2025 (5) TMI 2018 - AT - Customs

Revocation of the Custom House Agent (CHA/CB) license - forfeiture of security - non-existing firm - failure to comply with the provision of Regulations 10 (d) 10 (e) and 10 (n) of CBLR 2018 - failure to exercise due diligence - HELD THAT - All the admitted facts as observed above sufficiently proves the lack of due diligence on part of the appellant while verifying of the credentials of the importer. No doubt vide Circular No. 502/2008 dated 8.4.2010 only two out of six documents as mentioned in the said circular should be available with the CHA for its satisfaction about the credentials of the importer/exporter. But we observe that the said circular in para 5.2 (iv) describes the Know Your Customers (KYC norms) to be followed by the Custom House Agents. It provides that to identify its client and the functioning of its client in the declared address the CHA is required to use the reliable independent authentic documents data or information. It has also been clarified that it should be obligatory for the client/customer to furnish to CHA a photograph of himself/herself in case of an individual and those of authorized signatory in respect of other firms of organizations such as companies/trust etc. However we observe appellant/CHA in his statement recorded under Section 108 of Customs Act 1962 has admitted that he had not met the importer ever. The documents for processing the clearance of impugned consignments were hand over to him by the freight forwarders M/s Transglobe. The CHA was acting at the instance of said freight forwarder only. It is the settled law of evidence that admissions need no further proof till those are retracted or otherwise proved in voluntary. In the present case the appellant has not denied the said statement at any stage of the present proceedings. Resultantly it stands proved that the most important obligation under CBLR 2018 as fastened on the CHA has not been fulfilled by the appellant. The appellant was the first time CHA for M/s Digen Traders the importer still he has not opted to meet the importer in person. Thus we have no reason to differ from the findings arrived at by the adjudicating authority holding that the appellant has failed to exercise due diligence. In view of the entire above discussion with respect to the regulations as are alleged to have been violated by the appellant with respect to the conduct of appellant itself proving the said violations and also the conclusion of the enquiry report against the appellant and the various decisions as discussed above we find no reason to differ from the findings arrived at by the adjudicating authority. Hence we hold that the appellant has violated the Regulations (CBLR) 2018. Finding no infirmity in the order under challenge same is hereby upheld. Consequently the appeal is dismissed.

Summary

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

1. Whether the appellant, a licensed Customs House Agent (CHA), failed to discharge the obligations imposed under the Customs Broker Licensing Regulations (CBLR), 2018, specifically Regulations 10(d), 10(e), and 10(n), by not exercising due diligence in verifying the identity and credentials of the importer and the goods declared in the Bill of Entry (BOE).

2. Whether the appellant's conduct amounted to negligence or violation warranting revocation of the customs broker license, forfeiture of security deposit, and imposition of penalty.

3. Whether the appellant complied with the due diligence requirements prescribed under the relevant circulars and regulations, including KYC verification norms.

4. Whether the appellant was justified in filing the BOE on a "First Check" basis and relying on documents provided by a freight forwarding agent without direct authorization or physical verification of the importer's premises.

5. The extent and nature of the obligations imposed on a Customs Broker under the CBLR, 2018, and the consequences of non-compliance, including the scope of liability for unintentional violations.

Issue-wise Detailed Analysis

Issue 1: Compliance with Due Diligence Obligations under CBLR 2018 (Regulations 10(d), 10(e), 10(n))

The legal framework includes the Customs Broker Licensing Regulations, 2018, which impose specific duties on a CHA to verify and advise clients, exercise due diligence, and verify client credentials using reliable and authentic documents. Regulation 10(d) requires the broker to advise clients to comply with the Customs Act and report non-compliance to authorities; 10(e) mandates due diligence to ascertain correctness of information imparted; and 10(n) requires verification of IEC, GSTIN, client identity, and functioning at declared address.

Precedents cited include decisions emphasizing the critical role of CHAs in customs clearance and the importance of due diligence, such as the Apex Court ruling in CC vs. KM Ganatra, which underscores that violations, even without intent, attract disciplinary action to uphold customs integrity.

The Tribunal noted key evidence: the consignment declared as 738 drums of base oil was found to contain only 80 drums of oil and 658 drums of Areca Nuts, indicating mis-declaration. Further, the importer's registered premises per IEC and GSTIN were not located; the mobile number and identity details were false; and the importer was found to be non-existent or "benami." The appellant admitted filing the BOE without direct authorization or physical verification, relying solely on documents provided by a freight forwarding firm.

The Court applied the law by holding that the appellant failed to exercise due diligence in verifying the authenticity and existence of the importer, failed to advise the client regarding compliance, and did not report discrepancies to customs authorities. The appellant's reliance on documents without independent verification was insufficient under Regulation 10(n). The appellant's own admission under Section 108 of the Customs Act that it never met the importer and did not verify the premises was decisive evidence of negligence.

Competing arguments from the appellant that KYC verification was adequate based on PAN card and bank statement, and that physical verification was not mandatory, were rejected on the ground that the regulations and circulars require use of reliable, independent, and authentic data, and that physical verification or other reasonable steps to verify existence and functioning at the declared address are part of due diligence. The appellant's invocation of case laws exempting brokers from physically verifying premises was distinguished on facts, as those cases lacked evidence of knowledge or negligence in mis-declaration.

Conclusion: The appellant violated Regulations 10(d), 10(e), and 10(n) by failing to exercise due diligence, verify importer credentials, and report non-compliance.

Issue 2: Legitimacy of Filing BOE on First Check Basis and Reliance on Freight Forwarder

The appellant filed the BOE on "First Check" basis, which is a procedure used when the broker is uncertain about classification or description of goods, inviting Customs to examine the consignment before assessment. The appellant argued this showed good faith and lack of knowledge of mis-declaration.

The Tribunal observed that filing on First Check does not absolve the broker from verifying client credentials or exercising due diligence. The appellant admitted not having authorization from the importer at the time of filing and relying on a freight forwarder's documents. The Court emphasized that a CHA is required to know on whose behalf it is working and must verify the client's authenticity as per the regulations.

The appellant's failure to obtain a signed authority letter before filing was a critical lapse. The Tribunal held that such admitted facts distinguish this case from precedents relied upon by the appellant where brokers had bona fide reliance on importer documents.

Conclusion: Filing on First Check basis does not excuse the appellant's failure to verify importer credentials or obtain authorization, and reliance solely on freight forwarder documents without direct contact was improper.

Issue 3: Extent of Liability and Consequences of Non-Compliance

The Tribunal referred to authoritative decisions highlighting the important status of CHAs and their fiduciary role in customs clearance. The Apex Court and Tribunal decisions emphasize that even unintentional contraventions or negligence attract punitive action to maintain the integrity of customs procedures.

The inquiry report and adjudicating authority found that the appellant did not inform Customs about discrepancies, did not exercise due diligence, and failed to verify the importer's operational status. These findings were based on the appellant's admissions and corroborated by investigation.

The Tribunal found no merit in the appellant's plea that the punishment was harsh or that the appellant acted in good faith. The forfeiture of security deposit and imposition of penalty were held to be justified disciplinary measures under the Regulations.

Conclusion: The appellant's violations warranted revocation of license, forfeiture of security, and penalty, consistent with legal principles and regulatory framework.

Issue 4: Adequacy of KYC Verification and Reliance on Circular No. 502/2/2008

The appellant contended that KYC verification was done in accordance with the Board's circular, which requires two documents such as PAN card and bank statement for individuals. The appellant claimed this sufficed to fulfill due diligence obligations.

The Tribunal examined the circular's provisions, particularly paragraph 5.2(iv), which mandates use of reliable, independent, and authentic documents and requires a photograph of the client or authorized signatory. The appellant's failure to meet or verify the importer in person and reliance on forwarded documents without independent verification was found inadequate.

The Tribunal emphasized that the circular does not exclude the obligation to verify the functioning of the client at the declared address or to ensure authenticity beyond mere possession of documents. The appellant's admission of never meeting the importer or verifying the premises was fatal to its defense.

Conclusion: Mere possession of two KYC documents without independent verification or physical confirmation does not satisfy due diligence under CBLR and the Board's guidelines.

Issue 5: Treatment of Competing Arguments and Precedents

The appellant relied on several decisions to argue that physical verification is not mandatory and that filing BOE based on importer documents absolves the broker from liability. The Tribunal distinguished these precedents on facts, noting the presence of evidence of negligence or knowledge of mis-declaration in the present case.

The Department relied on decisions affirming that even unintentional violations attract disciplinary action and that CHAs must act responsibly to protect revenue interests. The Tribunal aligned with these views, emphasizing the fiduciary role and regulatory obligations of CHAs.

Conclusion: The Tribunal upheld the view that while CHAs are not expected to do the impossible, they must act with reasonable care, and failure to do so attracts sanctions.

Significant Holdings

"The Customs Broker, by failing to highlight discrepancies in the importer's documents, has breached Regulation 10(d). The lack of initiative to report or rectify the mis-declaration undermines compliance with the Customs Act."

"Under Regulation 10(e), a Customs Broker is expected to ensure the accuracy of information supplied to the client. The appellant's failure to verify discrepancies in the KYC documentation constitutes negligence."

"Regulation 10(n) mandates that a Custom Broker must verify the client's operational status at the declared address using reliable and independent methods. The appellant's reliance solely on GSTIN and IEC documents without physical verification is insufficient."

"The CHA occupies a very important position in the Customs House... To ensure appropriate discharge of such trust, the relevant regulations are framed. Regulation 14 of the CHA Licensing Regulations lists out obligations of the CHA. Any contravention of such obligations even without intent would be sufficient to invite upon the CHA the punishment listed in the Regulations."

"While it is true... that the Customs Broker is not expected to physically verify the premises of the importer or doubt the documents issued by various Governmental authorities for KYC, it is equally true that the Customs Broker is expected to act with great sense of responsibility... It is expected to advise the client to follow the laws and if the client is not complying, it is obligated under the Regulations to report to the Assistant Commissioner or Deputy Commissioner."

The Tribunal's final determination was to uphold the revocation of the appellant's customs broker license, forfeiture of security deposit, and imposition of penalty, dismissing the appeal. The appellant was found to have violated Regulations 10(d), 10(e), and 10(n) of CBLR, 2018, by failing to exercise due diligence, verify importer credentials, and report non-compliance, thereby justifying the disciplinary action taken against it.