Sociedade De Fomento Industrial Pvt. Ltd. Vs Special Director Directorate of Enforcement (Appellate Tribunal Under SAFEMA Delhi)
FEMA Penalty in Iron Ore Export Case Partly Sustained – Alleged Under-Invoicing via Overseas Commission – Tribunal Reduces Penalty & Upholds Liability U/s 7
The SAFEMA Appellate Tribunal partly allowed the appeals of M/s Sociedade De Fomento Industrial Pvt. Ltd. & its Directors against FEMA penalties arising from alleged under-invoicing of iron ore exports through discounts linked to overseas “protective agent” commissions. The Enforcement Directorate alleged that commissions paid abroad formed part of the export value which was neither fully declared nor realised in India, resulting in contravention of FEMA.
The Tribunal observed that engagement of overseas agents, negotiated price reductions & admissions in statements supported the allegation that export value was reduced to accommodate commission payments. Voluntary payments before the Customs Settlement Commission were treated as a relevant circumstance against the assessee. However, it held that s.8 could not be invoked together with s.7, though liability under s.7 remained valid.
It was further held that penalty u/s 13 of FEMA is civil in nature & does not require mens rea. Directors were held liable u/s 42 as persons in charge of business. Considering proportionality & earlier customs settlement, penalties were substantially reduced to ₹40 lakh on the company, ₹4 lakh on the Managing Director & ₹2 lakh on the Director, with the appeals partly allowed.
FULL TEXT OF THE JUDGMENT APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI
This Order disposes of the Appeals Nos. FPA-FE-41/GOA/2020 filed by M/s Sociedade De Fomento Industrial Pvt. Ltd., FPA-FE-42/GOA/2020 filed by Shri Apoorva Misra, Director and FPA-FE-51/GOA/2020 filed by Shri Auduth Timblo, Managing Director, against the Order No. Adj/03/B/SDE/SK/WR/2020 dated 20.03.2020 (Impugned Order), passed by the Special Director, Directorate of Enforcement, Mumbai. The Ld. Adjudicating Authority (AA) imposed the penalty of Rs. 4,00,00,000/- on the Appellant Company M/s Sociedade De Fomento Industrial Pvt. Ltd., vide the Impugned Order for the contravention of Section 7 of the Foreign Exchange Management Act, 1999 (FEMA) read with Regulation 3, 9 & 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 and Section 8 of the FEMA read with Regulation 3 of Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulation 2000, arising due to non-realization of the export proceeds to the extent of commission of the amount Rs. 38,14,34,971/- (USD 77,27,439) paid to the overseas agents. Penalty of Rs. 40,00,000/- was imposed on the Appellant Shri Auduth Timblo, Managing Director and Rs. 20,00,000/- was imposed on the Appellant Shri Apoorva Misra, Director for the aforementioned contraventions in terms of Section 42 of FEMA.
