Madras High Court Quashes Penalty on Exporters for Unrecovered Export Proceeds
Court Allows Write-off of Unrealized Export Bills, Citing RBI Circulars and Proportionate Duty Drawback Reversal
In a significant ruling, the Madras High Court has quashed penalties imposed on exporters for failing to realize a portion of their export proceeds. The division bench, comprising Justices S.M. Subramaniam and C. Saravanan, ruled that the appellants were entitled to write-off unrealized export bills under the Reserve Bank of India's (RBI) Circulars. The court also considered the exporters' reversal of the proportionate duty drawback in its decision.
The case involved intra-court appeals filed by P. Balasubramaniam and others against the Appellate Tribunal for Foreign Exchange's order, which affirmed penalties levied under the Foreign Exchange Regulation Act, 1973. The penalties were related to the failure to recover approximately Rs. 1.09 crore in export proceeds between 1991 and 1995, which represented about 5.45% of the total export value.
The appellants argued that they had made exhaustive efforts to recover the outstanding amounts, including approaching Indian Embassies to trace the buyers. Despite these efforts, they were unable to realize the proceeds due to untraceable buyers in Germany and the UK.
The court took into account the RBI Circulars A.P. (DIR Series) Circular No. 61 dated December 14, 2002, and A.P. (DIR Series) Circular No. 88 dated March 12, 2013, which allow for the write-off of unrealized export bills under specific conditions. The court found that the appellants' case fell within the permissible limits for write-off as the percentage of shortfall was negligible.
Moreover, the appellants had already reversed the duty drawback benefits received on the unrealized export proceeds, demonstrating their compliance with the prescribed conditions for write-off. The court emphasized that the appellants had not misused export incentives, further justifying the quashing of the penalty.
The Madras High Court's decision is expected to provide relief to exporters facing similar challenges in recovering export proceeds, highlighting the importance of RBI guidelines in such matters. The ruling underscores the court's view that penalties should not be imposed in cases where exporters have taken reasonable steps to recover payments and have complied with RBI's conditions for write-off.
Bottom Line:
Foreign Exchange Regulation Act, 1973 - Penalty imposed for failure to realize export proceeds quashed - Write-off of unrealized export bills allowed under Reserve Bank of India Circulars - Proportionate duty drawback already reversed by the exporters considered.
Statutory provision(s): Foreign Exchange Regulation Act, 1973 Sections 18(1)(a), 18(2), 18(3), 50; Foreign Exchange Management Act, 1999; Reserve Bank of India Circulars
