Director and CFO, provides an irrefutable confession to the mechanics of the entire modus operandi. It confirms-a-deliberate, pre-meditated- arrangement to split-the-transaction-and-conceal the true value from the authorities. The so-called "commission" was, in fact, a pre-arranged diversion of export proceeds and an integral part of the FOB value that was intentionally kept off the books in India. 13. Ld. Counsel for the Respondent submitted that the Customs Settlement Commission in its Order has held that the modus operandi adopted by the Appellant Company enabled it to save on Customs Duty. The Company under took such a convoluted scheme by artificially depressing the declared FOB and thereby reduced its Customs Duty liabilities. Moreover, the Appellant Company, in fact voluntarily deposited Rs. 7,08,86,189/- towards differential duty and Rs. 2,40,85,400/- as interest along with penalty of Rs. 21,00,000/-. In fact, this is admission by conduct and provides compelling evidence of culpability. 14. Ld. Counsel further argued that the Reserve Bank of India....
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....though appointed by the foreign buyers were so done with the acquiescence of the seller. Thus, the difference between the actual price finalized with the overseas buyer and the price shown in the sale contracts was utilized by an arrangement of the buyer and the seller for making payment of commission to the overseas agents. 17. We find that the Impugned Order has relied upon the statement of Shri Apoorva Misra, Director of the Appellant Company, recorded under Section 37 of FEMA on 22.01.2016. Further the Impugned Order has relied upon the admission of the Appellant Company before the Bench of the Settlement Commission of Customs and Central Excise, Mumbai. In this regard paragraph 4 (ii) to (vi) of the Impugned Order are reproduced below: "(ii) It was revealed from the Statement of Shri Apoorva Misra, Director of the Noticee (Appellant) Company was recorded under Section 37 of FEMA, 1999 on 22.01.2016 that Noticee Company had exported 289 consignments of iron ore during the period 2006-2012 and in 18 cases the Noticee Company had entered into a contract after negotiation at a price which was lower than the initial offer of the buyer which reflect current market scenar....
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....nting the agents? Further the invoice value was reduced to the extent of the commission itself. Hence the applicants cannot be absolved totally from the offence of undervaluation." (vi) Further M/s Prime Minerals Exports Pvt Ltd voluntarily deposited Rs. 7,08,86,189 to the Customs and Central Excise towards differential duty and Rs. 2,40,85,400 as interest liability and imposed a penalty of Rs. 21,00,000/-. This amounts to accepting the violations committed by the Noticee Company as far as not reporting the correct FOB value." 18. On the other hand, the Appellants have submitted that out of the impugned 18 consignments, 6 consignments were executed under Long Terms Contracts. The price under the Long Terms Contracts arose out of an objective mathematical formula based on the prices published on Platt's Steel Index. There was no subjectivity or negotiations involved in such contracts. Hence, there was no scope for the Appellants to have borne the fees paid to the protective agents. In the remaining 12 contracts, the Appellants submitted the entire trail of correspondence and attempted to demonstrate that the contract was awarded to the highest bidder for each of the 12 c....
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....be denied that the FOB price was the basis for determining the amount of export duty which was required to be paid by the seller/exporter. Therefore, any deduction from the FOB price would have direct bearing on the amount of the export duty which was to be paid for each of the consignments. 20. We find that Shri Apoorva Misra who was the Director and Chief Financial Officer of the Appellant Company in his statement dated 22.01.2016 under Section 37 of FEMA has admitted that in the aforementioned 18 consignments the buyers had appointed protective agents to provide services both at load port and discharge port. Shri Misra stated that in all these cases the Appellant Company entered into contract after negotiation, striking a price which was lower than the initial offer made by the buyer. He further stated that in all these cases before agreeing to the discount from the original offer price, the Appellant Company had checked with the market if there was a buyer willing to buy the cargo, however, none was found as a buyer. We observe that even though Shri Misra may not have stated that had discount been not paid, the Appellant Company would have received the higher consideration, ....
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....ly within one year from the date of receipt of the complaint: Provided that where the complaint cannot be disposed of within the said period, the Adjudicating Authority shall record periodically the reasons in writing for not disposing of the complaint within the said period." We observe that the provisions of the Sub-Section only urge the Ld. AA to dispose of the Complaint under Sub-Section 3 of Section 16 as expeditiously as possible. The Sub-Section in its proviso allows for disposing off the Complaint even after one year and for the purpose, the Ld. AA has to record periodically the reasons for such delay. We observe that the Ld. AA has already recorded his finding that the submissions made by the Appellants in this regard are not acceptable, in view of the said proviso. As such there is no basis to challenge the findings of the Ld. AA, since it is the same Authority which is supposed to have recorded the reasons for not having disposed of the Complaint within the recommended timeline in which it had to only make endeavours to dispose of. 23. Ld. Counsel for the Appellants has argued at length that why no penalty was imposable on Shri Ambar Timblo because he was ....
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....ntion occurred without the knowledge of either of the two individual Appellants. There is also nothing before us to show that all due diligence was exercised by the two individual Appellants. In so far as Shri Apoorva Misra is concerned, his own statements that he was responsible for the final negotiated price along with other personnel of the Company and his admission that the discounts were given cannot lead to his exoneration. 24. The arguments of the Appellants that no penalty could be imposed, since there was only a venial/procedural breach cannot be sustained. In this regard, the provisions of Section 13(1) of FEMA are reproduced below: "If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty wh....