Held by Hon’ble Appellate Tribunal under SAFEMA

In the matter of M/s. Raja Metals Corp. Vs The Assistant Director,  Directorate of Enforcement, Chennai (FPA-FE-169/CHN/2010)

The Appellant exported 12 shipments and realised export proceeds for only 1 shipment out of 12 shipments. The Special Director, Enforcement Directorate imposed a penalty of INR 70 lakhs and INR 20 Lakhs on the appellant for contravention of Section 7 & 8 of FEMA, 1999. The appellant took all the reasonable steps to realise the export proceeds such as loding a complaint with Export Credit Guarantee Corporation (ECGC), Indian High Commission at Singapore, M/s Allen Gledhill Singapore the debt collecting agency and M/s Omega Alliance, Mumbai for debt collection. However, still could not realise export proceeds.

Hon’ble Tribunal held that Section 8 of FEMA 1999 makes it clear that there is recognition of an eventuality to provide for an exception to the law to repatriate and realise the foreign exchange earning which is due to the country, in case of genuine default by a foreign buyer located abroad.  As per FEMA, the exporter is required to reasonable steps to realise and repatriate such foreign exchange to India.  In the given case, the exporter has furnished all the evidence to prove that he had taken all reasonable steps to recover the payment for the goods. Therefore, Appeals are allowed and pre-deposit of the penalty amount made is to be refunded to the Appellants.

1. Brief facts of the case

• M/s Raja Metal Corporation and Sh. S Ponsekar (“The Appellant”) were involved into export of the goods.
• The appellant exported 12 shipments. Whereas, export proceeds were realised for only one shipment.
• The appellant could not realize proceeds for remaining 11 shipments of Rs. 1,82,14,278/- in spite of making all reasonable efforts.  
• For this purpose, the appellant furnished outstanding statement relating to 11 shipping bills along with a copy of invoice, packing list, bill of lading, export promotion copy and exchange control declaration. 
• Further, the appellant also lodged a complaint with Export Credit Guarantee Corporation (ECGC), Indian High Commission at Singapore, M/s Allen Gledhill Singapore the debt collecting agency and M/s Omega Alliance, Mumbai for debt collection.  
• Also, the appellant wrote a number of letters to the buyer to make the payment for the said shipments.  
• The Special Director, Enforcement Directorate imposed a penalty of INR 70 lakhs and INR 20 Lakhs on the appellant under section 13 of FEMA, 199 for contravention of Section 7 & 8 of FEMA, 1999.
• The penalty was imposed as the Appellants failed to realize the export proceeds even after the stipulated period.   
• The appellant filed an appeal before hon’ble Appellate Tribunal under SAFEMA against the impugned order imposing penalty.
• Earlier, The Tribunal waived the pre-deposit of penalty by certain amount and dismissed the appeals for non-prosecution.  However, such order was set aside by Hon’ble High Court of Madras directed the Appellants to deposit 50% each of the penalty imposed on them.

2. Relevant Legal Extract

Section of FEMA, 1999 is reiterated below for ready reference:

‘8. Realisation and repatriation of foreign exchange- Save as otherwise provided in this Act, where any amount of foreign exchange is due or has accrued to any person resident in India, such person shall take all reasonable steps to realise and repatriate to India such foreign exchange within such period and such manner as may be specified by Reserve Bank.’

3. Contention of the Appellant

The Appellant contended that:

• All necessary steps has been taken by the appellant to ensure realisation of export proceeds from the buyers.
• They had been exporting goods to this buyer in the past as well and they have never defaulted in payment. 
• The provisions of the law require payment for the export of goods. However, it also emphasizes that reasonable steps has been taken to realize and repatriate pending foreign exchange amounts.

4. Contention of the Respondent

The respondent contended that:

• The Appellant has taken all the reasonable steps to realize the export proceeds. However, the fact remains the same that such proceeds could not be realized.  
• The steps taken by exporters could not be considered as reasonable where no communications have been received from the agencies with whom they lodged their claims.

5. Analysis by Hon’ble Tribunal

The hon’ble tribunal held that:

• As per facts, export proceeds could not be realized for 11 shipments.
• Section 7 of FEMA provides certain obligations on exporters towards RBI so as to ensure realization of the export proceeds.
• Regulations 9 & 13 (Supra) provide for the period within which full export value of goods is to be realized and provide for certain special arrangements.   
• The appellant has submitted all the documents counter signed and stamped by the Customs Authority which ensures that exports were genuinely made by the Appellant.
• Further, the Appellant has also submitted a copy of claim form submitted to ECGC which is also duly stamped acknowledging the receipt of the claim by ECGC which specifies non-realisation of the export proceeds due to default from the buyer side.  
• The appellant also filed letters to Indian High Commission Singapore, M/s Allen & Gledhill Singapore and M/s Omega Alliance Mumbai and sent letters to the buyers.
• These documents clearly bring out that the Appellants had exported the goods and made efforts for realization of export proceeds.
• Section 8 of FEMA 1999 makes it clear that there is recognition of an eventuality to provide for an exception to the law to repatriate and realise the foreign exchange earning which is due to the country, in case of genuine default by a foreign buyer located abroad.  
• As per FEMA, the exporter is required to reasonable steps to realise and repatriate such foreign exchange to India.  
• It is true that where the realisation of the export proceeds is delayed beyond the stipulated period then a presumption would be drawn that the exporter did not take reasonable steps for realisation of the export proceeds.  
• However, in the given case the exporter has furnished all the evidence to prove that he had taken all reasonable steps to recover the payment for the goods. 
• Therefore, Appeals are allowed and pre-deposit of the penalty amount made is to be refunded to the Appellants.

6. Order

The Hon’ble Appellant Tribunal held that the Appellant has taken all the reasonable steps to realise the export proceeds. Therefore, appeals are allowed and pre-deposit of the penalty amount made is to be refunded to the Appellants.