2025 (1) TMI 1451 - AT - FEMA

Validity of order of the Additional Director of Enforcement dropping charges under the Foreign Exchange Management Act 1999 (FEMA) - case against the appellants under FEMA 1999 was initiated based on a Show-Cause Notice issued by the DRI under the Customs Act 1962 - in SCN it was alleged that both the respondent companies had evaded Customs Duty by suppressing and mis-stating the actual transaction value of the export goods - HELD THAT - We find force in the argument of the respondents that the allegations against the appellants in this case drew sustenance primarily from the allegations contained in the SCN issued by the DRI under the Customs Act 1962 which now stands entirely nullified. Also find considerable substance in the contention of the appellant that the Fe content declared was based on the report of the government accredited lab (GAL). Indeed it is acknowledged by the appellant Directorate itself in the appeal memo that the price of the iron ore exported was raised by the appellants based on the certificate of Quality Services and Solutions Goa a government-accredited lab. Further the detailed procedure for valuation has been explained in para- 61 of the order of the Ld. Commissioner of Customs. Once the prescribed procedure for independent certification by Govt. Lab and samples being drawn in the presence of Customs and being sent to Govt. lab for sample testing has been followed do not see how the charge of manipulation of Fe content can be sustained unless the findings of the labs are challenged as perverse. In this regard we have also taken note of the judgment of Reliance Cellulose Products Ltd. 1997 (7) TMI 652 - SUPREME COURT cited by the appellants wherein it was held that unless a government lab report is challenged and demonstrated as being palpably wrong the same cannot be brushed aside. Even from the Income-tax point of view the variation in price at which export was made by the appellants and the arm s length price assessed was found to be within the tolerance range. It is not considered necessary to go into other issues such as cherry picking of few transactions out of many (2 out of 7 in case of Appellant No.1 and 5 out of 42 in case of Respondent No.2); existence of instances where Fe content declared by the Indian companies was more than that declared by the foreign entity on further sale; day to day fluctuations in international iron ore prices the difference arising out the transactions being expressed in wet or dry metric tons; difference in of method of drawal of samples testing technology and methodology; the legal tenability of challenging the impugned order before this Appellate Tribunal when the customs s Case which formed the sole basis of the case under FEMA stands quashed etc are not gone into on the merits. We do not find any reason to interfere with the order of the learned adjudicating authority which has been impugned in the present appeals filed by the Directorate. Accordingly all the three appeals are hereby dismissed.

Summary

The Appellate Tribunal considered several core legal issues in this case arising from the appeal against the order of the Additional Director of Enforcement, which dropped charges against the respondents under the Foreign Exchange Management Act, 1999 (FEMA). The primary issues revolved around alleged violations of FEMA concerning the mis-declaration of the iron ore's Fe content and the consequent undervaluation of export goods, which allegedly resulted in the non-repatriation of the full export value.

The relevant legal framework included Sections 7 and 8 of FEMA, 1999, and the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, specifically Regulations 3, 9, and 13. The Directorate of Enforcement alleged that the respondents failed to declare the correct value of exported goods, thereby violating these provisions. The case was initiated based on a Show Cause Notice (SCN) from the Directorate of Revenue Intelligence (DRI) under the Customs Act, 1962, alleging undervaluation and mis-declaration of the Fe content in export transactions.

The Tribunal's analysis focused on the procedural and evidential aspects of the case. The respondents argued that the Fe content was determined by independent, government-accredited laboratories, and any discrepancies were within commercial limits due to the nature of iron ore and its moisture content. They contended that the Customs authorities had not found any fault with their declarations, and the DRI's SCN, which formed the basis of the FEMA proceedings, had been quashed by the Commissioner of Customs.

The Tribunal examined the adjudicating authority's reasoning, which had accepted the respondents' arguments that variations in Fe content were minor and within acceptable limits. The adjudicating authority had also noted the lack of independent inquiry by the Directorate of Enforcement and the reliance on the DRI's findings, which were subsequently nullified.

Significant holdings of the Tribunal included the recognition that the Customs authorities' findings, based on independent lab reports and the absence of mis-declaration, were crucial. The Tribunal emphasized that the Customs Act's provisions and the Customs Valuation Rules provided a comprehensive framework for assessing export goods' value, which was not breached in this case.

The Tribunal upheld the adjudicating authority's decision to drop the charges, finding no evidence of FEMA violations. It noted that the Customs authorities' assessments, which were based on government lab reports, were not challenged and, therefore, should be accepted as correct. The Tribunal also acknowledged that the DRI's SCN, which was the basis for the FEMA proceedings, had been set aside, further weakening the appellant's case.

In conclusion, the Tribunal dismissed the appeal, affirming the adjudicating authority's order and reiterating the importance of adhering to established legal procedures and evidentiary standards in enforcement actions under FEMA. The Tribunal's decision underscored the necessity of independent investigation and the reliance on credible evidence, particularly when allegations are based on transactions involving related parties. The Tribunal also highlighted the role of the Customs authorities and the importance of their findings in determining compliance with export regulations.