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2014 (9) TMI 1184 - HC - FEMAOffence u/s 18(2) and Section 18(3) of FERA - deliberate attempt to refrain from realising the export proceeds - imposing of penalty on the company, i.e., ( COPL ) and on the individual Directors for contravention of Section 18(2) and Section 18(3) FERA - show cause why the proceedings u/s 51 FERA should not be initiated against them - HELD THAT - The scheme of MMTC was to encourage the smaller exporters, who, on their own strength, would have normally been unable to procure orders from abroad for export of jewellery. It is difficult, therefore, to equate the exporters working as 100% EOU in the premises given on lease to the MMTC with other exporters who may be operating on a larger scale and who may have wherewithal to take more effective steps for realisation of export proceeds. The key issue here is about the sincerity of the efforts made by COPL to realise the proceeds. What Section 18(2) FERA expects is that there should be no deliberate attempt to refrain from realising the export proceeds. The AO of DD itself notices that the Appellants made sincere efforts to realise at least part of the outstanding amount. In the circumstances, it is not possible to concur with the conclusion reached by the DD in the AO that there has been a contravention by the Appellants of Section 18(2) and Section 18(3) FERA. The AT also does not appear to have examined the documents placed on record by the Appellants to show the efforts made by them to realise the export proceeds. Consequently, this Court sets aside the impugned order of the AT dated 13th March 2008 and the order of the DD, ED dated 25th February 2008 and allows these appeals. The amounts deposited by the Appellants pursuant to the AO and the impugned order of the AT shall be refunded to them within a period of four weeks in accordance with law.
Issues:
1. Contravention of Section 18(2) and Section 18(3) of FERA by the company and individual directors for failure to realize and repatriate outstanding export proceeds. 2. Dispute over the actual exporter between COPL and MMTC. 3. Liability of COPL and its directors for non-realization of export proceeds. 4. Examination of efforts made by the Appellants to realize the export proceeds. Issue 1: Contravention of Section 18(2) and Section 18(3) of FERA The appeals were against an order imposing penalties on the company and individual directors for not realizing export proceeds, violating FERA. The company, an EOU, argued that MMTC was the exporter, but MMTC clarified its role as a designated agency for gold supply. The AO found contravention of FERA by COPL and its directors, holding them liable for non-realization of export proceeds. Issue 2: Dispute over the Actual Exporter The AO concluded that COPL was the actual exporter, not MMTC, as MMTC ensured proceeds adjustment against loans. Efforts to realize proceeds were noted, especially for certain consignments. The AT affirmed COPL as the exporter, rejecting claims of non-production of original documents and holding Section 18(2) FERA applicable to exporters and supporting manufacturers. Issue 3: Liability of COPL and Its Directors The Court upheld COPL as the de facto exporter based on the arrangement with MMTC. It found no error in holding COPL and its directors liable for non-realization of export proceeds, emphasizing the mandatory requirement of full value realization within specified timelines under FERA Rules. Issue 4: Examination of Efforts to Realize Export Proceeds The Court analyzed the efforts made by the Appellants to recover proceeds, considering letters to RBI and buyers, showcasing attempts to secure payments. It highlighted the challenges faced by exporters dealing with defaulting foreign buyers and the sincerity of efforts made to realize proceeds within limitations. In conclusion, the Court set aside the previous orders, emphasizing the sincerity of efforts made by the Appellants to recover outstanding amounts. The judgment highlighted the practical challenges faced by exporters and the need for genuine attempts to realize export proceeds, ultimately ruling in favor of the Appellants and ordering refunds of deposited amounts.
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