The Enforcement Directorate has sought clarifications from the Reserve Bank of India (RBI) on the guidelines which allow domestic companies, advertising on foreign TV channels, to tie-up with exporters to facilitate the remittance of payment for advertisements in foreign exchange.
The clarification was sought after the Directorate conducted investigations into Subhash Chandra and associates, promoter of Zee Telefilms and its 50:50 joint venture with Star TV the Hong Kong-based ATL.
The RBI had earlier allowed repatriation of foreign exchange by advertisers on foreign channels, on the pre-condition that the domestic manufacturer had to have exports over Rs 10 lakh per annum.
However, when manufacturers started tying up with export houses for facilitating repatriation of advertising cost in foreign exchange, the issue came under the attention of the Directorate.
Domestic firms, wanting to place an advertisement in a channel telecast from a foreign country, pay exporters, who in turn remit the amount in foreign exchange to the channel joint venture partner.
Investigative agencies contend that since this conduit is not regulated at any point, this modus operandi can be used to remit huge amount of foreign exchange out of the country.
The Directorate, during its investigations, has alleged that Ambience Space Sellers, the official booking agency for Zee Telefilms, has repatriated to ATL foreign exchange amounting to around Rs 80 crore from its Delhi office and considerably more from its Mumbai office during 1994-95.
Officials point out that the amount is much higher if one considers all years and branches of the company.
As part of its investigations, the Directorate has issued letters to most of the top advertising agencies and companies advertising on Zee TV, EL TV and ZEE Cinema asking them whether they maintained any export earners foreign currency (EEFC) accounts and if the payments for the advertisements were made through these accounts.
They have also enquired into the export performance of these advertisers, in line with the earlier RBI guidelines.
Most television companies, who have joint ventures with foreign partners, cannot directly repatriate revenue in foreign exchange. However, the RBI does allow them to route the revenue through exporters, who are allowed to limit a certain amount of foreign exchange without RBI approval.
In August this year, Rajya Sabha member, S R Majumdar, had also written to the finance minister demanding that the ministry should direct the RBI and Directorate to take immediate steps to stop misuse of the channel for foreign exchange remittances, adding that it is a clear cut case of Fera violation.
However, in September 1996, the RBI sent a letter to the Mumbai office of the Directorate, stating exporters can be either a manufacturer, exporter or merchant exporter and that there is no difference between the two.
The Directorate is waiting for a clarification from the RBI on this matter before proceeding with investigations.