Penalty of INR 25 Crores Imposed on Failure to Collect Export Proceeds of INR 12.4 Crores, Appellant Tribunal Refused to Enhance Penalty

The Respondents made export against 51 invoices during the period of August 2000 to December 2000 to the extent of INR 12.41 Crores. However, the Respondent failed to release the export proceeds. Accordingly, the Adjudicating Authority imposed a penalty of INR 12.50 Crores on both the respondents for contravention of Section 7 & 8 of FEMA, read with Regulation 9(1) & 13 of Foreign Exchange Management (Export of Goods & Services) Regulations, 2000. Such a penalty is more than 200% of the amount contravened. The Notice could not be served on the Respondent, and accordingly, they were served by way of affixation on the last known addresses. Hence, they were proceeded against ex parte by the Adjudicating Authority.  

However, the appellant ED filed the appeal for enhancement of the penalty, contending that the penalty imposed is quite meagre and nominal. No serious efforts were made by the respondent company to realize the export proceeds by filing any suit for recovery against them. 

Hon’ble Appellate Tribunal held that as per Section 13(1) of the FEMA,  the maximum penalty that can be imposed is up to 3 times the amount of contravention involved.  Section 13(1) has not prescribed either a fixed amount of penalty or a minimum amount of penalty. Therefore, the penalty imposed by the Adjudicating Authority is a matter of discretion which is to be exercised judiciously after taking into account the facts of the case and the evidence. The FEMA Act itself gave an explicit scope to the Adjudicating Authority to exercise its discretion, albeit judiciously, for the imposition of a penalty.  In the given case, the total penalty imposed is about 200% more than the contravened amount.   However, instead of executing the said order for recovery, the appellant ED has filed an appeal for enhancement of penalty, by ignoring the fact that the respondents are not traceable, and thereby, any chance of recovery of the penalty amount became negligible during this intervening period.  Hence, the practice of filing such appeals for enhancement of the penalty amount by the appellant ED needs to be deprecated.  

Read More: No Penalty Beyond Minimum Penalty Where FC-GPR is not Taken on Record Due to Non-Filing of Clarification

Therefore, the order of the Adjudicating Authority needs no interference. The appeal for enhancement of the penalty fails and is hereby dismissed.  

1. Brief Facts of the case:

• In the present case, Sh.  Bharat Kumar and Sh. C Sharavan Kumar (“The Respondents”) made exports against 51 invoices from August 2000 to December 2000, to the extent of ₹12,41,89,927.

• However, the Respondents failed to realize such export proceeds.

• Therefore, the Adjudicating Authority imposed penalties on the respondents for contravention of Section 7 & 8 of FEMA, read with Regulation 9(1) & 13 of Foreign Exchange Management (Export of Goods & Services) Regulations 2000.

• The Penalty was imposed of Rs 1,2,50,00,000/- each of the respondents.

• The present appeal is filed by the Assistant Director, Chennai Zonal Office, against the order issued bythe  Adjudicating Authority. 

• The said Noticee could not be served, and accordingly, they were served by way of affixation on the last known addresses.  Hence, they were proceeded against ex parte by the Adjudicating Authority.  

• Being satisfied with the allegations made, the Adjudicating Authority imposed the penalty on the noticees.

• Aggrieved by the said order, the appellant ED filed the present appeal for enhancement of the penalty.

2. Contention of the Appellant

The Appellant submitted that:

• The Respondent has contravened Sections 7 & 8 of FEMA, read with Regulation 9(1) & 13 of Foreign Exchange Management (Export of Goods & Services) Regulations 2000, for failing to realize export proceeds amounting to Rs. 12,41,89,927/-.

• However, the penalty imposed on them is quite meagre and nominal to the extent of 100% of the contravened amount. 

• No serious efforts were made by the respondent company to realize the said amount from foreign-based importers of Dubai & Jamaica by filing any suit for recovery against them. 

• Therefore, the present appeal is filed to enhance the penalty amount as the said penalty is on the lower side, without considering the quantum of contravention.

3. Contention of the Respondent

None appeared on behalf of the appellants even during the adjudication proceedings, and ex parte order was passed against them.   

4. Analysis by Hon’ble Tribunal

Hon’ble Appellate Tribunal made the following analysis:

• As per Section 13(1)  of the FEMA,  it is obvious that the maximum amount of penalty which can be imposed is up to 3 times of amount of contravention involved. 

• Section 13(1) has not prescribed either a fixed amount of penalty or a minimum amount of penalty. Therefore, the penalty imposed by the Adjudicating Authority is a matter of discretion which is to be exercised judiciously after taking into account the facts of the case and the evidence.

• The appellant has contended that the Adjudicating Authority has imposed the penalty up to 100% of the contravened amount, i.e., export proceeds not realised from the foreign-based importer.   

• In the given case, the Adjudicating Authority has not only taken notice of the facts of the case, but also has evaluated the evidence on record to impose a penalty to the extent of only 100%.  

• In the matter of State of MP and Ors. Vs. Bharat Heavy Electricals [(1997) 7 Supreme Court Cases 1], Hon’ble Supreme Court has held that:
  
  • A statute prescribing the provision for a penalty equal to 10 times of entry tax, the statute prescribed only a maximum limit and did not prescribe an irreducible amount, depriving the assessing authority of any discretion in this regard. 
  • The assessing authorities are not bound to levy a fixed penalty equal to ten times of entry tax amount.

• The FEMA Act has itself provided for a penalty up to 3 times the sum involved in contravention and therefore, gave an explicit scope to the Adjudicating Authority to exercise its discretion, albeit judiciously, for imposition of penalty.  

• In the given case, the total penalty imposed is about 200% more than the contravened amount.  

• However, instead of executing the said order for recovery, the appellant ED adopted the course of action for filing an appeal for the enhancement of the penalty, by ignoring the fact that the respondents are not traceable, and thereby, any chance of recovery of the penalty amount became negligible during this intervening period.  

• Hence, the practice of filing such appeals for the enhancement of the penalty amount by the appellant ED needs to be deprecated.  

5. Final Order

The Hon’ble Appellate Tribunal held that:

• We are not inclined to enhance the quantum of penalty, as an adequate penalty is imposed by the Adjudicating Authority.  

• Therefore, the order of the Adjudicating Authority needs no interference. The appeal for enhancement of the penalty fails and is hereby dismissed.