Allowed

FPA-FE-13/CHN/2016 of Shri Ashwin Manani v/s The Joint Director, Directorate of Enforcement, Chennai

ATFP26 Mar 2019FPA-FE-13/CHN/2016

Case brief

AI extract

What is this about?

The Appellate Tribunal allowed appeals filed against penalty orders imposed under FEMA. The Tribunal set aside penalties imposed on Graphite India Ltd. and Shri A. Manani, noting that one accused proprietor had already deposited the penalty and procedural non-compliance by the exporter was not substantiated.

What did the court decide?

Impugned orders against appellants are set aside and the appeals are allowed.

FPA-FE-13/CHN/2016 of Shri Ashwin Manani v/s The Joint Director… — Corruption | ATFP (2019)

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APPELLATE TRIBUNAL FOR SAFEMA, FEMA, PMLA, NDPS & PBPT ACT AT NEW DELHI

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DATE OF DECISION: 26.03.2019

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1. FPA-FE-12/CHN/2016 M/s. Graphite India Ltd. … Appellant Versus The Joint Director, Directorate of Enforcement, Chennai … Respondent 2. FPA-FE-13/CHN/2016 Shri Ashwin Manani … Appellant Versus The Joint Director, Directorate of Enforcement, Chennai … Respondent

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Advocates/Authorized Representatives who appeared

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For the Appellants : Mr. Dinesh Kumar Agrawal, Advocate For the Respondent : Mrs. Aagam Kaur, Legal Consultant CORAM JUSTICE MANMOHAN SINGH : CHAIRMAN JUDGMENT

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FPA-FE-12-13/CHN/2016

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Both the appeals have been filed under Section 19 of the Foreign Management Act, 1999 against the order dated 29^th June, 2016 passed by the Joint Director, Chennai Zone, Directorate of Enforcement.

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The penalty of sum of Rs. 2,50,000/- and Rs. 10,000/- have been imposed upon both the appellants respectively for contravention of provisions. The operative part of the order reads as under:

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FPA-FE-12-13/CHN/2016

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Page 1 of 7

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“I hold Shri Gangadharan Manari guilty of contravening the provisions of Sec.7 and Sec.8 of FEMA, 1999 read with Regulation 3, Regulation 8, Regulation 9(1) and Regulation 13 of Foreign Exchange Management (Export of Goods & Services) Regulation, 2000; Regulation 3 of Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulation, 2000; Regulation 3(2) of Foreign Exchange Management (Manner of Receipts and Payments) Regulations, 2000. Having regard to the facts and circumstances of the case and pursuant to the powers given to me under Section 13(1) of FEMA, 1999, I impose a penalty of Rs. 23,00,000/- (Rupees Twenty Three Lakhs Only) on Shri Gangadharan Manari, Proprietor of M/s. Padmaja Impex, for the aforesaid contravention of FEMA, 1999 read with the Regulations issued thereunder.

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I hold the Noticee-2 herein viz., M/s. Graphite India Limited guilty of contravening the provisions of Sec.3(a) of FEMA, 1999. Having regard to the facts and circumstances of the case and pursuant to the powers given to me under Section13(1) of FEMA, 1999, I impose a penalty of Rs. 2,50,000/- (Rupees Two Lakhs and Fifty Thousand Only) on M/s. Graphite India Limited for the aforesaid contravention of FEMA, 1999 read with the Regulations issued thereunder.

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I hold the Noticee-3 herein viz.,Shri A. Manani, guilty of contravening the provisions of Sec.3(a) of FEMA, 1999. Having regard to the facts and circumstances of the case and pursuant to the powers given to me under Section13(1) of FEMA, 1999, I impose a penalty of Rs.10,000/- (Rupees Ten Thousand Only) on Shri A. Manani of M/s. Graphite India Limited for the aforesaid contravention of FEMA, 1999 read with the Regulations issued thereunder.”

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On 20^th August, 2018, it was informed to this Tribunal that Shri Gangadharan Manari, Proprietor of M/s. Padmaja Impex has deposited sum of Rs. 23,00,000/- as penalty amount. Now, the issue in the present appeals is as to whether they are also liable to pay the penalty imposed upon them to the tune of total sum of Rs. 3,00,000/-.

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The brief facts as per pleadings are hereunder:

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a. Graphite India Ltd., the appellant in appeal no. FPA-FE12/CHN/2016 is engaged in the manufacturing of graphite electrodes, impervious graphite equipment, Graphite Specialty products, carbon bricks, Aircraft brake pads and glass fiber reinforced plastic pipes and tanks at their

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FPA-FE-12-13/CHN/2016

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Page 2 of 7

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factories at Bangalore, Nashik and Durgapur for domestic and global market.

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b. Sometime during April 2001, the appellant received an enquiry from M/s Padmaja Impex, Chennai (hereinafter referred to as “ Padmaja ”) for supply of carbon bricks of certain specifications for export. The appellant vide quotation dated 03.03.2001 offered to supply the requisite specifications and quantity of carbons bricks against 50% advance and 50% LC at sight. Padmaja placed an order dated 6 June 2001 for supply of carbons bricks for a value of Rs 1,19,45,507 payable 10% in advance, 25% on readiness of materials and rest 65% by post-dated cheques payable within 180 days of the delivery. It is the case of appellant that it was not comfortable with the payment terms, it insisted for full payment before delivery of the carbon bricks. Padmaja offered to have the overseas buyer open an LC in the name of the appellant and accordingly the appellant by its letter dated 15 January 2002 forwarded the terms and conditions to be incorporated in the said LC to be opened by the overseas buyer.

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c. The appellant received an LC dated 4 July 2002 for US$ 256604.30 issued by Philadelphia Investment Bank for Abdul Hadi Alwan Hamadi, Jordan A/c Padmaja through Corporation Bank, Bangalore. Accordingly, the appellant supplied the carbon bricks to Padmaja under Invoice No. EXP 040 dated 22 July 2002 for export against ARE-1 Nos. 102 to 108 all dated 20 July 2002.

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d. On receipt of shipping documents for the export made under Shipping Bill No.1862349 dated 30 July 2002 from Padmaja, the appellant negotiated LC for Rs 1,24,35,044 with Corporation Bank. Subsequently LC was encashed for Rs 1,23,46,516 by the Corporation Bank.

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e. Padmaja vide letters dated 6 January 2003, 5 February 2003 and 14 May 2003 sought refund of the difference between the order amount and the realized amount.

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FPA-FE-12-13/CHN/2016

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Page 3 of 7

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Pursuant to negotiations, the appellant refunded an amount of Rs 327609 to Padmaja.

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f. The Directorate of Enforcement (hereinafter referred to as “ Directorate ”) initiated investigation against certain exporters including Padmaja for certain contravention of the provisions of the Foreign Exchange Management Act, 1999 (hereinafter referred to as “ FEMA ”) in export of humanitarian goods to Iraq under Oil for Food Programme. In the course of investigation, officers of the Directorate called information from the appellant and also recorded statements from Sri N. Venkataramani, Director and Sri A. Manani, General Manager of the Applicant.

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g. On completion of the investigation, the Directorate issued a Show Cause Notice No. T4/08/CHE/2015 dated 31 December 2015 (hereinafter referred to as “ Notice ”) for alleged contravention of Section 3(a) of the FEMA.

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h. The appellant submitted detailed reply to the Notice denying the allegations.

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It was alleged in the Notice that the Appellant No. 1 has not exported any goods, but with regard to their domestic supply of goods in India to Padmaja, the Applicant has received foreign exchange equivalent to US$ 256,604/- from the overseas buyer, thus, this was a contravention of Section 3(a) of FEMA. The same was done by the Appellant No. 1 without the general or special permission of Reserve Bank dealt in receipt of foreign exchange not accrued to them.

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The Appellants refuted the allegations and submitted that Regulation 12 of the Regulations allows a person other than the exporter to receive foreign exchange, subject to fulfilment of certain conditions by the Authorized Dealer of the constituent, i.e., the person other than the exporter.

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FPA-FE-12-13/CHN/2016

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Page 4 of 7

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The impugned order at Para 7.3 (Page No. 34) has rejected the submission of Regulation 12 with the finding as follows:

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“It is further evident that allegations have been made in this case against M/s Padmaja Impex for non-filing of declaration under Regulation 3 of FEMA (Export of Goods & Services) Regulations, 2000 in respect of the said consignment and towards which M/s Padmaja have not furnished any proof of such filing. Thus, when the original declaration by the exporter itself is not filed, it cannot be accepted that there was a transfer of document as per Regulation 12, which mandated signing of the constituent in the said declaration to make the AD bank accepted the shipping documents.”

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It was submitted that sole reasons cited for dismissing Regulation 12 is presumption that Padmaja have not furnished any proof of filing of such declaration (SDF). It was submitted that mere failure to submit proof of filing of SDF by Padmaja cannot lead to a conclusion that no such SDF was filed by Padmaja at the time of export of goods.

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RBI regulations [A D (M.A. Series) Circular No. 4 (February 2, 1999)] and the Public Notice No. 210/98 dated 09.11.1998 issued by the Commissioner of Customs, Chennai, it is mandatory to append SDF to the shipping bill at the time of export. No evidence has been adduced by the Directorate to the effect that SDF required was waived in this particular case. It was submitted that even no enquiry was conducted to ascertain factual position w.r.t. filing of SDF. In absence of any enquiry/evidence, it is alleged by the appellant that it cannot be assumed that Padmaja has not appended SDF with Shipping Bill No. 1862349 dated 30.07.2002.

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It is not denied by the respondent that Regulation 12 permits repatriation of export proceedings by a person other than the exporter on fulfilment of certain conditions. It is the obligation of the Authorised Dealer to ensure compliance of all conditions before acceptance of FPA-FE-12-13/CHN/2016 Page 5 of 7

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documents for negotiations. It is a matter of fact that Letter of credit opened by the overseas buyer was negotiated by the Authorised Dealer against Shipping Bill No. 1862349 dated 30.07.2002, therefore presumption must be that all conditions prescribed under Regulation 12 has been duly complied including the condition with respect to SDF. In absence of any evidence, it cannot be assumed that Authorised Dealer has accepted the shipping documents without SDF. And even no action was taken against the Authorised Dealer if there was no compliance of about SDF.

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Once the said stand is taken, the onus is on the on the Directorate that Padmaja was allowed export without filing of SDF, and also documents were negotiated by the Authorised Dealer without SDF.

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It was submitted by the appellant that assuming a substantive compliance of the relevant rules has been overlooked, however merely on the ground that SDF was not furnished, as it is only a procedural exercise. SDF is required to be signed by the exporter and third person to ensure realisation and repatriation of export proceeds. In the present case, export proceeds to the full extent of value of shipping bill were realised and repatriated and even penalty amount of Rs. 23 Lakhs has been deposited on behalf of Padmaja in case of any breach.

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It is a settled principle of law that the procedures have been prescribed to facilitate verification of substantive requirement, as long as a fundamental requirement is met other procedural deviation can be condoned. Reference is made to the following judgments in this regard:

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a. Mangalore Chemicals and Fertilizers Limited vs. Deputy Commissioner [1991 (55) ELT 437 (SC)]

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FPA-FE-12-13/CHN/2016

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Page 6 of 7

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b. UM Cables Limited vs. UOI [2013-TIOL-386-HC-MUM-

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CX]

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As far as the Appellant No. 2 is concerned, it is submitted that since the penalty imposition on the Appellant No. 1 is in itself incorrect, no penalty can stand on the Appellant No. 2. Without prejudice, it is also submitted that the findings are at Para 7.5, which reads as “the applicant has failed to produce documents to substantiate the he was never involved in the decision making of the documents.” Basis this, the impugned order notes that, “on his admission of being in charge of the accounts and finance department of the Bangalore office, I find Shri A. Manani guilty of the alleged contravention.” This effectively held that Appellant No. 2 guilty although there is no evidence against him. As the burden of proof to show contravention of a particular statutory provision is on the Respondent and not the Appellants. In the impugned order, the understanding between the two set of parties and evidence produced have not been dealt properly.

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On August 2018, the Hon‟ble Tribunal desired to know as to whether Shri Gangadharan Manari, proprietor of M/s Padamja Impex has deposited the penalty amount of Rs 23,00,000 (Rupees Twenty Three Lakhs Only) or not.

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In the light of above, the appeals filed by the appellants are allowed. The impugned order against the appellants is set-aside.

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No costs.

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(Justice Manmohan Singh) Chairman

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New Delhi, 26^th March, 2019 „A‟ FPA-FE-12-13/CHN/2016

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FPA-FE-13/CHN/2016 of Shri Ashwin Manani v/s The Joint Director, Directorate of Enforcement, Chennai

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FPA-FE-13/CHN/2016 of Shri Ashwin Manani v/s The Joint Director, Directorate of Enforcement, Chennai

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