TaxTMI 
TaxTMI 
2026 (5) TMI 515
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....Cause Notice dated 01.06.2017 was issued to the noticee (herein appellants) on the following grounds: (i) For contravention of the provisions of section 7 & 8 of FEMA 1999 read with paras 3, 9 & 13 of Foreign Exchange Management (Export of Goods and Services) Regulation, 2000, issued in exercise of the powers conferred by clause (a) of sub-section (1) and sub-section (3) of section 7 and sub-section 2 of section 47 of FEMA 1999, against (1) M/s Shantilal Khusaldas & Bros. Pvt. Ltd. (Noticee No.1) to the extent of US$ 1,53,71,900 (Equivalent to Rs. 72,48,34,766/-), for failing to furnish the true and correct material particulars, including the amount representing the full export value of the goods exported, in the relevant export documents covering 12 export consignments and further, failing to take all reasonable steps to realize said export proceeds amounting to US$ 1,53,71,900 which represented the quantum of amount under-invoiced in the exports made by M/s Shantilal Khusaldas & Bros. Pvt. Ltd. which were due to be received by them in India, as being the part of the full export value of the goods, and further for doing or refraining from doing anything, or taking, or ref....
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....e DRI, it was alleged that the Noticee Company had evaded customs export duty by suppressing the real transaction value of the goods exported. The actual transactions value was reduced from the negotiated value to the extent of commission charges paid to an overseas agent named M/s Artmuse Ltd., Hong Kong. Based on the above information, investigation against the noticee company was taken up by the Goa Zonal office of the Directorate of Enforcement under the Provisions of Foreign Exchange Management Act, 1999. During the investigation, Statement of Shri Mukesh M. Saglani, Director of the Noticee Company was recorded on 14.12.2015 under Section 37 of FEMA, 1999, wherein he stated that he was appointed as a Director in M/s Shantilal Khusaldas & Bros. Pvt. Ltd.in December 2012. Shri Arjun Solgaoncar was the Director who was looking after the mines which were operational before the closure of the mining in the year 2012. Shri Arjun Salgaocar also used to look after the exports of iron ore consignments to the foreign buyers. Noticee Company had exported 12 export consignments of iron ore during the year 2011-2012. The commission was paid in the all 12 shipments of iron ore. The total....
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.... the Noticee Company. Regarding the charge of under-invoicing was concerned, the commission factor which was left out was not intentional, as it could not have affected their net realization from export consignments, whether it was paid directly or paid after the realization and no Member or Director of the Noticee Company holds any shares in M/s Artmuse Ltd. Hong Kong. Statement of Shri Arjun Solgaoncar, Director of Noticee Company was recorded under Section 37 of FEMA 1999 on 06.04.2016. In his statement he stated that Noticee Company has 2 operative mining lease of iron ore in Quepem, Goa, that it deals in procurement, production, processing and transport of iron ore; that he was one of the Director of the Noticee Company during the period 2006 to 2012; that he was looking after the daily production, quality assessment processing and transport to the port for exports that all the exports related meetings and negotiations were done by his father Shri Anil Solgaoncar, that the exports made by the Noticee Company during the period 2008-11 were handled by his father, late Shri Anil Solgaoncar; that his father late Shri Anil Solgaoncar was the owner of the group companies and majo....
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....ocuments furnished by the noticee company had further revealed that in respect of 8 export consignments the noticee company had not received the full export value (FOB) declared in the relevant GR-I Forms. It was observed that the Export Realization Certificate (ERC) issued by the bank had shown realization of export proceeds less than the FOB value declared in the GR-I Forms. The specific details of the FOB value declared in the respective GR-I forms and the amount realized (as per the Export realization Certificate issued by the bank) in respect of the export of 8 export consignments under reference is given below: Sr. No. GR form no. & Date FOB value (US$) Amount realized as per BRC (US$) Difference between FOB & BRC (US$) Difference between FOB & BRC (in Rs.) 1. BD 139730 dated 31.03.2011 3571192 3486945 84246 3770008 2. BD 139733 dated 02.05.2011 5525432 5226602.23 298829.77 13238158 3. BD 139732 dated 28.07.2011 4679265.36 4335084.26 344181110 15247222 4. BD 139734 dated 06.05.2011 4347248.40 4146518.38 200730 8862230 5. BD 139736 dated 13.05.2011 4530015.60 4070811.92 459....
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....v) M/s Shantilal Khusaldas & Bros. Pvt. Ltd. Ores Pvt Ltd had therefore under-valued the true value of the export proceeds covering the aforesaid 12 export consignments to the extent of US$ 1,53,71,90000 by mis-declaring the true value in the relevant export documents by excluding the commission amount paid from the negotiated/true value of the goods exported and diverted the said amount to their overseas agent in the guise of commission Further, the noticee company failed to realize this under-valued amount from their overseas buyer, which formed part of the export proceeds due to be realized by them such that the noticee company also failed to take any reasonable and effective steps to realize and repatriate to India, this under-valued amount of US$ 1,53,71,900.00, which they were bound to repatriate and realize as being part of the full export value of the goods exported. (v) M/s Shantilal Khusaldas & Bros. Pvt. Ltd. Ores Pvt. Ltd further failed to realize the full export value of the goods totaling US $ 32,90,487 exported under another set of 8 export consignments, by realizing export proceeds as per the Export realization certificate issued by the Bank, which was less....
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.... exercise of the powers conferred by clause(a) of sub-section(1) and sub section (3) of section 7 and sub-section 2 of section 47 of FEMA 1999 to the extent of US$ 1,53,71,900(Equivalent Rs72,48,34,766/-) (ii) By failing to take all reasonable steps to realize the export proceeds amounting to US$ 32,90,487 (Equiv Rs. 15,66,56,903/-), covered under 8 export consignments, and further for doing or refraining from doing anything or taking or refraining from taking any action to ensure the realization of the said export proceeds within the stipulated period, without the permission of RBI, the said M/s Shantilal Khusaldas & Bros. Pvt. Ltd. Ores Pvt. Ltd appears to have contravened the provisions of section 7 and 8 of FEMA 1999 read with Paras 3, 9 and 13 of Foreign Exchange Management (Export of Goods and Services) Regulation, 2000 issued in exercise of the powers conferred by clause(a) of subsection (1) and sub- section (3) of section 7, sub-section 2 of section 47 of FEMA 1999. (iii) Shri Arjun Salgacar (Noticee No 2), Director of M/s Shantilal Khusaldas & Bros. Pvt. Ltd. Ores Pvt. Ltd being the person in-charge and responsible for the conduct of business of M/s Shant....
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....nt Appeals. 3. We have heard the rival submissions and have also gone through the grounds of appeal raised by the appellants, the reply and objections filed by the respondent ED and documents on record. The following issues arise for adjudication by this appellate Tribunal:- Factual Issues: (i) Whether the Appellants have made any payment to the overseas Agent? (ii) Whether Mr. Mukesh Saglani had any personal knowledge as to the affairs of the Appellants from 2008 to 2012? (iii) Whether the Appellants were liable to pay the commission amount to the overseas Agent? Legal Issues: (i) Whether Section 127J of Customs Act prohibits reopening of proceedings under FEMA on the same facts and circumstances as the Settlement Order? (ii) Whether the parameters for valuation under the Customs Act apply to valuation of 'full export value of goods' under FEMA? (iii) Whether commission paid by foreign buyer to foreign Agent is required to be repatriated by the exporter under Sections 7 and 8 of FEMA? (iv) Whether the Master Circular is applicable when no amount has been paid by the exporter to the overseas....
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....rs of the Appellants during the relevant period; Secondly- the Appellants were not liable to pay the commission amount to the Agent in any event. The export transactions in question in the present appeals were admittedly concluded during the period 2008 to 2012, whereas Mr. Saglani was appointed as a director of the Appellants in December 2012. Prior to his appointment, as a director, Mr. Saglani was not involved in the Appellants' export transactions in any capacity, and he was stated to be looking after the ship-breaking and repairs of ships, as per his own admission. The Impugned Order relies upon the following statement made by Mr. Mukesh Saglani: "M/s Balaji Mines and Minerals appointed M/s Artmuse Ltd., Hongkong as an agent for helping them in facilitating the export of iron ore to their overseas buyers and to provide professional assistance in case of any disputes relating to the quality and ensuring the payments from the buyers for export cargo of iron ore. "As the amounts were directly paid by the buyers on behalf of M/s Balaji Mines & Minerals Pvt. Ltd., it will be difficult for us to get the details of the third-party account." Similar stateme....
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....nt, question of any personal knowledge on his part does not arise and even otherwise, in absence of any authentic source for acquiring this knowledge, the said part of his statement can be discarded being hearsay evidence and against the records of the company. (iii) Whether the Appellants were liable to pay the commission amount to the overseas Agent? 6. During the arguments, Ld. Counsel for the appellants contended that the specimen agreements annexed and marked as Annexure-A in written submissions, do not contain any provision in terms of which the Appellants are obligated to pay any amount to the Agent, whether as commission, or otherwise. It is also evident from the terms of the specimen agreements that the overseas buyers were only required to pay the value of the iron ore to the Appellants. The payment to the Agent by the overseas buyers is an independent transaction between the buyers and the Agent. Accordingly, he stressed that the Appellants did not pay any commission and were not liable to pay any commission to the Agent. He argued that the Impugned Order, being based entirely on assumptions and uncorroborated evidence, is liable to be set aside. On the ot....
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....C (5) of the Customs Act on the matters stated therein cannot be reopened in any proceeding under the Customs Act, or under any other law, for the time being in force. Section 127J of the Customs Act reads as: "127-J. Order of settlement to be conclusive. Every order of settlement passed under sub-section (5) of Section 127-C shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force." Ld. Counsel for the appellant contended that in the Appellants' case, the Settlement Order has been passed under Section 127C (5) of the Customs Act, and is covered by the prohibition under Section 127J of the Customs Act. He submitted that once the issue has already been settled by the Settlement Commission, the initiation of proceedings under FEMA is against the statutory mandate of Section 127-J of the Customs Act, which stipulates that no matter covered by the Settlement Order shall be reopened in any proceedings under the Customs Act or under any other law for the time being in force. He submitted that the....
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....2019 SCC OnLine Mad 39006. Ld. Counsel for the appellant argued that the aforesaid decisions relied upon by the Respondent do not relate to the issue of prohibition on initiation of proceedings under any other law on the matters that have been settled by the Settlement Commission under Section 127J of the Customs Act. The decision in Vinod M. Chitalia deals with the issue of immunity under Section 127H of the Customs Act, and whether the assessee therein could have contradicted the factual finding of manipulation with documents that he had admitted before the Settlement Commission. Similarly, the decision in Kamal Singh relies upon Vinod M Chitalia in the context of immunity from prosecution under Section 127H of the Customs Act and reagitating of facts contrary to what had been admitted before the Settlement Commission. Likewise, in Supreme Petrochem, the Madras High Court held that when the show-cause notice issued by the Customs department alleging misdeclaration and suppression was settled by the Settlement Commission, the assessee was not permitted to claim CENVAT credit under the Central Excise Act, 1944. It is relevant to note that an assessee is prohibited from claiming ....
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....ion under FEMA, instead of relying upon the order of Settlement Commission passed under the Customs Act. This issue is decided accordingly without commenting upon the quality of evidence collected by the ED. (ii) Whether the parameters for valuation under the Customs Act apply to valuation of 'full export value of goods' under FEMA? 8. Ld. Counsel for the appellant submitted that the findings in the Settlement Order as regards the undervaluation of FOB value and inclusion of the commission paid to the Agent was based on the concept of 'transaction value' prescribed in Section 14 of the Customs Act. It is submitted that the parameters for calculation of transaction value under the Customs Act are not applicable to the valuation of exports for the purpose of FEMA. Transaction value' is defined under Section 14 of the Customs Act as the price actually paid, or payable for the goods sold for export from India. The 'transaction value under Customs Act is required to be declared by the exporter to compute the ad valorem customs duty on value of exported goods. Under FEMA, there is no computation of duty and the declaration of 'full export value'....
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....pplied if Rules 4 and 5 do not apply. None of these Rules provide for addition of an amount as additional consideration for sale." Therefore, even for the purposes of the Customs Act, the commission amount paid in relation to an export transaction is not liable to be included in the transaction value, even if the same was paid by the exporter himself. For the above reasons, the Impugned Order erred in finding that commission paid to an overseas Agent forms part of 'full export value of goods' under Section 7 of FEMA solely because the Settlement Order holds that it forms part of the 'transaction value under Section 14 of the Customs Act. On the other hand, the Ld. Counsel for the Respondent ED submitted that as per the investigation, the appellant company had been suppressing the real transaction value of the goods exported and that the actual transaction value was reduced from the negotiated value to the extent of commission charges paid to an overseas agent named M/s Artmuse Ltd., Hong Kong. He further argued that the Directorate of Enforcement is the Competent authority to monitor the compliance of stipulations made under these Regulations, as any non-complianc....
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....cific guidelines on the manner and mode of payment of the agency commission by the exporter. The same is reproduced below: "Banks may allow payment of commission, either by remittance or by deduction from invoice value, on application submitted by the exporter. The remittance on agency commission may be allowed subject to the following conditions: a) Amount of commission has been declared on GR/SDF/PP/SOFTEX form and accepted by the Customs authorities or Ministry of Information Technology, Government of India EPZ Authorities as the case may be. In cases where the commission has not been declared on GR/SDF/PP/SOFTEX form, remittance may be allowed after satisfying the reasons adduced by the exporter for not declaring commission on Export Declaration Form, provided a valid agreement/written understanding between the exporters and/or beneficiary for payment of commission exists." Further, he contended that as per the admission of Sh. Mukesh M. Saglani, Director of the appellant company, overseas agent was appointed by the appellant and not by overseas buyer. Thus, it is apparent that the commission made by the overseas buyer to the agent, formed an integral part of the fu....
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....Regulation 2 (iii) of the Repatriation Regulations defines 'foreign exchange due' as the amount which a person has a right to receive or claim in foreign exchange. He pointed out that in the present case, the Appellant had no right to receive or claim the commission paid to the Agent by the overseas buyers, since it would be an amount payable to the Agent for the services provided by it. In support of his contention, he relied upon the judgment of the Hon'ble High Court of Bombay in the case of Karnataka v. Shantilal Khusaldas and Brothers Pvt. Ltd. TXA 57 of 2018 (Bom. HC), which was also upheld by the Hon'ble Supreme Court in PCIT (Central) v. Shantilal Khusaldas Brothers Pvt.. Ltd., SLP (C) No. 9792 of 2020 (SC), have unequivocally held that commission amount received by the Agent does not constitute income due or accruing to the Appellant. He pointed out that even the agreements between the Appellants and the overseas buyers stipulated the payment of only the value of the iron ore to the Appellants and the said agreements are silent for any payment by the exporter to the commission agent. He further stressed that even if we assume (without admitting) that the pa....
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....ere the commission has not been declared on GR/SDF/PP/SOFTEX forms, remittance may be allowed after satisfying the reasons adduced by the exporter for not declaring the commission on export declaration form, provided a valid agreement/written understanding between the exporters and/or the beneficiary for payment of commission exists" Ld. Counsel of the appellants submitted that the Master Circular itself permits the reduction of amount paid by an exporter to a commission agent from the export value of goods. Thus, commission amount paid to an agent is not liable to be included under 'full export value of goods' under Section 7 or as part of 'foreign exchange due or accrued under Section 8 of FEMA. He contended that the Master Circular is not applicable to the present case, since no payment of commission was made by the Appellants. The Master Circular allows for reduction of amount paid to as commission to Agent from the export value of goods, subject to the fulfilment of the conditions specified therein. The Respondent has contended that the Appellants cannot seek the benefit of the Master Circular as they failed to adhere to the conditions specified therein, viz., d....
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....e of goods subject to deductions allowed by the RBI. Proviso to Regulation 13 further clarifies that no proceedings for contravention of the Export Regulations shall be instituted if the payment of full export value or value after deductions allowed by RBI has been secured. The term 'full export value has not been defined under FEMA or the He further submitted that the Export Regulations. The commission to be paid to the Agent by the overseas buyer cannot be considered to be an amount that the exporter expects to receive on sale of iron ore. The commission of the Agent is neither part of proceeds for sale of iron ore, nor something that the Appellants are to receive. Further for the sake of argument, even if the commission paid to the Agent is considered to be part of sale proceeds of iron ore, the proviso to Regulation 13 is applicable since the commission paid to an agent is a permissible deduction under the Master Circular. Hence, there is no contravention of the Export Regulations by the Appellants and the penalty imposed for contravention of Export Regulations is unsustainable. We agree with the contention of Ld. Counsel for the appellants, as mentioned above and acc....
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....ustainable. The Respondent's whole case being based on these uncorroborated statements, the Impugned Order is liable to be set aside. If the statement is truthful and not retracted, it can be relied to prove the contravention, even in absence of any corroboration. But, in the present case, Mr. Mukesh Saglani was not having any personal knowledge, being appointed as director of the company in December, 2012, his statement needs to be discarded being hearsay statement. (vii) Whether the provisions of Sections 7 and 8 FEMA can be invoked beyond the territory of India, to transactions between persons not resident in India? 12. Ld. Counsel for the appellant argued that it is an undisputed fact that the payment of commission to the Agent was made by the overseas buyer directly and outside India, and that no amount of commission has been paid by the Appellants. The Appellants have also established that they were not liable to pay any commission amount to the Agent in the first place. Section 8 of FEMA provides that the foreign exchange which "is due or has accrued on any person resident in India" must be repatriated and realised by 'such person'. Similarly, the Repa....
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....o India by the Appellants through unauthorised means. 14. Before concluding we will like to reproduce the findings recorded by the Adjudicating Authority in para 39 of the impugned order with respect to second charge:- "39. I have examined the above contentions of the noticee company in the context of the subject charges alleged against them in the Show Cause Notice. I find from record that in respect of the 8 export consignments under reference, the noticee company had furnished the related export documents viz. (1) GR-I Form/Shipping Bill (ii) Final Invoice (iii) Bill of Lading (iv) Expert purchase Contract & (v) Bank Certificate of Export realization during the course of investigation, which formed part of the documents relied upon in the complaint filed. Perusal of these documents revealed that the amounts realized as export proceeds as per the BRCs issued by the bank were less than the corresponding FOB value of export declared in the respective GR-I Form/ Shipping Bills. In this context, it is noticed that the value realized against the exports as per the BRCs were in accordance with the value declared in the final invoices. It is also noticed from the respective ....