2026 Supreme(Online)(ATFP) 208

APPELLATE TRIBUNAL FOR FORFEITED PROPERTY
G.C. Mishra, Member, Rajesh Malhotra, Member
M/s Salgaocar Mining Industries Pvt. Ltd. Shri Arjun A Salgocar v. The Special Director Directorate of Enforcement Mumbai
FPA-FE-71/MUM/2018

Commission paid by a foreign buyer directly to a foreign agent, without involvement of the Indian exporter, does not form part of the export value under FEMA and is not subject to repatriation obligations.

Headnote:(A) Foreign Exchange Management Act, 1999 - Sections 7, 8, 42(1) - Foreign Exchange Management (Export of Goods and Services) Regulation, 2000 - Paras 3, 9, 13 - Customs Act, 1962 - Sections 14, 127J - Commission paid by overseas buyer to overseas agent - Whether such commission forms part of ‘full export value’ under FEMA - Whether obligation to repatriate arises - Whether Section 127J prohibits FEMA proceedings - Statement of director lacking personal knowledge - Hearsay evidence - Extraterritorial application of FEMA - No loss of foreign exchange - Penalty set aside. (Paras 4-15)

(B) Section 127J of Customs Act does not bar proceedings under FEMA if based on independent evidence collected during investigation; FEMA is a self-contained code and the ED may impose penalty on the basis of evidence gathered under FEMA, without relying on the customs settlement order. (Para 7)

(C) Parameters for valuation under Customs Act (transaction value) are not applicable to determination of ‘full export value’ under FEMA; there is no statutory basis for importing customs valuation principles into FEMA. (Para 8)

Facts of the case:
The appellant company exported iron ore during 2008-2012. The overseas buyers paid a commission to an overseas agent (M/s Artmuse Ltd.) directly, which the company did not declare in export documents. The Directorate of Revenue Intelligence investigated and a settlement order was passed under the Customs Act. Thereafter, the Enforcement Directorate issued a show cause notice under FEMA, alleging non-realisation of the commission amount as part of export proceeds and under-invoicing. The Adjudicating Authority imposed penalties of Rs.30 crores on the company and Rs.3 crores on its director. The second charge (difference between GR-I value and realised amount) was dropped. The appellant appealed.

Findings of Court:
The Tribunal found that (i) the company did not pay any commission to the overseas agent; the payment was made by the overseas buyer. (ii) The statement of Mr. Mukesh Saglani, who was appointed as director after the export period, lacked personal knowledge and was hearsay; it could not be relied upon. (iii) The commission paid by the foreign buyer to the foreign agent does not form part of the ‘full export value’ under Section 7 of FEMA; the company had no right to receive or claim that amount and there was no loss of foreign exchange because the commission, even if repatriated, would have to be paid out to the agent. (iv) The Master Circular of RBI on commission applies only when the exporter itself pays the commission; here it was not so. (v) The provisions of FEMA cannot be applied extraterritorially to transactions between two non-resident parties. (vi) The parameters of valuation under the Customs Act are not relevant for FEMA. Accordingly, the charges were not sustained.

Issues: The main issues were whether the commission paid by an overseas buyer to an overseas agent is part of the export value under FEMA, whether the exporter is liable to repatriate such amount, whether the statement of a director appointed after the transaction can be relied upon, and whether proceedings under FEMA are barred by Section 127J of the Customs Act.

Ratio Decidendi: The court ruled that (a) commission paid by a foreign buyer to a foreign agent, without any payment by the exporter, does not constitute part of the ‘full export value’ under FEMA and is not required to be repatriated; (b) a statement from a person with no personal knowledge of the transactions is hearsay and cannot be relied upon; (c) FEMA does not apply extraterritorially to transactions solely between non-residents; and (d) the valuation principles under the Customs Act are not automatically applicable to FEMA.

Result: Appeals allowed. The impugned order imposing penalties on the appellants is set aside. Pre-deposit of penalty, if any, to be returned. (Para 15)