*THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY + C.M.S.A.Nos.23 & 26 of 2011 COMMON JUDGMENT: %16-06-2011 # Directorate of Enforcement and another ..appellants And $ M/s. Coromandal Stampings & Stones Ltd., and another ..Respondents !Counsel for the appellants : Sri P. Prasad ^Counsel for respondents : < Gist: > Head Note: Citations: THE HON’BLE MR JUSTICE L. NARASIMHA REDDY C.M.S.A.Nos.23 & 26 of 2011 COMMON JUDGMENT: These two appeals, filed under Section 35 of the Foreign Exchange Management Act, 1999 (for short ‘the Act’) are connected with each other. Hence, they are disposed of through a common judgment. The sole respondent in C.M.S.A.No.23 of 2011 is an export oriented private limited company (for short ‘the Company’), dealing in manufacture and export of granite of various forms. The sole respondent in C.M.S.A.No.26 of 2011 is its Executive Director. The Company exported goods worth US $ 4,14,696.68 to different parts of United States of America, between November 1994 and January 1996. Out of that, only a sum of US $ 79,497.96 was recovered and the balance of US $ 3,35,198.34 remained due. Section 8 of the Act mandates that the foreign exchange that had accrued to a resident of India must be realized within the period stipulated by the Reserve Bank of India (RBI), which, under the Regulation 9 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, (for short ‘the Regulations’). The time stipulated for recovery of such amount is six months from the date of export. The Act and relevant Regulations confer power upon the RBI to exempt an agency from the obligation to recover the amount within the stipulated time, as well as the consequences that flow from the non-compliance with the provisions. In the instant case, the RBI granted exemption and had written off the amount due to the respondents, by imposing a condition that they must obtain documentary evidence regarding surrender of the relevant export incentives, if any, availed by them. The appellant issued a show cause notice dated 23-11-2004 to the respondents alleging contravention of Sections 7 and 8 of the Act and Regulations 9 and 13 of the Regulations. It was alleged that the respondents failed to recover the foreign exchange due to them and thereby have contravened the provisions referred to above. The details of the exports in 24 consignments were stated. The respondents submitted their explanation stating that they could not recover the foreign exchange due to them in spite of their best efforts, and on being satisfied about the relevant facts, the RBI had written off the said foreign exchange. They have also stated that they did not avail any specific incentives for exports. Not satisfied with the explanation, the appellant passed an order dated 20-10-2006 imposing penalty of Rs.20 lakhs upon the company and Rs.10 lakhs upon its Executive Director. The respondents, i.e. the Company and the Managing Director filed two separate appeals, being Appeal Nos.217 and 218 of 2006 before the Appellate Tribunal for Foreign Exchange, New Delhi. The appeals were heard by a Bench of two Members. Individual members passed separate orders dated 30-11-2007 differing with each other, as to the legality of the order passed by the appellant. Thereupon the matter was referred to the Chairman of the Tribunal. Through his order, the Chairman held that there was no basis for the appellant to impose penalty against the respondents. Thereby the appeals were allowed, through a formal order dated 06-12-2007. Hence, these two Civil Miscellaneous Second Appeals. Learned counsel for the appellant submits that though the RBI passed an order in favour of the respondents, for writing off the unrecovered foreign exchange, the respondents failed to produce the evidence to prove that they have surrendered the export incentives. He submits that the records revealed that the exported material was manufactured and processed by using imported machinery and as per the conditions imposed by the RBI, the incentives so availed, were to have been surrendered. He contends that the very fact that substantial portion of the value of the exported goods was not recovered and that no meaningful steps were taken by the respondents to recover it, disclose that there was serious contravention of the provisions of the Act and Regulations. The Act aims at regulating and managing the flow of foreign exchange into, or out of India. The respondent-company is a hundred per cent export oriented unit. It is qualified to export goods and accordingly made export of material in 24 consignments to different places in U.S.A., between November 1994 and January 1996. Not only an exporter, but also any trader would be interested in recovering the value of the goods exported or supplied. Though it is not a matter of concern for the Government, in case a trader having business within India is unable to recover the value of the goods supplied by it, a serious note of this aspect is taken under the provisions of the Act. Section 8 of the Act mandates that consideration for the exported goods must be recovered with utmost promptitude and within the time stipulated under Regulation 9 of the Regulations. The underlying purpose appears to be that, the foreign exchange, which is otherwise required to flow to India, must not be permitted to be diverted or utilized for any other purpose. The respondents were required to take necessary steps to recover the amount due, within six months from the date of export. Any failure or default in this regard would lead to penal consequences of imposition of penalty under the corresponding provisions of the Act. Being conscious of the fact that every effort made by an exporter to recover the amount within the stipulated time may not fructify, the Act and Regulations conferred power upon the RBI to “write off” the amounts so due. The expression “write off” needs to be understood in a different context, compared to the ordinary meaning of the term. Normally it is the person or agencies, who are entitled to recover the amount, that can “write off” the same. The balance of the value of the goods exported by the respondents is not due to the RBI. Therefore, the act of ‘writing off’ the unrecovered foreign exchange does not alter the obligation, either of the supplier or the customer. It would only relieve the exporter from the liability to be prosecuted and imposed the penalty. It is not as if the RBI has written off the foreign exchange that was due to the respondents, just like that. A condition was imposed to the effect that, documentary evidence regarding surrender of export value of the goods availed, if any, must be placed. The RBI, which is entrusted with the power to oversee the transactions of export of the material and receipt of the consideration, certified that the respondents did not utilize any export incentive. A show cause notice was issued, a decade after the export was made. Except stating that the respondents did not place the evidence to surrender of the export incentive, no other reason was assigned. Two members of the Appellate Tribunal, who heard the appeals, preferred by the respondents, passed separate orders with different opinions. The Chairman, whom the matter was referred to, on account of such difference, agreed with the one, who held that the order, levying penalty on the respondents, is invalid. In their effort to disentitle the respondents from the benefits of the order passed by the RBI, writing off the dues of foreign exchange, the appellant pleaded that though no specific export incentive may have been availed by the respondents, the verification of the record revealed that certain items of imported machinery were utilized in processing the exporting goods. The appellant can proceed against the respondents, if only an item of machinery was imported with the specific objective of manufacturing the goods, that were exported. Here, it is not so. The mere fact that any general items of machinery, such as cutting saw, polishing tools were imported for the day- today use of the respondents, and not for any specific purpose were utilized in manufacturing the goods, meant for export, cannot be treated as an act of availing a specific export incentive. The appellant was required to be objective and cautious in penalizing the respondents. On the one hand, the respondents are denied or deprived of foreign exchange, that was due to them, and on the other hand, they are levied penalty in astronomical sums for the so- called contravention. Regulation 9 mandates that the value of the exported goods must be recovered within six months. In case there was contravention on the part of the respondents, the appellant ought to have acted within a reasonable time. The show cause notice itself was issued 10 years from the date of export. Hardly there would be any record available, after such a long time. All the same, the respondents have placed the relevant material before the appellant. The penalty of such huge amount was levied without attributing any acts or omissions on the part of the respondents. One of the members and the Chairman of the Appellate Tribunal have taken the correct view of the matter, and this Court is not inclined to interfere with the same. Section 35 of the Act provides for an appeal to the High Court on any question of law arising out of an order passed by the Appellate Tribunal. No such question of law is framed in this case, nor was existence in these appeals. Hence, the Civil Miscellaneous Second Appeals are dismissed. There shall be no order as to costs. _______________________ L. NARASIMHA REDDY, J. Dt.16-06-2011. Note: LR copy to be marked. (B/O)KO