Customs | FERA Penalty U/S 50 Not Applicable For Export Shortfall Below 10%; Exporter Can Write-Off Unrealised Bills: Madras High Court

Justices S.M. Subramaniam and C. Saravanan stated that even otherwise, 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 is not applicable to the facts and circumstances of the case as admittedly the Appellants/Exporters had failed to realize approximately 5.45% of the export proceeds.

In this case, the assessee/appellant exported consignments of goods to various countries. However, a part of the export proceeds for a sum of Rs. 1,09,74,431.20/- on the exports made was not recovered by the said assessee.

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.

Since a part of the export proceeds was not realised by the Appellants/Exporters, the Appellant has paid back the Duty Drawback to an extent of Rs. 5,28,630/- pursuant to a Demand Notice of the Commissioner of Customs, Chennai.

The Appellants have been imposed with a penalty under Section 50 of the Foreign Exchange Regulation Act, 1973. Allegations against the Appellants are that they have violated Section 18(2) of the said Act since they have failed to realise the export proceeds for the value of Rs. 1,09,74,431.20/-.

It is the case of the Appellants/Exporters that the proceedings under the provisions of the Foreign Exchange Regulation Act, 1973 were without jurisdiction as the shortfall was below 10% which ought to have been considered by the Respondents (The Appellate Tribunal for Foreign Exchange and The Special Director of Enforcement, Enforcement Directorate).

The appellants submitted that they had also requested the Reserve Bank of India to write off the unrealised amount for the aforesaid sum as per the AP (DIR Series) Circular No.61 dated 14.12.2002, which has not been considered by the Reserve Bank of India.

The bench opined that 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 Appellants/Exporters are entitled to write-off of the unrealised export bills.

The Appellants/Exporters have also reversed the proportionate Duty Drawback that was paid to the Appellants/Exporters by the Customs Authority. Thus, the Appellants/Exporters have not misused the export incentives, the bench added.

In view of the above, the bench allowed the appeal.

Case Title: P. Balasubramaniam v. The Appellate Tribunal for Foreign Exchange

Citation: 2025 Livelaw (Mad) 344

Case Number: W.A.Nos.12 and 57 of 2023

Counsel for Appellant/Assessee: Mr. Karthik Ranganathan

Counsel for Respondent/Department: Mr. N. Ramesh

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