2025 (6) TMI 367 - AT - Customs

Suspension of the appellant s CB license - forfeiture of security deposit - levy of penalty - contravention of Regulations 10(d) 10(e) and 10(n) of CBLR 2018 - the appellants CB firm had played the role of facilitating such exports by mis-use of documents with the intention of availing undue IGST refunds and other export incentives in a fraudulent manner. Violation of regulation 10(d) of CBLR 2018 - HELD THAT - In the instant case the ineligible claim for export incentives was found by the department only on the basis of specific investigation conducted by the ACC customs authorities and hence the appellants CB cannot be found fault for the reason that they did not advise their client exporter to comply with the provisions of the Act. Further the impugned order also indicated that out of 7 S/Bs filed by the exporter 4 S/Bs were filed in the past and these consignments were also allowed by customs authorities at the port of export. Thus when the customs authorities were not aware of the non-genuineness of the prices there is no possibility for the appellants CB to be aware of the same and to bring it to the notice of the Deputy Commissioner of Customs (DC) or Assistant Commissioner of Customs (AC) about the mis-declaration of exported goods - the violation of Regulation 10(d) ibid as concluded in the impugned order is not sustainable. Violation of regulation 10(e) of CBLR 2018 - HELD THAT - The charges framed under CBLR 2018 for which the adjudicating authority is required to give specific findings on the basis of inquiry proceedings conducted as per Regulation 17 and 18 ibid. Further with respect of the value of export goods the appellants CB did not impart any specific information to the exporter rather it is the case that such information was provided by the exporter to the appellants CB. Thus it is not feasible to sustain a charge on the appellants CB that they did not exercise due diligence to impart correct information to their clients on the basis of market survey done much later after the exports in the past cases having been allowed for export by the very same Customs authorities at ACC Mumbai - the conclusion arrived at by the Principal Commissioner of Customs (General) is without any basis of documents or facts in the impugned order with respect to Regulation 10(e) ibid and therefore it is not sustainable. Violation of Regulation 10(n) of CBLR 2018 - HELD THAT - The appellants CB had obtained the KYC documents from the exporter M/s Jamilar International Private Limited vide their authorization letter addressed to the Deputy Commissioner of Customs General Undertaking letter of the exporter to comply with customs authorities for any demand of duty submission of documents; and verified the existence of the exporter through the Certificate of Importer-Exporter Code issued by the Zonal Director General of Foreign Trade Ministry of Commerce and Industry Government of India New Delhi indicating the name along with address name of the Director; GST Registration Certificate in GST REG-06 dated 06.10.2018; signature and account verification letter from Kotak Mahindra Bank Peeragarhi New Delhi - in the present case the appellants CB had obtained the KYC documents and submitted the same to the Customs Department. Thus there are no legal basis for upholding of the alleged violation of Regulation 10(n) ibid by the appellants in the impugned order on the above issue. Hon ble High Court of Delhi has held in the case of Kunal Travels (Cargo) Vs. Commissioner of Customs (I G) IGI Airport New Delhi 2017 (3) TMI 1494 - DELHI HIGH COURT the appellants CB is not an officer of Customs who would have an expertise to identify mis- declaration of goods. Conclusion - There are no merits in the impugned order passed by the learned Principal Commissioner of Customs (General) Mumbai in revocation of the CB license of the appellants; for forfeiture of security deposit and for imposition of penalty on the appellants inasmuch as there is no violation of regulations 10(d) 10(e) and 10(n) ibid and the findings in the impugned order 19.07.2024 is contrary to the facts on record. The impugned order is set aside - appeal allowed.

Summary

The core legal questions considered by the Tribunal in this appeal revolve around whether the Customs Broker (CB) appellants contravened specific obligations under the Customs Brokers Licensing Regulations (CBLR), 2018, particularly Regulations 10(d), 10(e), and 10(n). The issues include:

1. Whether the appellants failed to advise their client exporters to comply with customs laws and report non-compliance as required under Regulation 10(d).

2. Whether the appellants failed to exercise due diligence in ascertaining the correctness of information imparted to their clients regarding export declarations, especially concerning valuation, under Regulation 10(e).

3. Whether the appellants failed to verify the correctness of the Importer Exporter Code (IEC), Goods and Services Tax Identification Number (GSTIN), identity, and functioning of their client exporters at the declared address as mandated under Regulation 10(n).

4. Whether the procedural requirements under Regulation 17 of CBLR, 2018, governing inquiry and adjudication for revocation of CB licenses and imposition of penalties, were duly followed.

5. Whether the evidence and investigation findings sufficiently established the appellants' liability for facilitating fraudulent claims of IGST refunds through overvaluation of export goods.

Issue-wise Detailed Analysis:

1. Alleged Violation of Regulation 10(d): Duty to Advise Client and Report Non-Compliance

Regulation 10(d) requires a Customs Broker to advise clients to comply with the provisions of the Customs Act and to report any non-compliance to the Deputy Commissioner or Assistant Commissioner of Customs. The Principal Commissioner found that the appellants did not advise the exporter regarding overvaluation of goods and failed to report the same to Customs authorities.

The appellants contended that they filed export declarations based on documents and information provided by the exporter and had no knowledge of any overvaluation or fraudulent intent. They further argued that the Customs authorities themselves had accepted previous shipping bills with similar valuations, and thus, the appellants could not have been expected to detect the alleged fraud.

The Tribunal noted that the overvaluation was detected only after a detailed investigation by Customs authorities, including market surveys and physical verification. Since the Customs authorities had earlier accepted the export declarations, the appellants could not be reasonably expected to have known about the overvaluation at the time of filing. The Tribunal emphasized that while a CB is expected to be a prudent professional, it is not their role to detect sophisticated frauds or misdeclarations made by exporters.

Consequently, the Tribunal held that the finding of violation of Regulation 10(d) was not sustainable as the appellants had no direct knowledge or reasonable grounds to suspect the overvaluation or fraudulent claims.

2. Alleged Violation of Regulation 10(e): Exercise of Due Diligence in Information Provided to Clients

Regulation 10(e) mandates that a Customs Broker exercise due diligence to ensure the correctness of any information imparted to clients related to clearance of cargo. The Principal Commissioner concluded that the appellants failed to identify the overvaluation and did not advise the exporter accordingly.

The appellants argued that they did not provide any valuation information to the exporter; rather, the exporter furnished the information. They further submitted that no market inquiry or valuation determination was conducted contemporaneously, and the Customs authorities had allowed the exports previously.

The Tribunal referred to precedents including the judgment of the High Court of Delhi which clarified that Customs Brokers are not officers of Customs and do not possess expertise to identify misclassification or valuation issues. The Tribunal found no documentary evidence or material to prove that the appellants failed to exercise due diligence in imparting correct information, especially since the information originated from the exporter.

Thus, the Tribunal concluded that the charge under Regulation 10(e) was not supported by evidence and was unsustainable.

3. Alleged Violation of Regulation 10(n): Verification of Client Identity and Address (KYC)

Regulation 10(n) requires Customs Brokers to verify the correctness of IEC, GSTIN, identity of the client, and the functioning of the client at the declared address using reliable and authentic documents.

The Principal Commissioner found that the appellants had never met the exporter and were not diligent in conducting KYC verification, especially since the exporter was not traceable at the declared address during Customs verification.

The appellants demonstrated that they had obtained and submitted KYC documents including an authorization letter, IEC certificate from DGFT, GST registration certificate, and bank account verification letter. The Tribunal relied on CBIC Circular No.9/2010-Customs dated 08.04.2010, which prescribes that verification of any two specified documents suffices for compliance with KYC norms.

The Tribunal further cited a recent Tribunal decision holding that mere inability to physically locate the exporter at the declared address, especially when the exporter admitted to changing addresses without informing DGFT, does not amount to failure of KYC verification by the CB. The High Court of Delhi's ruling was also noted, which held that Customs Brokers are processing agents and are not expected to verify genuineness of transactions or independently verify IE Codes beyond prescribed documents.

Accordingly, the Tribunal found no legal basis to uphold the violation of Regulation 10(n).

4. Compliance with Procedural Requirements under Regulation 17 of CBLR, 2018

Regulation 17 prescribes the procedure for initiating inquiry, including issuance of show cause notice, receipt of written reply, appointment of inquiry officer, opportunity for cross-examination, preparation of inquiry report, submission of representation by CB, and final adjudication with opportunity of personal hearing.

The Tribunal examined the procedural chronology and found that all stages were followed within prescribed timelines: the offence report was received, show cause notice issued within 90 days, inquiry report submitted within 90 days of notice, and final order passed within 90 days of inquiry report. There was no procedural lapse or delay.

5. Sufficiency of Evidence to Establish Appellants' Liability

The investigation revealed that the exporter had filed shipping bills with inflated values to claim higher IGST refunds, which were ineligible. However, the exporter was not traceable, and the appellants CB had no prior knowledge or involvement in the alleged fraudulent overvaluation.

The Tribunal noted that the Customs authorities had already adjudicated the exporter's liability separately through a show cause notice dated 01.02.2023. No direct evidence was placed on record implicating the appellants CB in the fraudulent scheme.

Given the absence of evidence showing that the appellants failed in their statutory duties or knowingly facilitated the fraud, the Tribunal found no grounds to sustain the revocation of the CB license or imposition of penalty.

Significant Holdings:

"The CB is bound to know about the prevailing practice of over valuation of goods for export to take undue benefit of various export promotion schemes and IGST refund... From the above facts, it is clear that the appellants CB did not take necessary action to verify the fact that the goods were over-priced but the CB neither advised the exporter regarding over-valuation nor informed customs authority about the same as mandated in regulation 10(d) of CBLR, 2018." - This reasoning by the adjudicating authority was rejected by the Tribunal as unsustainable.

"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." - The Tribunal relied on this principle from the High Court of Delhi to reject the charge under Regulation 10(n).

"The basic requirement of Regulation 10(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... any of the two listed documents in the Annexure would suffice." - The Tribunal applied this principle to hold that the appellants complied with KYC norms.

Core principles established include the limited scope of a Customs Broker's duties under CBLR, 2018, emphasizing that they are not expected to act as Customs officers or investigators but must exercise reasonable prudence and due diligence based on information provided by clients.

Final determinations on each issue were:

• No violation of Regulation 10(d) as appellants had no knowledge or reasonable grounds to suspect overvaluation or fraudulent claims.
• No violation of Regulation 10(e) since appellants did not impart incorrect information and exercised due diligence within their role.
• No violation of Regulation 10(n) as appellants complied with prescribed KYC verification norms by obtaining and submitting requisite documents.
• Procedural requirements under Regulation 17 were duly followed.
• Insufficient evidence to sustain revocation of CB license, forfeiture of security deposit, or imposition of penalty.

Accordingly, the Tribunal set aside the impugned order dated 19.07.2024 and allowed the appeal in favor of the appellants.