2026 Supreme(Online)(ATFP) 206

APPELLATE TRIBUNAL FOR FORFEITED PROPERTY
G.C. Mishra, Member, Rajesh Malhotra, Member
M/s Tungabhadra Minerals Pvt. Ltd. Shri Arjun A Salgocar – Appellant
Versus
The Special Director Directorate of Enforcement Mumbai – Respondent
FPA-FE-70/MUM/2018

Under FEMA, commission paid by a foreign buyer to a foreign agent on behalf of an exporter does not constitute export proceeds due to the exporter, and there is no obligation to repatriate such amount; FEMA does not apply extraterritorially to transactions between non-residents.

Headnote:(A) Foreign Exchange Management Act, 1999 - Sections 7, 8, 19, 42(1) - Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 - Paras 3, 9, 13 - Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 - Customs Act, 1962 - Section 127J - Settlement Commission - Master Circular on Export of Goods and Services - Penalty for non-realisation of export proceeds - Commission paid by overseas buyer to overseas agent - Whether such commission forms part of 'full export value' under FEMA - Whether Section 127J bars FEMA proceedings - Whether statement of director without personal knowledge can be relied - Whether FEMA has extraterritorial jurisdiction.

(B) Evidence - Hearsay evidence - Statement of a director appointed after the export transactions, having no personal knowledge of the affairs during the relevant period, cannot be relied upon to prove contraventions - Such statement is discarded as hearsay. (Paras 5, 11)

(C) Jurisdiction - Extraterritorial application - Provisions of Sections 7 and 8 of FEMA apply only to persons resident in India - A transaction of payment of commission between two non-residents (overseas buyer and overseas agent) outside India is not within the ambit of FEMA - No jurisdiction to invoke FEMA for such transaction. (Para 12)

(D) Repatriation - Commission paid by foreign buyer to foreign agent on behalf of exporter - No loss of foreign exchange as the commission amount was never due or accrued to the exporter - Even if repatriated, it would have to be paid to the agent - Therefore, no contravention of Sections 7 and 8. (Paras 8A, 13) (E) Customs Act - Section 127J - Order of Settlement Commission conclusive - However, FEMA proceedings can be initiated based on independent evidence collected during investigation under FEMA, without relying on the Settlement Order - The prohibition under Section 127J does not bar the ED from imposing penalty based on its own evidence. (Para 7) (F) Valuation - Parameters for valuation under Customs Act (transaction value) are not applicable to determination of 'full export value' under FEMA - Commission paid to an agent, even if paid by exporter, is not includible in transaction value for export under Customs law. (Para 8)

Facts of the case:
The appellants, a company and its director, were penalized by the Special Director, Directorate of Enforcement for contravening Sections 7 and 8 of FEMA read with Export Regulations. The charges were that the company had under-invoiced exports of iron ore by excluding commission amounting to US$1,94,61,990 paid to an overseas agent by the foreign buyers, and failed to repatriate that amount. Additionally, there was a charge for non-realization of export proceeds in 30 consignments (subsequently dropped). The commission was paid directly by the overseas buyers to the overseas agent. The appellant director, who was in charge during the export period, contended that he was not involved in price negotiations. Another director, appointed after the exports, made statements relied upon by the ED. The Settlement Commission under Customs Act had earlier passed an order regarding the same exports but under Customs law.

Findings of Court:
The Tribunal held that the commission paid by the overseas buyer to the overseas agent did not form part of the 'full export value' of goods under FEMA as it was never due or accrued to the exporter. There was no loss of foreign exchange. The statement of the director appointed after the exports was hearsay and could not be relied. The transaction of commission payment was between two non-residents outside India, hence FEMA had no extraterritorial application. The ED could proceed under FEMA based on independent evidence, but the evidence was insufficient. The second charge was already dropped by the Adjudicating Authority.

Issues: The main issues were whether commission paid by foreign buyer to foreign agent needs to be repatriated by the exporter; whether Section 127J of Customs Act bars FEMA proceedings; whether the statement of a director without personal knowledge is admissible; whether FEMA applies extraterritorially to non-resident transactions; and whether the penalty was disproportionate.

Ratio Decidendi: The court ruled that under FEMA, the obligation to repatriate foreign exchange arises only for amounts due or accrued to a person resident in India. Since the commission was paid by the foreign buyer to the foreign agent and was never payable to the exporter, there was no contravention. Further, the statement of a person lacking personal knowledge (hearsay) cannot sustain a finding of contravention. The Customs Act settlement does not preclude FEMA proceedings based on independent evidence, but here the evidence was insufficient. FEMA does not have extraterritorial application to transactions between non-residents.

Result: Appeals allowed. Impugned order imposing penalties set aside. Pre-deposit of penalty, if any, be returned.