CESTAT: Customs Broker Can’t Evade Liability—Agent’s Duty Ties Them to Client’s Export Fraud
Pranav B Prem
The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), comprising Dr. Rachna Gupta (Judicial Member) and Ms. Hemambika R. Priya (Technical Member), has set aside the revocation of the license and forfeiture of the security deposit of M/s Uniyal Cargo Movers Pvt. Ltd., a customs broker, in connection with an alleged export fraud. However, the Tribunal upheld partial responsibility by imposing a reduced penalty, reaffirming that while the broker wasn't complicit in fraud, they still bear statutory duties as agents under the Customs Broker Licensing Regulations (CBLR), 2018.
Background
M/s Uniyal Cargo Movers Pvt. Ltd., a customs broker, had filed four shipping bills on behalf of M/s Shree Shyam Traders and M/s Shine Impex at ICD Tughlakabad on 22.12.2020. On examination, the Customs Department found major mis-declaration of the quantity and value of goods, resulting in attempted availing of inflated drawbacks and benefits. The declared quantities were significantly higher than what was actually shipped, and both exporter firms were found to be non-existent.
Following this, a Show Cause Notice was issued, and the appellant’s license was suspended. Later, through Order-in-Original dated 04.04.2022, the Commissioner of Customs revoked the CB license, forfeited the security deposit, and imposed a penalty of Rs. 50,000.
Appellant’s Submissions
The appellant argued that they had secured proper authorization letters from the exporters prior to accepting the assignments and that there was no evidence that these documents were forged. The documents, including IEC, PAN, and GST, were verified through respective government portals.
It was submitted that the exporters were introduced to the broker by a known acquaintance, Shri Ram Pratap, and hence the appellant had no reason to doubt the legitimacy of the exporters. The broker contended that the KYC process was duly complied with, as per Circular No. 9/2010 and its amendment by Circular No. 2/2018 which includes Aadhaar as an acceptable KYC document for individuals and proprietorships.
Furthermore, the appellant stated that they had not personally met the exporters, but that is not a statutory requirement under Regulation 10(a). They urged that the suspension of the license had deprived them of work for nearly three years and caused significant livelihood hardship.
Department’s Contentions
The Department submitted that both exporters were non-existent and no one had come forward to claim the seized goods, indicating a fraudulent export attempt. It was argued that authorization documents were procured via Shri Ram Pratap, a commission agent, and there was no evidence of direct contact between the CB and the exporters.
The Department contended that the appellant failed to properly verify the identity and functioning of the clients at their declared addresses as required under Regulation 10(n). The KYC documents provided were deemed insufficient, and the address verification was not independently authenticated, resulting in a serious lapse on the part of the CB.
CESTAT’s Observations and Findings
The Tribunal held that under Regulation 10(a), there is no requirement for a CB to obtain authorization directly from the exporter. It is sufficient if the authorization is valid and not fabricated, which the appellant had obtained.
As to Regulation 10(d), the Tribunal emphasized that though the goods were found to be mis-declared in terms of quantity and value, there was no evidence of collusion between the CB and the exporters. The CB could not be held responsible for the actions of exporters, especially when there was no prior knowledge or facilitation of the fraud.
Regarding Regulation 10(n), CESTAT held that the broker had indeed verified the documents such as IEC, PAN, and Aadhaar, and online verification was performed. The Tribunal noted that: "Verification of certificates as part of the obligation under Regulation 10(n) on the Customs Broker stands satisfied as long as it satisfies itself that the IEC and the Aadhar were issued by the concerned officers."
Relying on precedents like Bright Clearing & Carrier Pvt. Ltd., Star Carriers, and Kunal Travels, the Tribunal reiterated that a CB is not expected to perform continuous surveillance or field investigations, and cannot be faulted merely because the client was later found non-existent.
Verdict
While the Tribunal found no justification for revocation of the license or forfeiture of the security deposit, it held that the CB should have been more cautious. The judgment noted: "Though there is no collusion of the appellant CB in the attempt of the exporters to defraud the Government, the appellant CB plays a crucial role in international trade."
Therefore, a reduced penalty of Rs. 25,000 was imposed in place of the earlier Rs. 50,000. Accordingly, the appeal was partially allowed. The impugned order was modified, setting aside the revocation and forfeiture but retaining the penalty in a reduced form.
Appearance
Present for the Appellant: Ms. Reena Rawat, Advocate
Present for the Respondent: Shri Rajesh Singh, Authorised Representative
Cause Title: Uniyal Cargo Movers Pvt Ltd V. Commissioner of Customs
Case No: Customs Appeal No.52237 OF 2022
Coram: Hon’ble Dr. Rachna Gupta [Member (Judicial)], Hon’ble Ms. Hemambika R. Priya [Member (Technical)]
[Read/Download order]
