FEMA | Onus to prove non-filing of SDF lies on Enforcement Directorate, if letter of credit opened by overseas buyer is negotiated by Authorised Dealer against a shipping bill

Appellate Tribunal for SAFEMA, FEMA, PMLA, NDPS & PBPT Act: Manmohan Singh, J. set aside Enforcement Directorate’s order imposing a penalty on a company for contravention of provisions of Foreign Exchange Management Act, 1999.

Appellant company which was engaged in the manufacturing of graphite electrodes, received an order from a company Padmaja Impex Ltd. for supply of carbon bricks On appellant’s insistence for full payment before delivery of carbon bricks, Padmaja got an overseas buyer to open a letter of credit (LC) in the appellant’s name, whereafter appellant delivered the bricks to Padmaja. The LC was encashed later on by the appellant. ED initiated investigation against certain exporters including Padmaja, and notice was issued to appellant alleging contravention of Section 3(a) for receiving USD 256,604 through encashing LC, from the overseas buyer; and subsequent to a hearing penalty was imposed on it. Thus, the present appeal.

Appellant submitted that Regulation 12 of the Foreign Exchange Management (Export of Goods & Services) Regulation, 2000 allows a person other than exporter to receive a foreign exchange, subject to fulfillment of certain conditions by the Authorized Dealer of the constituent. It was submitted that ED’s sole reason for dismissing Regulation 12 was the presumption that Padmaja had not furnished any proof of filing declaration (SDF). However, mere failure to submit proof of filing of SDF by Padmaja could not lead to a conclusion that no such SDF was filed by Padmaja at the time of export of goods. No enquiry was conducted to ascertain factual position with respect to filing of SDF.

The Tribunal noted that it was a matter of fact that LC opened by the overseas buyer was negotiated by the Authorised Dealer against a shipping bill. Therefore, the presumption must be that all conditions prescribed under Regulation 12 had duly complied including the condition with respect to SDF. In absence of any evidence, it could not be assumed that Authorised Dealer had accepted shipping documents without SDF. It was observed that the onus was on the ED to prove that Padmaja was allowed export without filing of SDF, and also that the documents were negotiated by the Authorised Dealer without SDF.

In view of the above, the appeal was allowed.[Graphite India Ltd. v. Joint Director, Directorate of Enforcement, Chennai, FPA-FE-12-13/CHN/2016, decided on 26-03-2019]

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