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TMI Blog2024 (12) TMI 1367X X X X Extracts X X X X X X X X Extracts X X X X ..... n and this has been duly taken in the account by the Ld. Adjudicating Authority and thereafter, he passed the detailed and well- reasoned adjudication order. During the arguments Appellant ED also relied upon the judgment in case M/s Jhawar International Overseas Versus ITO [ 2010 (1) TMI 1277 - ITAT AHMEDABAD ] wherein held that the commission was not deducted from the export invoices in an ad-hoc manner and it was clearly under an agreement between the buyer and the seller, as also between the buyer and the agent. Consequently, the assessee was under an obligation to deduct commission from the gross invoice values. In the present case, there was a compulsion to deduct the commission from the export invoices which was clearly indicated in the confirmation letters of the agents, the ingredients which were necessary for such deduction of commission to be treated as diversion of income by overriding title was clearly present. Accordingly, he stressed that the commission of sales of Rs. 269,88,52,221/- needs to be deducted from the gross sale value, for calculating the percentage of royalty. We are not convinced with the submission made by Ld. counsel for the Appellant ED, in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent company, on three occasions around Rs. 19 Crores were remitted to their parent company towards royalty. Further, she has also reiterated in her statements that all the legal formalities with regard to the receipt and remittances have been complied with. Though she has undertaken to provide with the details, she never turned-up to furnish the details, as to the remittances and legal compliances. Later, it was given to understand that she left the country. On perusal of the financial statement of the companies namely M/s GoldQuest International Pvt. Ltd./ M/s Questnet Enterprises India Pvt. Ltd., it was found that Shri Narayanasamy, partner of M/s Venkatraman Co. was the Auditor of the company. Hence, being an Auditor of the company, a clarification was sought as to the outward remittances made to their parent company under the heading of Royalty, as stated in the statements dated 22.07.2016 and 25.07.2016 by Ms. Pushpam Apalla Naidu. In this connection, Shri Narayanasamy appeared on 29.03.2017 and tendered clarification vide his letter dated 28.03.2017, submitted through his statement dated 29.03.2017. On perusal of his statement, it is given to understand that he was the Audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Management (Current Account Transactions) Rules, 2000, no person shall draw foreign exchange for a transaction included in the schedule II without the prior approval of the Government of India. Item 8 of Schedule II to the Foreign Exchange Management (Current Account Transactions) Rules, 2000 till 16.12.2009 reads as under: Purpose of Remittance Ministry/Department of Govt. of India whose approval is required Remittances under technical Collaboration agreements, where payment of royalty exceeds 5% on local sales and 8% on imports and lump sum payments exceed US$ 2 million. Ministry of Industry and Commerce It appeared from the above inputs that as the royalty remittances exceeded 5% of the local sales of the year 2007- 2008, M/s Questnet Enterprises India Ltd, Chennai, ought to have obtained prior approval as stipulated in S. No. 8 of Schedule II to Rule 4 of Foreign Exchange Management (Current Account Transactions) Rules. On the basis of above facts, it is concluded by ED that M/s Questnet Enterprises India Ltd, Chennai, remitted the amounts totaling to Rs. 15,68,88,739 as royalty to M/s QI Limited, Hong Kong during the year 2007-2008, which were in excess of 5% of the local sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided under Rule 4 of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 for the above mentioned contraventions. In response to Show Cause Notice, Noticee no. 1 (herein Respondent No. 1) M/s Questnet Enterprises India Pvt. Ltd. filed reply dated 19.05.2017 before the Adjudicating Authority in which they acknowledged that amounts totaling to Rs. 15,68,88,739 were indeed remitted outside India towards royalty to M/s. QI Ltd., Hong Kong. But it was pointed out that as per Schedule K to Profit and Loss Account of Noticee No.1 for the year ending 31/03/2008, the total sales reported was Rs. 428,65,31,544. From this figure sales returns amount totaling to Rs. 13,39,50,045 and commission paid for the sales amount to Rs. 259,88,52,221 were deducted, as part of selling expenses, as per the accounting standards and the income on the account of sales was shown as Rs. 155,37,29,278; that the royalty is payable on local sales and if this is calculated, the royalty of Rs. 15,68,88,739 paid works out to 3.66% of local sales of Rs. 428,65,31,544 which is less than 5%, and hence, no contravention of FEMA as alleged in the Show Cause Notice has occurred. Noticee No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Rs. 13,39,50,045 on account of returns and rebate, net sales are quantified as Rs. 4,15,25,81,499. From the net sale value commission paid to the extent of Rs. 259,88,52,221 was deducted to arrive at the income on account of sale as Rs. 155,37,29,278. Commission being part of sales cannot be excluded while calculating percentage of local sales. If gross sales are considered, the royalty paid comes to 3.66% of the gross sales and if net sales are considered, the royalty paid by Noticee No.1 comes to 3.78%, which are both within the permissible limit of 5%, which does not require any permission during the relevant period. Accordingly, he concluded that the allegations against the Noticees are not substantiated and charges were dropped. Aggrieved by the said impugned order, the present appeal is filed by UOI through Dy. Legal Advisor, ED. 3. During the arguments, Ld. Counsel for the appellant ED/Union of India submitted that Ld. Adjudicating Authority wrongly dropped the charges against the respondents without appreciating the legal and factual position. He argued that the Adjudicating Authority wrongly relied upon the documents stated to be obtained from the Registrar of Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent argued that on perusal of said para it is clear that auditors have not raised any concern regarding the payment of royalty of the sales figures and thus the said uncertainty raised by the Auditors has no connection to the subject matter of the appeal. He contended that the only issue pertains to the fact whether the royalty paid was within the permissible limits of 5% or not, and therefore, any attempt to cause suspicion on the financial statements is without any basis. Ld. Counsel for the appellant submitted that if appellant ED had any doubt on the said financial statements, then it could have insisted for inspection of the account books from the concerned enforcement agency who seized the documents, during investigation of the case, instead of relying upon the said financial statements in the complaint filed before the Adjudicating Authority. Ld. Counsel for the respondent further pointed out that a complaint filed by ED itself was based on audited financial statement and the adjudication was also made with reference to the said financial statement. He argued that while the complainant ED made a flawed conclusion that the royalty percentage was beyond the permissible limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 'Royalty' in Schedule 'O' in Profit and Loss Account ending 31.03.2008 submitted to the Registrar of Companies, Chennai. Accordingly, he prayed that the impugned order passed by the Adjudicating Authority needs to be set aside, on account of the wrong appreciation of facts and thereby exonerated the respondents without any basis. 7. Ld. Counsel for the respondent argued that the said submission lacks proper understanding of the accounting principles, as a sum of Rs. 10,51,04,846/- of royalty was indeed debited to the Profit and Loss Account under the head miscellaneous expenses under schedule O - Administrative and other expenses for the year ending 31.03.2008. In this regard Ld. Counsel for the respondent pointed out certificate obtained from statutory auditors confirming this fact, which is annexed by the respondent at page 47 of the appeal paper book. He pointed out that the respondent obtained certificate from the statutory auditors confirming the payment of royalty of Rs. 15,68,88,739/- during the year 2008, which includes the opening balance of royalty, and hence, the same was not reflected in the Profit and Loss Account. In this regard he pointed out the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyalty of Rs. 15,68,88,739/- on the sales amount worked out as only 3.66% of local sales, and hence, it was within the permissible limits. 10. He further pointed out that appellant wrongly agitated that Ld. Adjudicating Authority failed to discuss the details of documents obtained from the Registrar of Companies, Chennai, vide letter dated 23.07.2019, nor gave any finding as to how the said documents confirmed the affirmation of the Chartered Accountant who represented the respondents. In this regard he pointed out that in para 5.5, 5.6,5.7 and 5.8 (which are not reproduced herein) of the impugned order. Ld. Counsel for the respondent pointed out that Ld. Adjudicating authority in order to confirm the authenticity and accuracy of the financial documents filed by the respondents, obtained the said financial statements directly from the Registrar of Companies to check its accuracy. Ld. Adjudicating Authority took note of the charges raised in the Show Cause Notice specifically regarding the sales figure, the amount of the royalty paid, and whether the royalty paid exceeded the permissible limit of 5%. Thereafter, Ld. Adjudicating Authority after perusal of the documents obtained from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing principles sales should not be reduced by any commission, being not covered under any clause. Section 4 of Sale of Goods Act which defines Sale of Agreement to Sell, as under reproduced. Sec 4 of the Sale of Goods Act defines Sale and agreement to sell as follows: 4(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. Sec 2 (10) defines price to mean the money consideration for a sale of goods it is clear that the sale relates to the consideration for transfer of property in goods. Section 2(G) of the Central Sales Tax Act which provides that Sale, with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes. Thus, sale only relates to the consideration for transfer of property in goods with no other abatement other than what is provided in (1) above. During the adjudication proceedings, the respondents have filed CST returns and respective State Level Sales Tax Returns in which they have disclosed the actual sale for the purpose of taxation. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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