2025 (5) TMI 1625 - AT - Customs

Violation of the provisions of Regulations 10(d) 10(e) and 10(n) of the Customs Broker Licensing Regulations (CBLR) 2018 - FOB Value - Non-existent entity - revocation of the appellant s Customs Broker License - forfeiture of security deposit - imposition of penalty under Regulations 14 17 and 18 of CBLR 2018 - Guidelines as per Circular No. 02/2018-Customs Dated 12.01.2018 and CBIC Circular No. 09/2010-Customs - HELD THAT - A violation of Regulation 10(e) of the CBLR 2018 generally means a failure to exercise due diligence in verifying the correctness of information provided to a client related to customs clearance. This could involve not properly verifying the client s documents credentials or the accuracy of information shared about the cargo. In this context it is an admitted fact that the appellant was in possession of the required KYC documents at the time of customs clearance of the subject goods. It has been submitted that all due diligence as required under the CBLR 2018 and Circular No. 02/2018-Customs dated 12.01.2018 read with Circular No. 09/2010-Customs dated 8.04.2010. The said Customs authorities did not raise any objection at the time of any clearance of the said goods. No mis-declaration or under valuation of the goods has been reported at the time of its clearance for export. Further we note that there is no evidence as to what wrong information was provided by the appellant in their capacity as customs broker to the Department or the exporter. Consequently we hold that the violation of said regulations is not established. We note that a violation of Regulation 10(n) of the CBLR 2018 typically occurs when a customs broker fails to verify the identity of their client using reliable independent and authentic documents data or information. This means the broker needs to be certain about who their client is and ensure they are not dealing with a fictitious entity. In this context we note that the learned counsel has submitted that due verification was carried out by the appellant. Learned authorized representative has refuted this claim stating that the GSTN of the exporter was issued for Sarita Vihar address whereas the IEC was issued for Narela address. It has also been submitted that the GSTN was cancelled suo-moto by the exporter on 05.07.2021. In this context the learned authorized representative has relied on the decisions of Supreme Court that fraud vitiates everything. However we are unable to appreciate this contention as there is no evidence of any fraud committed by the appellant. We note that as per the Circulars supra two documents one for proof of identity and other for proof of address are required for KYC verification whereas in case of individuals if any one document listed in the Board Circular No. 9/2010-Cus dated 08.04.2010 containing both proof of identity and proof of addresses the same would suffice for the purposes of KYC verification. Aadhaar card had also been recognised as one of the documents for individuals. In the instant case it is on record that IEC GSTIN Aadhar card Rent Agreement and PAN of the exporter were taken by the appellant. There is no allegation that these documents are forged or fake. Verification of these government issued documents did not throw up any anamoly. Consequently the allegation that the appellant committed fraud does not stand. In this context we find support in the decision in M/s Perfect Cargo Logistics Vs. Principal Commissioner of Customs (Airport General) 2020 (12) TMI 649 - CESTAT NEW DELHI wherein the Tribunal had decided the issue of KYC verification of the importer/exporter by the Customs broker and the requirements specified in the CBLR 2018. Thus particularly when the appellants CB had handled the export consignments in the year 2021 without any query raised by the Customs authorities it cannot be said that they had violated Regulation 10(n) ibid. Merely based on the NCTC DGARM report the Customs authorities have found it appropriate to deprive the appellant and its employees of their livelihood. Such a harsh action is to be initiated only when there are serious violations by the CB. Appreciating the above judicial precedents and having regard to the facts of the appeal we are of the view that revocation of Customs Brokers License is too harsh a punishment which is bound to affect the livelihood of the Customs Broker and his employees. Thus the appeal is allowed and the impugned order is set aside with consequential relief to the appellant.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the appellant Customs Broker violated the provisions of Regulations 10(d), 10(e), and 10(n) of the Customs Broker Licensing Regulations (CBLR), 2018, by facilitating exports for a non-existent entity and failing to exercise due diligence and verification obligations;

(b) Whether the revocation of the appellant's Customs Broker License, forfeiture of security deposit, and imposition of penalty under Regulations 14, 17, and 18 of CBLR, 2018 are justified and sustainable in law;

(c) Whether the appellant had complied with the Know Your Client (KYC) requirements and exercised due diligence as mandated under the relevant Circulars and CBLR provisions;

(d) Whether the action taken by the Customs authorities in 2023 for transactions dating back to 2021 is legally tenable;

(e) The extent of the appellant's knowledge or complicity in the alleged fraudulent exports and whether mere facilitation without mens rea warrants revocation of license;

(f) The applicability and interpretation of judicial precedents regarding the obligations and liabilities of Customs Brokers in similar circumstances.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of Regulation 10(d) of CBLR, 2018 - Advising clients and reporting non-compliance

Legal framework and precedents: Regulation 10(d) mandates Customs Brokers to advise clients to comply with all applicable laws and report any non-compliance to Customs authorities. Precedents emphasize the broker's duty to ensure accurate documentation and notify authorities of irregularities.

Court's reasoning and findings: The appellant had filed export shipping bills for the exporter M/s Ariction Overseas during September-October 2021, which were cleared by Customs without objection. The Department's contention that the exporter was non-existent was based on a 2023 verification report and a statement by the exporter alleging fraud. However, no corroborative evidence was presented to establish that the exporter was non-existent at the time of export or that the appellant failed to advise or report any non-compliance.

Application of law to facts: Since the appellant submitted KYC documents and no irregularity was detected at the time of clearance, the Tribunal held that there was no violation of Regulation 10(d). The mere fact that the exporter was later found untraceable does not establish a breach of this obligation.

Treatment of competing arguments: The Department relied on the exporter's post-facto denial and FIR alleging misuse of documents, but the Tribunal found this insufficient without independent corroboration. The appellant's compliance with KYC and procedural requirements weighed in their favor.

Conclusion: No violation of Regulation 10(d) established.

Issue 2: Violation of Regulation 10(e) of CBLR, 2018 - Exercise of due diligence

Legal framework and precedents: Regulation 10(e) requires Customs Brokers to exercise due diligence in verifying correctness of information imparted to clients concerning cargo clearance. Precedents clarify that brokers are not expected to investigate beyond documents provided but must ensure accuracy and completeness of information.

Court's reasoning and findings: The appellant possessed and submitted all required KYC documents and followed Circulars No. 02/2018 and 09/2010 concerning due diligence. No mis-declaration or undervaluation was reported at the time of export clearance. The Department failed to demonstrate any incorrect information imparted by the appellant.

Application of law to facts: Given the appellant's adherence to prescribed procedures and absence of evidence of misinformation, the Tribunal concluded no breach of Regulation 10(e) occurred.

Treatment of competing arguments: The Department's reliance on later investigations and allegations of fraud was insufficient to prove lack of due diligence at the relevant time.

Conclusion: Violation of Regulation 10(e) not established.

Issue 3: Violation of Regulation 10(n) of CBLR, 2018 - Verification of client identity and documents

Legal framework and precedents: Regulation 10(n) mandates verification of the correctness of IEC, GSTIN, client identity, and functioning at declared address using reliable, independent, authentic documents. Circulars specify acceptable documents for KYC verification. Judicial precedents establish that Customs Brokers are not expected to verify genuineness of transactions beyond authentic documents provided.

Court's reasoning and findings: The appellant submitted IEC, GSTIN, Aadhaar card, rent agreement, and PAN card of the exporter. No allegation or evidence was presented that these documents were forged or fake. The Department's contention that GSTIN and IEC addresses differed and that GSTIN was cancelled by the exporter was noted but not found sufficient to prove failure of verification. The Tribunal relied on precedents holding that possession and verification of government-issued documents satisfy KYC requirements.

Application of law to facts: The appellant complied with KYC norms by verifying and submitting requisite documents. The absence of any anomaly in these documents or any direct evidence of fraud committed by the appellant led to the conclusion that Regulation 10(n) was not violated.

Treatment of competing arguments: The Department's reliance on the exporter's denial of authorization and alleged fraud was considered but found to lack corroboration. The Tribunal emphasized that the Customs Broker is a processing agent, not a fraud investigator.

Conclusion: No violation of Regulation 10(n) established.

Issue 4: Legality and timeliness of action in 2023 for 2021 transactions

Legal framework: The appellant contended that action taken in 2023 for exports in 2021 was untimely and untenable.

Court's reasoning: The Tribunal did not specifically find the timing of action as a ground to invalidate the order but considered the facts and evidence on merits. The delay was acknowledged but did not affect the substantive conclusion that no violations were established.

Conclusion: No explicit finding on limitation but no adverse consequence to appellant on this ground.

Issue 5: Knowledge or complicity of the appellant in fraudulent exports

Legal framework and precedents: The Apex Court and Tribunal decisions emphasize that revocation of license requires proof of mens rea or knowledge of irregularities. Mere facilitation without knowledge of fraud does not warrant harsh penalties.

Court's reasoning and findings: No evidence was adduced to show that the appellant had knowledge of or connived with fraudsters. The appellant had acted in good faith based on documents presented by the exporter's proprietor. The Tribunal cited precedents where revocation was set aside due to absence of knowledge or intent.

Conclusion: No mens rea or complicity established; revocation disproportionate.

Issue 6: Proportionality of penalty and revocation of license

Legal framework and precedents: The Tribunal referred to multiple precedents emphasizing proportionality of penalty, the severe consequences of revocation on livelihood, and the need for clear proof of serious violations to justify such action.

Court's reasoning and findings: The Tribunal found the revocation and penalty of Rs. 50,000/- to be harsh and disproportionate, especially given the absence of evidence of violation. It noted that the appellant had been unable to work the license for a significant period and that revocation would cause irreparable hardship.

Conclusion: Revocation and penalty set aside as disproportionate and unjustified.

3. SIGNIFICANT HOLDINGS

"The appellant filed the customs documents for the instant exporter and the said documents were cleared by the Customs authorities in the year 2021. After a gap of 2 years, the said exporter was found to be non-existent at the address, during a verification. This in no way establishes that the said exporter was not available in this address at the time of the exports. No evidence has been led by the Department to establish that the exporter was non-existent at the time of the exports."

"The appellant had obtained the KYC documents and conducted the verification as required. According to the Revenue, the appellant's contention that they had met the Proprietor of the exporter firm M/s Ariction Overseas, Sh Dheeraj has been contradicted by the exporter who submitted that his documents were obtained fraudulently. Apart from the said statement of Shri Dheeraj, there is nothing on record to substantiate his contention."

"The basic requirement of Regulation10(n) is that the Customs Broker should verify the identity of the client and functioning of the client at the declared address by using, reliable, independent, authentic documents, data or information...The appellant had submitted two documents and this fact has also been stated in paragraph 27(a) of the order. It was obligatory on the part of the Principal Commissioner to have mentioned the documents and discussed the same but all that has been stated in the impugned order is that having gone through the submissions of the Customs Broker, it is found that there is no force in the submissions. The finding recorded by the Principal Commissioner that the required documents were not submitted is, therefore, factually incorrect."

"The CHA is not an inspector to weigh the genuineness of the transaction. It is a processing agent of documents with respect to clearance of goods through customs house...It would be far too onerous to expect the CHA to inquire into and verify the genuineness of the IE Code given to it by a client for each import/export transaction."

"Mere signing of documents by a CHA would not prove that the clearances were undertaken by the CHA and punishment for the same could not be revocation of license of the CHA as that would be extreme and harsh...A penalty must be imposed. At the same time, the penalty must - as in any ordered system - be proportional to the violation."

Core principles established:

- Customs Brokers must exercise due diligence and verify client identity using authentic documents but are not required to investigate beyond the documents provided.

- Mere facilitation of exports without knowledge or intent to commit fraud does not warrant revocation of license.

- Revocation of Customs Broker License is a severe penalty and should be imposed only when serious violations with mens rea are established.

- Proportionality in penalty is essential to avoid undue hardship on Customs Brokers and their employees.

Final determinations on each issue:

- No violation of Regulations 10(d), 10(e), or 10(n) of CBLR, 2018 was established against the appellant.

- The revocation of the Customs Broker License, forfeiture of security deposit, and penalty imposed were set aside as unjustified and disproportionate.

- The appeal was allowed, and the impugned order was quashed with consequential relief to the appellant.