4 days Ago
The Karnataka High Court, in a recent judgment, directed Google India and three of its senior executives to deposit 50% of penalties imposed by the Enforcement Directorate (ED) for alleged violations of the Foreign Exchange Management Act (FEMA), 1999, in the form of bank guarantees.The ED had imposed a penalty of Rs 5 crore on Google India and Rs 25 lakh collectively on the three executives.In a judgment passed last month, the copy of which has become available now, a high court division bench comprising justices V Kameswar Rao and S Rachaiah allowed the ED’s appeal against Google India, setting aside an order of the FEMA appellate tribunal in Delhi.
The high court ordered Google India and the three executives to “keep the bank guarantees alive till the decision of the appeals before the tribunal” and said, “The furnishing of bank guarantees shall be subject to the outcome of the appeals which are pending before the tribunal.”The ED had imposed a penalty of Rs 5 crore on Google India, Rs 5 lakh on Hari Raju Mahadevu (now substituted by Vivek Chhabra) and Rs 20 lakh on Lloyd Hartley Martin and Ken Walker. The agency accused the tech firm and its executives of flouting Section 6(3)(d) of FEMA and other regulations under the law in two overseas transactions worth Rs 363.
79 crore and Rs 1.08 crore.The penalties relate to two current account transactions Google India had with Google Ireland and Google US.
In the first one, Google Ireland granted a right to Google India to distribute or sell online ad space under the ‘Ad Words Program’ to advertisers in India, in return for a distributor fee. Google India had another purchase transaction with its US parent, too.The ED argued before the high court that for marketing ‘Google Ad Words Program’ of Google Ireland, Google India had to pay a distribution fee and the fee was nothing but commercial loan in the form of supplier’s credit as defined in the ECB (external commercial borrowings).
Google India, however, challenged this interpretation on the grounds that there had been no loan agreements stipulating a drawdown and repayment schedule and there had been no understanding, express or implied, between the parties. Google did not respond to ET’s queries on the court directions till press time.In the judgement, the high court bench noted that the penalties were merely a preliminary viewpoint.
The ED stated that Rs 363 crore owed to Google Ireland remained outstanding for more than four years until May 2014, while Rs 1 crore for equipment from Google US had been unpaid for more than seven years until January 2014. These transactions were categorised as commercial loans by the ED, requiring the Reserve Bank of India’s prior approval.Google India said it had complied with the RBI circular dated July 1, 2014.
The appellate tribunal for FEMA in Delhi had previously suspended the penalties on January 11, 2019, noting that the chances of success of (Google India’s) appeal were more than those of the failure of appeal. The ED later filed a second appeal against the tribunal’s order..
