The Madras High Court ruled that the exporters are entitled to write-off of the unrealised export bills, even if there was a violation of contravention of Section 18(1)(a)(i) read with Section 18(2) and Section 18(3) of the Foreign Exchange Regulation Act, 1973. The ruling came after finding that the Appellants/Exporters have also reversed the proportionate Duty Drawback that was paid to them by the Customs Authority, and essentially, the Appellants/Exporters have not misused the export incentives.
The Division Bench comprising Justice S.M. Subramaniam and Justice C. Saravanan observed that since Section 18(1)(a) of the Foreign Exchange Regulation Act is to be read along with Section 18(2) and Section 18(3) of the Foreign Exchange Regulation Act, penalty under Section 50 of the Foreign Exchange Regulation Act does not apply to the case, as admittedly the Appellants/Exporters had failed to realize approximately 5.45% of the export proceeds.
The Bench therefore directed that the benefit of write-off of unrealised export bills in FED Master Direction No. 16/2015-16 dated January 01, 2016, can be extended to the Appellants/Exporters as the percentage of shortfall in export realization is negligible. Accordingly, the Bench allowed the appeal and quashed the order of the Enforcement Directorate in levying of penalty.
Reference was made to the RBI A.P. (DIR Series) Circular No.61 dated December 14, 2002, as per which the authorised dealers were granted powers to permit “write-off” annually up to 5% of average annual realisation to status holder exporters, subject to certain conditions. This was further simplified by the RBI by liberalizing the procedure for Write-off of unrealized export bills by issuing A.P. (DIR Series) Circular No. 88 dated March 12, 2013.
The Bench pointed out that even though the Appellants have failed to realize the export proceeds as is contemplated under Section 18(2)(A)(a)(ii) of the Foreign Exchange Regulation Act, 1973, however, it asserted that some amount of business losses are expected, particularly when exporters have business with strangers from abroad.
Briefly, in this case, the Appellant had exported consignments of goods to various countries. However, a part of the export proceeds for a sum of Rs. 1.09 crores on the exports made was not recovered, resulting in a deficit. Since the Appellant/Exporter had availed the benefit of Duty Drawback under Section 75 of the Customs Act, 1962, read with Customs and Central Excise Duties Drawback Rules, 1971, and a part of the export proceeds was not realized, the Appellant has paid back the Duty Drawback to an extent of Rs. 5.28 lacs pursuant to a Demand Notice by the Commissioner of Customs.
The Appellants, however, received a Show Cause Notice (SCN) alleging that they had not taken reasonable steps to recover export proceeds of the goods exported from the Country to the final destination of the goods in the prescribed manner within the prescribed time limit without the permission of the Reserve Bank of India, in contravention of Section 18(2) of the Foreign Exchange Regulation Act, 1973. Pleading that the shortfall was below 10%, the Appellants requested the Reserve Bank of India (RBI) to write off the unrealised amount as per the AP (DIR Series) Circular No.61 dated December 14, 2002, which was rejected. This culminated in an order by the Special Director of Enforcement, seeking to levy a penalty of Rs. 10 lacs under Section 50 of the Foreign Exchange Regulation Act, 1973, on the respective Appellants/Exporters.
Appearances:
Advocate Karthik Ranganathan, for the Appellant/ Taxpayer
Advocate N. Ramesh, for the Respondent/ Revenue
