Penalty is Imposed Where Foreign Exchange is Remitted Without Receipt of Corresponding Material

By APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI

In the case of M/s Shri Rajesh Jhanwar Vs. The Special Director Directorate of Enforcement, Mumbai (FPA-FE-119/MUM/2010)

M/s G. Tex Inc. and their Directors Madhusudan Jhanwar and Rajesh Jhanwar (“The Appellant”) made import of copper scrap in 10 containers through M/s Koya International, Freetown, Sierreleon and made “high seas sales” of the same to M/s Maruti Metal Industries. Such firm filed 5 bill of entries for clearances. However, during the course of examination of import consignments by custom authorities, the containers were found empty. The Appellant already made payment of US $ 656864 against such purchase. Since, The remittance of foreign currency was made without the receipt of materials and therefore, the appellants contravened Section 10(6) of The FEMA, 1999. Accordingly, a penalty imposed of INR 30 Lakhs on the company and INR 7.5 Lakhs on each director.

The Appellant contended that they made all the efforts to recover the amount and for that purpose they approached the police at Sierraleon apart from the Chambers of Commerce. However, recovery could not be made due to non-availability of the firm. The Appellant also carried out joint verification with shipping liner and Customs authorities. The appellant has not made any contravention, rather fraud was committed against them by M/s Koya International. Further, Madhusudan Jhanwar had no knowledge of importing copper scrap as the entire transaction was handled by Rajesh Jhanwar. However, still the penalty is imposed against him without any material to show contravention of Section 10(6) by him.

The Appellate Tribunal held that the Appellant did not make any serious efforts to recover the amount. Therefore, Contravention is found in provisions of Section 10(6) of the FEMA Act. However, the penalty is reduced to 25%. Further, no reason to impose a penalty on appellant Madhusudan Jhanwar when he was not responsible for the conduct of the business. The penalty imposed on him is set aside.

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1. Brief facts of the case:

• M/s G. Tex Inc. (“The Appellant”) made import of copper scrap in 10 containers through M/s Koya International, Freetown, Sierraleon and sold the same on “high seas sales basis” to M/s Maruti Metal Industries.

• M/s Maruti Metal Industries filed five bills of entries for clearance.

• During the course of examination of import consignments by custom authorities, all the containers were found empty.

• The Appellant made payment of US$ 6,56,864 against such purchase through Bank of India.

• The remittance of foreign currency was made without the receipt of materials and therefore, the appellants contravened Section 10(6) of The FEMA, 1999.

• The foreign exchange was remitted by the Appellant even without receipt of the documents by their banker. Therefore, penalty of INR 30 lakhs was imposed on the M/s G. Tex Inc. and Rs.7.50,000/- each on the Directors namely Madhusudan Jhanwar and Rajesh Jhanwar.

2. Contention of the Appellant

The Appellant contended that:

• The Appellant entered into transaction for the purchase of copper scrap with M/s Koya International. The amount was to be remitted on receipt of the containers of copper scrap. When the containers were received, they were found empty.

• However, the bank made remittance from time to time and it was even after the receipt of the empty containers.

• The Directors made all the efforts to recover the amount and for that purpose they approached the police at Sierraleon apart from the Chambers of Commerce to seek recovery of the amount paid to the company who sent empty containers.

• However, recovery could not be made due to non-availability of the firm.

• Further, the Appellant requested M/s Maruti Metal Industries to get a joint verification with shipping liner and Customs authorities. The investigation thereupon was conducted when the containers were found empty. 

• The police complaint was lodged with Sierraleon Police and the appellant tried to get the amount freezed. However, M/s Koya International was not found. 

• Since the remittance is made in anticipation of the receipt of the containers of copper scrap, the appellant has not made any contravention, rather fraud was committed against them by M/s Koya International

• Therefore, the impugned order may be set aside and if it is not set aside, finding contravention of Section 10(6) of the Act of 1999, the penalty may be reduced proportionately.

• Further, Madhusudan Jhanwar had no knowledge of importing copper scrap as the entire transaction was handled by Rajesh Jhanwar. However, still the penalty is imposed against him without any material to show contravention of Section 10(6) by him.

• In the light of the facts given above, the imposition of penalty of Rs.7,50,000/- on both the Directors is illegal.

3. Findings and Analysis by the Appellate Tribunal

The Hon’ble Appellate Tribunal of SEFEMA made following analysis:

• The Appellant made import of copper scrap from M/s Koya International Freetown, Sierraleon and such scrap was sold by the Appellant on “high seas sales basis” to M/s Maruti Middle Agencies

• M/s Maruti raised five bills of Entry with the Customs Authorities for clearance of copper scrap. However, on the receipt of the consignment of 10 containers, they were found empty.

• However, the Appellant already effected remittance of US$ 6,56,864 through Bank of India, Bangaluru. 

• The Tribunal held that the Appellant made no serious efforts to recover the amount from M/s Koya International. The Appellant could have lodged the claim to recover the amount through Court of Law. The appellant failed to do so.

• However, the appellant Madhusudan Jhanwar was not responsible for conduct of the business and was not incharge under which foreign remittance was made by the appellant. The penalty of Rs.7,50,000/- has been imposed without showing his role in the transaction. 

• Mr Rajesh Jhanwar made efforts to recover the amount though it cannot be said to be serious efforts to recover the amount because he did not lodge a claim for recovery of the amount. 

4. Final Order

The Appellant Tribunal held that:

• There remains no reasons to impose penalty on appellant Madhusudan Jhanwar when he was not responsible for conduct of the business for import of copper scrap or for remittance of money. The penalty imposed on him is set aside.

• Contravention is found of provisions of Section 10(6) of the FEMA Act. However, the penalty amount seems to be excessive on the facts of the case. Therefore, amount of penalty is reduced to 25%. Accordingly, the penalty is reduced and the order is modified accordingly.