2025 (1) TMI 851 - AT - FEMA

Offence under FEMA - Applied for rebate of Central Excise Duty by producing 15 fake shipping bills, related applications for removal of excisable goods for export (ARE-1s) and other related shipping documents, and fraudulently availed rebate of Central Excise Duty - effect of immunity granted by Settlement Commission under the Customs Act, 1962 HELD THAT - Oder of Customs and Central Excise Settlement Commission is categorical that no immunity was either sought or provided to the Appellant under FEMA,1999. The immunities so granted under other Acts won t have an impact on the proceedings under FEMA. As held in Vinod Chitalia 2012 (5) TMI 157 - BOMBAY HIGH COURT that the orders of the Settlement Commission are conclusive of the matters stated therein and cannot be challenged in any other proceeding. The findings of the Settlement Commission in the present case inter alia are that remittance against the exports were received in advance without any actual export of goods, that all the export documents bear the signatures of the appellant and the exports proceeds were also realized by the appellant. There was no written arrangement between the appellant and the Mundra Brothers with reference to the export of goods. These findings have, therefore, become conclusive in light of the Ld. Settlement Commission s order. Whether significant delay was caused as Respondent took almost six years from the date of receiving information from the Excise Department to lodge a Complaint against the Appellant? - The present case, as already noted, is one of FEMA,1999. The penalties prescribed for contravention under FEMA, 1999 are in the nature of technical and procedural lapses. The liability for contravention under FEMA is of a civil nature unlike the erstwhile FERA which it replaced, and also unlike the PMLA, 2002. As such, the ratio of the cases cited by the appellant would not apply to the present case. It is evident from the order of settlement before the Settlement Commission that the remittance against the said exports were received in advance without any actual export of goods. Also, all the export documents bear the signature of the Appellant, the export proceeds were realized by the Appellant and there is lack of any written arrangement between the Appellant and the Mundra brothers w.r.t export of goods. As a result, the Appellant being the proprietor of M/s Siddha Exports, and the exports having been made in the name of the said concern, was responsible to ensure the realization of the export proceeds and cannot evade responsibility for the lapses. The Appellant cannot avoid responsibility for the contraventions of Section 7 of FEMA,1999 r/w Regulation 16 (Advance Payment of Exports of the Foreign Exchange Management (Export of goods and services) Regulation,2000, by not making shipment within one year from the date of receipt of advance remittances amounting to US 10,54,310.36 9 (equivalent to Rs. 4,81,29,268). Lack of mens rea - Penalty was clearly imposable in the present case and the appellant cannot escape his liability by laying the blame solely at the door of the Mundra brothers. We do find several mitigating factors in the case. It is not in dispute that to all appearances, all the documentation had been completed as if the export had genuinely been made and the proceeds therefrom had been realized. It is only later that the appellant came to know that the documents had been forged and no export were actually made by the Mundra Brothers. Upon coming to know he approach the Ld. Settlement Commission the order of the Settlement Commission indicates that the applicant (the appellant herein) had made a full disclosure of its duty liability and had also subsequently paid the liabilities as directed by Ld. Settlement Commission. Nothing has been brought had record to indicate that the appellant acted in active collusion with the Mundra Brothers in forging the documents and falsely claiming that exports had been made when no exports had actually been made to his knowledge. Ends of justice would met if the amount of penalty levied is reduced to Rs. 5 Lakhs. It is ordered accordingly.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment primarily revolves around the following core legal issues:

• Whether the appellant, as the proprietor of M/s Siddha Exports, contravened the provisions of Section 7 of the Foreign Exchange Management Act, 1999 (FEMA) by failing to make shipments within one year from the date of receipt of advance remittances.
• Whether the proceedings under FEMA were justified despite the appellant having approached the Settlement Commission under the Customs Act, 1962, and whether the immunity granted there could extend to FEMA violations.
• Whether the delay in initiating proceedings by the respondent constituted a violation of the appellant's right to a fair and speedy trial under Article 21 of the Constitution of India.
• Whether the appellant's claim of being a victim of fraud by the Mundra brothers absolves him of liability under FEMA.
• Whether the penalty imposed was justified given the circumstances and the appellant's claims of lack of mens rea.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Contravention of FEMA Provisions

• Legal Framework and Precedents: Section 7 of FEMA and Regulation 16 of the Foreign Exchange Management (Export of Goods and Services) Regulation, 2000, require exporters to make shipments within one year of receiving advance remittances.
• Court's Interpretation and Reasoning: The court found that the appellant failed to make shipments corresponding to the advance payments received, thereby contravening FEMA provisions.
• Key Evidence and Findings: The appellant's signature was present on all export documents, and remittances were received without actual exports being made.
• Application of Law to Facts: The appellant's actions, or lack thereof, constituted a breach of civil obligations under FEMA.
• Treatment of Competing Arguments: The appellant's claim of being unaware of the fraud was considered but did not absolve him of responsibility.
• Conclusions: The appellant was found liable for the contravention of FEMA provisions.

Issue 2: Immunity from Settlement Commission

• Legal Framework and Precedents: The Settlement Commission can grant immunity under the Customs Act, but not under FEMA.
• Court's Interpretation and Reasoning: The court concluded that the Settlement Commission's order did not provide immunity under FEMA, as the authorities under FEMA were not parties to those proceedings.
• Key Evidence and Findings: The Settlement Commission's order explicitly stated no immunity under FEMA was granted.
• Application of Law to Facts: The proceedings under FEMA were independent of those under the Customs Act.
• Treatment of Competing Arguments: The appellant's reliance on the Settlement Commission's order was rejected based on legal precedents.
• Conclusions: The appellant could not claim immunity under FEMA based on the Settlement Commission's order.

Issue 3: Delay in Proceedings

• Legal Framework and Precedents: Article 21 of the Constitution guarantees the right to a fair and speedy trial.
• Court's Interpretation and Reasoning: The court acknowledged the delay but differentiated between civil and criminal proceedings, noting the civil nature of FEMA violations.
• Key Evidence and Findings: The delay was noted, but the court found no malice or prejudice against the appellant.
• Application of Law to Facts: The delay did not invalidate the proceedings as FEMA violations are civil in nature.
• Treatment of Competing Arguments: The appellant's arguments on delay were considered but ultimately rejected.
• Conclusions: The delay did not constitute a violation of the appellant's rights under Article 21.

Issue 4: Victim of Fraud

• Legal Framework and Precedents: Liability under FEMA is civil and does not require mens rea.
• Court's Interpretation and Reasoning: The court acknowledged the appellant's claim but emphasized his responsibility as the proprietor.
• Key Evidence and Findings: The appellant's lack of written agreements and reliance on verbal assurances were noted.
• Application of Law to Facts: The appellant's claim of being a victim did not absolve him of liability under FEMA.
• Treatment of Competing Arguments: The court considered the appellant's arguments but maintained his liability.
• Conclusions: The appellant remained liable despite claims of being defrauded.

Issue 5: Justification of Penalty

• Legal Framework and Precedents: Penalties under FEMA are civil in nature and do not require mens rea.
• Court's Interpretation and Reasoning: The court found the penalty justified but reduced it considering mitigating factors.
• Key Evidence and Findings: The appellant's cooperation with the Settlement Commission and lack of active collusion were considered.
• Application of Law to Facts: The penalty was reduced from Rs. 25 Lakhs to Rs. 5 Lakhs.
• Treatment of Competing Arguments: The court balanced the appellant's cooperation against the contraventions.
• Conclusions: The penalty was reduced but upheld as justified.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes: "Mens rea is not essential element for imposing penalty for breach of civil obligations or liabilities."
• Core Principles Established: Immunity granted by the Settlement Commission under the Customs Act does not extend to FEMA violations. Liability under FEMA is civil and does not require mens rea.
• Final Determinations: The appellant was found liable for contraventions under FEMA, with the penalty reduced to Rs. 5 Lakhs considering mitigating factors.