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Penalty For Non-Realisation Of Export Proceeds Can’t Be Imposed On The Export Agent


Held by Appellate Tribunal under SAFEMA at New Delhi

In the matter of 

Sh. Darshan Hasmukh Shah Vs The Assistant Director, Directorate of Enforcement, Mumbai

M/s Sparkle Gems Industries Private Limited (“The Company”) made an export of diamonds to Hong Kong in the year 1989. However, the company failed to release the export proceeds. Accordingly, a penalty of INR 85 Lakhs was imposed on the Company, and INR 50 Lakhs was imposed on the Appellant. The Appellant contended that he was not an exporter and did not hold any position in the Company. The appellant was only an export proceeds agent in the Diamond market and was involved in the preparation of export-related documents for consideration. The penalty is imposed on the appellant Ignoring his position.

The Hon’ble Appellate Tribunal held that the Company has failed to recover the export dues within the stipulated period of 6 months. However, the appellant is an export proceeds agent in the Diamond market. He cannot be said to be a part of the company defaulted in recovery of the proceeds of export. The respondents have failed to show the appellant‟ ‘s involvement in contravention of Section 18(2) and (3) of the Act. Therefore, the impugned order is liable to be set aside.

1. Brief Facts of the case

  • The Appeal is filed against the order passed by the Special Director, ED imposing a penalty of INR 50 Lakhs on the appellant in contravention of provisions of Section 18(2) read with Section 18(3) of the Foreign Exchange Regulatory Act, 1973 (“The Act”).
  • M/s Sparkle Gems Industries Private Limited (“The Company”) made an export of diamonds worth INR 3,34,40,756/- to Hong Kong in the year 1989.
  • However, the Company failed to realize the export proceeds.
  • Accordingly, a penalty of INR 85 Lakhs was imposed on the Company and a penalty of INR 50 Lakhs was imposed on the Appellant.

2. Relevant Legal Extract

The relevant extract of the Act is reiterated below for ready reference:

Section 18: Payment for exported goods

“(2) Where any export of goods, to which a notification under clause (a) of sub-section (1) applies, has been made, no person shall, except with the permission of the Reserve Bank, do or refrain from doing anything, or take or refrain from taking any action, which has the effect of securing-

  1. in a case falling under sub-clause (i) or sub-clause (ii) of clause (a) of sub-section (1),-
    1. that payment for the goods-
      1. is made otherwise than in the prescribed manner, or
      2. is delayed beyond the period prescribed under clause (a) of sub-section (1), or

….

(3) Where concerning any goods to which a notification under clause (a) of sub-section (1) applies the prescribed period has expired and payment therefor has not been made as aforesaid, it shall be presumed unless the contrary is proved by the person who has sold or is entitled to sell the goods or to procure the sale thereof, that such person has not taken all reasonable steps to receive or recover the payment for the goods as aforesaid and he shall accordingly be presumed to have contravened the provisions of sub-section (2).

3. Contention of the Appellant

The Appellant contended that:

  • He was not an exporter and did not even have a position in the company to attribute contravention of Section 18(2) and Section 18(3) of the Act, 1973. 
  • The appellant was only an export proceeds agent in the Diamond market and was involved in the preparation of export-related documents.
  • For the Company, one person asked to prepare the documents with the payment of 750/- per export document. 
  • Ignoring the position of the appellant, a penalty of Rs. 50 Lakhs has been imposed. The Appellant was neither an exporter nor was holding any position in the company to contravene the Act.
  • The impugned order has been passed in ignorance of all the facts available on record and going against the provisions of the law. The prayer was made to set aside the order. 

4. Contention of the Respondent

The Respondent contended that:

  • The appellant was part of the company that failed to secure the export dues within a stipulated period of six months.
  • Therefore, finding contravention of Section 18(2) and Section 18(3) of the Act, a penalty has been imposed on the Appellant. 

5. Finding and Analysis by the Appellate Tribunal

The Hon’ble Appellate Tribunal held that:

  • The penalty of Rs. 50 Lakhs has been imposed on the appellant alleging contravention of Section 18(2) and Section 18(3) of the Act of 1973. 
  • The Company failed to recover the export dues within the stipulated period of 6 months. 
  • However, the appellant is an export proceeds agent in the Diamond market. He cannot be said to be a part of the company defaulted in recovery of the proceeds of export.
  • The Appellant prepares the document related to export by charging Rs. 750 per export document. He is not shown to be part of the Company. Yet the penalty of INR 50 Lakhs have been imposed on him while imposing penalty of 85 Lakhs on the company. 
  • The respondents have failed to show the appellant‟ ‘s involvement in contravention of Section 18(2) and (3) of the Act.
  • Therefore, the order has been issued in ignorance of the position of the Appellant in the company. 

6. Order

Therefore, the impugned is liable to be set aside against the appellant. The pre-deposit made by the appellant would be released in favor of the appellant.

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