PAUL Vs. FOREIGN EXCHANGE REGULATION APPELLATE BOARD

JUDGEMENT

(1.) The Judgment of the court was delivered by Balakrishna Eradi, J.-- These two appeals filed under S.23EE of the Foreign Exchange Regulation Act, 1947 (hereinafter referred to as the Act) raise common questions and hence were heard together at the request of both sides.

(2.) The appellant in M.F.A. No. 39 of 1976 is a firm by name N. A. Paul and Co. conducting the business of export of dried prawns from Cochin. During the year 1970 the appellant firm had exported dried prawns on consignment (account sale) basis to Hong Kong. By a notice dated 4th January 3972 issued by the Deputy Director, Enforcement. Directorate, Madras the appellant was directed to show cause why adjudication proceedings as contemplated under S.23D of the Act should not be held against it on the ground that the firm failed to repatriate the entire invoice value or the total export proceeds in respect of a consignment of dried prawns sent to Hong Kong during 1970. The charge proceeded to state that even out of the amounts actually realised by the sale of the goods at the foreign port, certain deductions had been made for which the permission of the Reserve Bank of India had not been obtained and that hence there was a contravention of the provisions of S.12(2) of the Act. That the transaction of export was by way of consignment sale was not disputed by the Department. In reply to the aforesaid notice the appellant submitted that the firm had been exporting prawns on consignment basis for the past fifty years to its accredited Hong Kong agents and that the usual system recognised and accepted by the custom authorities and the Reserve Bank of India was to allow the goods to be exported on consignment or account sale basis after making out a provisional invoice whereunder the value will be put at as high rate as possible. It was further pointed out that the practice was that a substantial portion of the invoice value will be drawn by the firm as advance immediately on presentation of the documents after shipment. But this was subject to final settlement of accounts after the goods were actually sold in the foreign country, the amount receivable by the appellant firm in respect of the goods exported being only the net sale proceeds after deduction of expenses and commission at the usual recognised and agreed rates. According to the case put forward by the appellant the practice was that on arrival of the goods at the foreign country of destination the agents there will effect the sales at the best possible rates and the proceeds less the advance, expenses and the commission for the services rendered will be repatriated to the appellant. The documents used to be thereafter sent to the Reserve Bank and they were being accepted without: any objection during the past many years. On the basis of these facts it was contended by the appellant that there had not been any contravention of the provisions of S.12(2) of the Act by the firm and hence it was requested that the proceedings may be dropped. The appellant was also served with another notice in 1973 calling upon it to show cause why similar action should not be taken against it for contravention of S.12(2) of the Act in respect of second consignment of 65 bags of dried prawns exported to Hong Kong during October 1970. In reply to this notice also the appellant filed a detailed explanation stating that the exports were effected on consignment basis, that the value shown in the invoice was only provisional and that it had been put at a higher figure with a view to induce the foreign agent to sell the goods at as high rate as possible in the foreign country, that after the sale of the goods at Hong Kong the foreign party had sent a statement of accounts and that the full amount due to the firm under the said statement of accounts had been repatriated to India and that hence the provisions of S.12(2) of the Act had not been in any manner contravened.

(3.) The Deputy Director took the view that even though the transactions of export had been effected by way of consignment sales or account sales and the necessary supporting vouchers had been produced by the appellant in respect of all the deductions made by the Hong Kong agents other than the commission of 3 per cent charged by them, the appellant must be held to have contravened S.12(2) of the Act since the firm had not obtained the prior permission of the Reserve Bank of India for deduction of the sale commission of 3 per cent paid to the consignee at Hong Kong on the basis of the said conclusion reached by him the Deputy Director passed separate orders in the two cases imposing on the appellant a penalty of Rs. 5,000 in each case under S.23(1)(a) of the Act. The appellant thereupon preferred two appeals before the Foreign Exchange Regulation Appellate Board reiterating its contention that the firm had not contravened the provisions of S.12(2) of the Act. The Appellate Board agreed with the contention advanced on the side of the appellant that in the case of consignment sales the value mentioned in the invoice could only be an estimate and that it was open to the exporter to show by appropriate evidence that the money actually realised by the transaction was less than the figure shown in the invoice. The Board also took note of the fact that vouchers had been produced by the appellant in respect of the items of deductions representing the expenses incurred by the Foreign Company and that those vouchers had been already shown to the Reserve Bank and the Bank had not taken any objection to them. However, since the Reserve Bank had taken the objection to the payment of the 3 per cent commission to the foreign consignee on the ground that the previous approval of the Bank had not been taken, the Appellate Board was of opinion that this constituted a violation of the provisions of S.12(2) of the Act in so far as the deduction on account of commission was concerned. Accordingly, the Appellate Board held that a contravention of the aforesaid provision had been proved against the firm only in so far as the payment of the commission was concerned and not in respect of any other matter. In view of the said finding reached by it the Appellate Board reduced the penalty levied against the appellant to Rs. 2,000 in each case. Being aggrieved by the said decision of the Board in so far as it held the appellant firm guilty of contravention of S.12(2) in respect of the deduction of commission by the foreign consignee the appellant has preferred this appeal before this court.