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2018 (12) TMI 1765 - AT - FEMAViolation of FEMA - Appellant Company has failed to submit (Bill of entry) documentary evidence for import of goods in respect of the advance remittance through HSBC Bank - penalty imposed on managing director - HELD THAT - It is admitted by the respondent that the Company has used the foreign exchange for the declared purpose in terms of section 10 (5) by assuming that non-receipt of the goods would mean use of foreign exchange for a wrong purpose. Once the foreign exchange has been used by the Appellant Company for the declared purpose and if said purpose is not achieved it would not lead to the inference of not using the foreign exchange for the purpose for which it was acquired. Invoking of Regulation 6 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 is without any substance as the same applies to Resident Person, who has acquired or purchased foreign exchange for any purpose mentioned in the declaration to the Authorised Dealer in terms of Section 10 (5) of the Act and does not use it for the said purpose and is enjoined to surrender such foreign exchange or unused portion thereof back to the Authorised Dealer within 60 days. In the Show Cause Notice, the provisions of the law have also been engrafted . The Counsel for the respondent has referred Section 11 of FEMA contending that the exemption granted by RBI is basically seeking compliance are not otherwise which has no substance as for alleged compliance of filing of Bill of Entry, RBI had granted exemption, hence there was no scope of compliance. Even more, reading of Section 11 FERA, 1999 in the manner is correct. In fact, it is an enabling section empowering RBI to issue directions to the Bankers/Authorised Persons for the purpose of securing compliance of the provisions of FEMA. The said section goes in consonance with the judgment of the Hon‟ble Supreme Court in the case of LIC versus Escorts, 1985 (12) TMI 289 - SUPREME COURT wherein held that Reserve Bank of India is the Custodian General of the foreign exchange of the country and what is permitted/exempted by RBI cannot be questioned, by any person and directions are given by RBI in terms of section 11 of FEMA in consonance with the said law laid down by Hon‟ble Supreme Court. The respondent admittedly not denied the fact that the vendor was declared bankrupt who has also not issued the 60 days notice to the appellant about it, otherwise the appellant would have approached to recover the amount as of law. Even if the contention of the respondent is accepted, the respondent ED is not able to get any additional/independent evidence against the appellant apart which was already available with RBI. As asserted by the respondent that inquiries were made with the Company to find out the person incharge and responsible during the relevant period and the Company vide communication dated 14/10/2014 informed that Mr. S. Jain (Head of Finance) was the person incharge during the impugned period, who had already left the Company. The said Mr. S. Jain has not been arraigned in the show cause noticee and instead the Managing Director, who is appointed on 27/08/2015 as Managing Director of the Company, a citizen of South Korea was arraigned in vicarious liability in terms of Section 42 of FEMA. The Form DIRE-12 for appointment of the Appellant No. 2 as Managing Director. The present Managing Director became Managing Director on 27/08/2015 and was not the person in-charge of and responsible to for the conduct of the business of the Company, which was duly informed to the Respondents during the course of investigation but the Respondent chosen to arraign the new Managing Director with vicarious liability. Therefore, the notice and the penalty imposed on the Managing Director is without any valid reason. Allegations against the Company and the order passed against the Company is liable to be set aside. Once Company is not liable, as aforesaid, there is no scope of imposition of penalty on the Managing Director as the precondition for imposition of penalty in vicarious liability is, if the company is found guilty.
Issues Involved:
1. Contravention of Section 10(5) and 10(6) of FEMA, 1999. 2. Non-submission of Bill of Entry for advance remittance. 3. Ex-post facto exemption by RBI. 4. Vicarious liability of the Managing Director under Section 42 of FEMA. 5. Applicability of Regulation 6(1) of Foreign Exchange Management (Realisation, Repatriation, and Surrender of Foreign Exchange) Regulations, 2000. Detailed Analysis: 1. Contravention of Section 10(5) and 10(6) of FEMA, 1999: The appeal was filed against the Adjudication Order for alleged violations of Section 10(5) and 10(6) of FEMA, 1999. The Adjudicating Authority imposed penalties on the Company and its Managing Director for failing to submit documentary evidence for the import of goods against an advance remittance of US $433661.76. However, it was argued that the transaction was conducted through an authorized dealer (HSBC Bank), and the foreign exchange was used for the declared purpose. The tribunal noted that Section 10(5) applies before the transaction, and since the transaction was conducted lawfully, Section 10(5) and consequently Section 10(6) were not applicable. 2. Non-submission of Bill of Entry for Advance Remittance: The Company failed to submit the Bill of Entry for the advance remittance, which led to the issuance of a Show Cause Notice. The Company argued that they had sought exemption from submitting import documents from the RBI, which was granted. The tribunal noted that the RBI had indeed granted a no-objection certificate to HSBC Bank, advising them not to insist on the Bill of Entry. This factual position was not denied by the respondent, and the tribunal found that the ex-post facto exemption granted by the RBI negated the contravention. 3. Ex-post Facto Exemption by RBI: The respondent argued that the RBI's exemption was "without prejudice" to actions by the Enforcement Directorate (ED). However, the tribunal held that the RBI's exemption should be considered final and binding, and the ED's investigation should not override the RBI's decision. The tribunal referenced previous judgments supporting this view, emphasizing that the RBI is the custodian of foreign exchange and its permissions and exemptions cannot be questioned. 4. Vicarious Liability of the Managing Director under Section 42 of FEMA: The Managing Director was held liable under Section 42 of FEMA. However, the tribunal found that the Managing Director, appointed on 27/08/2015, was not in charge during the relevant period. The person responsible during the period had already left the Company. Therefore, the tribunal concluded that the imposition of penalty on the new Managing Director was without valid reason and set aside the penalty. 5. Applicability of Regulation 6(1) of Foreign Exchange Management (Realisation, Repatriation, and Surrender of Foreign Exchange) Regulations, 2000: The tribunal found that Regulation 6(1) applies to residents who do not use acquired foreign exchange for the declared purpose and must surrender it within 60 days. Since the Company used the foreign exchange for its declared purpose, the tribunal held that Regulation 6(1) was not applicable. The tribunal also noted that the respondent failed to provide additional evidence against the Company beyond what was already available with the RBI. Conclusion: The tribunal concluded that the allegations against the Company were unfounded and set aside the order passed against the Company. Consequently, the penalty on the Managing Director was also set aside. The appeal was allowed with no costs.
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