Allowed

FPA-FE-27/JL/2017 of M/s. Hero Exports v. The Joint Director,Directorate of Enforcement,Jalandhar

ATFP7 May 2024FPA-FE-27/JL/2017

Case brief

AI extract

What is this about?

The Appellate Tribunal allowed the appeal filed by M/s. Hero Exports seeking quashing of a penalty order imposed by the Adjudicating Authority under FEMA. The court held that the non-realization of export proceeds was bona fide and fell within the permissible limit for self-write-off as per RBI circulars. The penalty was set aside.

What did the court decide?

The impugned order imposing penalty of Rs. 1,00,000/ and the order of the Special Director (Appeals) were set aside.

FPA-FE-27/JL/2017 of M/s. Hero Exports Vs. The Joint… — Company and Corporate | ATFP (2024)

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BEFORE RAJESH MALHOTRA, MEMBERR; SINGLE BENCH: APPELLATE TRIBUNAL UNDER SAFEMA; AT NEW DELHI.

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FPA-FE-27/JL/2017

M/s. Hero Exports

… Appellant

Versus

The Joint Director,Directorate of Enforcement,Jalandhar

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… Respondent

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Advocates/Authorized Representatives who Argued

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For the Appellant : Ms. Poojan Malhotra, Advocate, For the Respondent : Sh. Surender Kumar, Advocate.

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FINAL ORDER 07.05.2024

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Present appeal is filed by the appellant against the impugned order dated 16.03.2017 vide which Adjudicating Authority imposed penalty of Rs. 1,00,000/- on noticee no.1 M/s Hero Exports for contravention of the provisions of section 7(2), 8, 42 of FEMA, 1999 read with Regulation 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, r.w.s. 42(1) of FEMA, 1999.

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2. As per the facts of the case, a complaint dated 01.12.2015 u/s 16(3) is filed by the Assistant Director of Directorate of Enforcement, Jalandhar Zonal Office (hereinafter referred to as “Department”), before the Joint Director of Enforcement, alleging contraventions of provisions of FEMA, 1999, as under:

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“That by not realizing export payments to the tune of Rs. 2,03,38,718.45 (equivalent value of U.S.$ 437848.96) against exports made by M/s Hero Exports, Hero Nagar, Ludhiana during the year 2001 to INROOS 2000, Moscow M/s. Hero Exports, Ludhiana and its partners, noticees at S. No. 2 to 8 have contravened the provisions of section 7(2), section 8 and section 42 of Foreign Exchange Management Act, 1999 r/w Regulation 13 of Foreign Exchange Management (Export of Goods & Services) Regulations, 2000.”

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Rajesh Malhotra

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Member

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FPA-FE-27/JL/2017 M/s.Hero Exports V. Directorate of Enforcement, Jalandhar

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Prayer was made in the aforesaid Complaint for issuance of a Show Cause Notice to the noticees, Hero Exports, Ludhiana and its partners for the aforesaid contraventions of FEMA, 1999.

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Joint Director issued Show Cause Notice dated 5.09.2016 for taking cognizance for the contravention of the said provisions. Appellant filed reply to the said Show Cause Notice, wherein, M/s. Hero Exports admitted regarding exports shipment in the year 2000-2001 to Russian buyer “INROOS, 2000, STREET STUD ENCHESKAYA FLAT NO. 72, MOSCOW, Russia” for amount of USD 681820, out of which payment of USD 234013.40 was only received and payment of USD 447806.60 was outstanding.

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The foreign buyer showed its inability to pay the whole balance amount on quality issues and thereafter, they mutually agreed to pay USD 182723 only in installments, towards the full and final settlement.Buyer remitted USD 10000 in July 2004 to M/s Hero Exports.

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The owner of the Russian buyer company, Sh. Rajiv Narang was a person of Indian Origin and he was having another company in Delhi in the name of M/s Rajeev Overseas Pvt. Ltd., A-1, Harbans Bhavan, DDA Business Center, Nangal Raya, New Delhi. He issued a cheque of Rs. 60 lakhs to M/s Hero Exports, Ludhiana, towards settlement of rest of mutually agreed balance amount i.e. USD 172723 which got bounced. M/s Hero Exports, Ludhiana filed a complaint u/s 138 of Negotiable Instrument Act against Sh. Rajiv Narang, Director of the Russian company INROOS and two directors of Rajeev Overseas Pvt. Ltd., New Delhi, before the Hon‟ble Court of Sh. Amrinderpal Singh, PCS, Addl. Civil Judge, Senior Division Ludhiana who passed a decree in favor of M/s Hero Exports, Ludhiana.

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Rajesh Malhotra

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Member

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FPA-FE-27/JL/2017 M/s.Hero Exports V. Directorate of Enforcement, Jalandhar

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M/s Hero Exports requested to write off the export outstanding of USD 2,65,125.96. M/s Hero Exports had submitted to the bank a certificate of C.A. regarding the realized value of total exports made by M/s Hero Exports, Ludhiana during the threecalendar year i.e. 2014-15, 2013-14 & 2012-13.

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It has been averred in the Show Cause Notice that there are certain export bill outstanding in the account of M/s Hero Export for the export made to a Russianfirm INTROOS during the year 2001 through State Bank of India, Ludhiana. The bank vide their letter dated 04.11.2015 has informed that due to being doubtful about the realization of outstanding export payment of USD 437848.96 of M/s Hero Export, the bank was not willing to give further extension to the firm and accordingly the bank had decided to write off those entries after observing all the formalities including reporting the matter to RBI for which they are in process.

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The noticee made export shipment during the year 2000-01 to the buyer “INROOS, 2000, 12165, Street Stud Encheskaya Flat No. 72, Moscow, Russia” for amount of USD 681820, out of which payment of US$ 437848.96 was outstanding. By not realizing the export payment of Rs. 2,03,38,718.45, section 8 and section 42 of the said Act, 1999 read with Regulation 13 of Foreign Exchange Management (Export of Goods & Services) Regulations, 2000.

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The noticees are status holder exporters and have been accorded two star export house status vide certificate issued under No. JC/0127 dated 11.08.2015 by the office of the Joint Director General of Foreign Trade, Ludhiana. The noticees were having turnover during the year 1997-1998 to 2000-2001 and 2013-2014 to 2015-16 as under:

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Year	Value of Goods exported(Rs.)
1997-1998	41,02,46,143/-
1998-1999	50,35,83,316/-

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Rajesh Malhotra

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Member

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FPA-FE-27/JL/2017 M/s.Hero Exports V. Directorate of Enforcement, Jalandhar

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1999-2000	69,08,25,539/-
2000-2001	90,80,34,495/-
2001-2002	113,88,35,803/-
2013-2014	179,30,94,158/-
2014-2015	178,72,22,018/-
2015-2016	180,62,00,000/-(Prov.)

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The noticees during the year 2000-2001 exported goods valued at US$ 681820 to “INROOS, 2000, 12165, Street Stud Encheskaya Flat No. 72, Moscow, Russia”. The party remitted the part payment and disputed the USD 447848.96 by alleging quality issue. The final amount was settled at USD 182723 vide MOU dated 26.08.2003.

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The noticee received cheque of Rs. 60,00,000/- from third party guarantor and thereafter party sent USD 10000 in 2004. The noticee gave intimation to bank regarding write off amount of USD 265125.96 and requested for time for realization of balance amount of USD 172723.

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The cheque of Rs.60,00,000/- was dishonoured against which criminal case was instituted under section 138 of NI Act, against the third party including the Russian customer. Cheque of Rs. 60,00,000/was taken from third party, who stood guarantor in the final MOU. On failure of overseas party to make payment, the cheque of Rs. 60,00,000/- was deposited in the bank which was dishonoured.Cheque of Rs. 60,00,000/- was not taken towards adjustment of proceeds, but as surety to ensure realization of overseas proceeds.

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It might be observed that invoices raised to overseas buyer bear the specific remarks “All dispute will be subject to the jurisdiction of Indian Court at Ludhiana”. The noticee also initiated Civil Suit against the Russian party of Indian Origin for recovery of Rs. 93,27,040/Principal USD 172723 @ 40/- plus interest @ 12%) in the District Court, Ludhiana.

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The RBI vide circular dated 01.07.2014 envisages “self write off” of the unrealized export proceeds by status holder up to 10% of the total

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Rajesh Malhotra

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FPA-FE-27/JL/2017 M/s.Hero Exports V. Directorate of Enforcement, Jalandhar

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export proceeds realized during the previous calendar year; that it may appreciated that amount is within the purview of “self write off” being less than permissible limit of 10% of export proceeds realized during the previous calendar year, but they have not written off the amount and are making all efforts to realize the export proceeds; that the noticees have also surrendered the incentives claimed; there is neither any lack of effort made to realize amount, nor any malafide can be attributed to noticee.

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The noticees have a good turnover and there have never been any instance like under reference; that the facts and circumstances under reference prima-facie reveal bonafide on part of noticee and there is nothing to whisper any mis-conduct/malafide on the part of noticee.

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Being not satisfied with the explanation of Learned Counsel for the Noticee No. 1 and the other noticees, the Adjudicating Authority imposed penalty of Rs. 1,00,000/- on the present appellant for not realizing the export proceeds to the extent of USD 1,72,723 (equivalent to Rs. 80,23,000/- approximately). Aggrieved by the said order, appellant filed the present appeal.

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Heard both the sides and have also gone through the material on record. Both the sides argued in-verbatim to their respective pleadings. As per the admitted facts of this case, out of the outstanding amount of USD 4,37,848.96, the Adjudicating Authority after giving benefit as per settlement arrived at the conclusion that appellant failed to realize the balance export proceeds to the extent of USD 1,72,723. As per section 7(2) of FEMA, 1999;

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“ (2) The Reserve Bank may, for the purpose of ensuring that the full export value of the goods or such reduced value of the goods as the Reserve Bank determines, having regard to the prevailing market conditions, is received without any delay, direct any exporter to comply with such requirements as it deems fit.”

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Rajesh Malhotra

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FPA-FE-27/JL/2017 M/s.Hero Exports V. Directorate of Enforcement, Jalandhar

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As per section 8 of FEMA;

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“8. Realisation and repatriation of foreign exchange.

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- 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 in such manner as may be specified by the Reserve Bank.”

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As per the defense of appellant, M/s Hero Exports, it took steps to realize and repatriate to India the balance foreign exchange qua the export proceeds. It filed suit for recovery before Court in India and obtained the decree for recovery in its favor. However, the said decree could not be executed against the foreign based buyer, in absence of its any assets in India. Therefore, benefit can be given to the appellant M/s Hero Exports on account of non-realization of the balance export proceeds, as it took sincere, bonafide and reasonable steps for realization of balance export proceeds. Even otherwise, seeing the quantum of exports, appellant is entitled to benefit of self-write off being less than the permissible limit of 10% as per RBI Master Circular dated 01.07.2014. In the year 1999-2000 the quantum of export by appellant company was 69,08,25,539/-, whereas outstanding remittance of export proceeds for the export during the year 2000-2001 was to the extent of Rs. 2,03,38,718.45 i.e.less than 3% to the export of previous year. Therefore, outstanding remittance being less than 10% can be self-writeoff as per Circular of RBI dated 01.07.2014. Accordingly, the case of appellant is fully covered under said RBI Circular and the present appeal needs to be allowed.

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In sequel to my findings in the preceding para, the present appeal is hereby allowed and thereby the impugned order passed by the Special Director (Appeals) and the Adjudicating Authority are hereby set-aside.

Appeal Allowed .

Rajesh Malhotra

Member

FPA-FE-27/JL/2017 M/s.Hero Exports V. Directorate of Enforcement, Jalandhar

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Pronounced on this 07^th Day of May, 2024.

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