CESTAT: Customs Brokers Not Required To Keep Continuous Watch On Clients After Document Verification; Licence Revocation Set Aside
Pranav B Prem
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Principal Bench, New Delhi, comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member), has set aside the revocation of a customs broker licence, holding that once a broker verifies a client’s credentials through reliable and authentic documents, there is no obligation to continuously monitor the client’s existence or operations. The appeal was filed by M/s Brightline (C&F) Agency against the order of the Commissioner of Customs (Airport & General), New Delhi, dated 15 June 2021, which had revoked the broker’s licence, forfeited its ₹75,000 security deposit, and imposed a ₹50,000 penalty for alleged violation of Regulation 10(n) of the Customs Broker Licensing Regulations, 2018 (CBLR, 2018).
Background
The Directorate General of Analytics & Risk Management (DGARM) had analysed GST registration data and identified certain registrants suspected to be non-existent. It also noted that some of these entities had exported goods, and identified the customs brokers who had facilitated such exports. The DGARM forwarded this information to licensing Commissioners, including the Commissioner of Customs (Airport & General), who directed jurisdictional GST officers to verify the authenticity of the registrants.
Based on verification reports, it was alleged that the appellant handled exports for “non-existent” entities, thereby failing in its obligations under Regulation 10(n). The Commissioner suspended the broker’s licence in August 2020, confirmed the suspension the following month, and later issued a show cause notice in December 2020 proposing revocation, forfeiture, and penalty.
The show cause notice enclosed verification reports for only four exporters out of the 89 allegedly non-existent ones—M/s Nideux Impex, M/s Guru International, an unnamed GSTIN holder, and M/s Lalit Enterprises. The appellant denied handling exports for the first three and admitted to handling shipments only for M/s Lalit Enterprises.
Case of M/s Lalit Enterprises
The verification report for M/s Lalit Enterprises recorded that:
Physical verification on 25 February 2020 found the premises vacant.
A departmental letter sent earlier that month was returned undelivered with the remark “left.”
GST returns had been filed up to August 2019, with registration later cancelled.
Data analysis indicated discrepancies between e-way bill export values (₹15.67 crore) and GSTR returns (₹3.13 crore), raising suspicion of inflated e-way bills or under-reported values.
The appellant argued that it had obtained all necessary documents—GSTIN, IEC, and other authentic records—before processing exports, the last of which took place in February 2019. It contended that physical verification nearly a year later could not prove the exporter was fictitious at the time of the transactions. The broker further maintained that Regulation 10(n) did not require physical visits, only verification through reliable, independent, and authentic documents or data.
Tribunal’s Findings
CESTAT accepted the appellant’s submission that it had no connection with the exporters listed in RUD-1 to RUD-3, as no contrary evidence was produced by the Revenue. Regarding M/s Lalit Enterprises, the Bench noted that the verification report itself confirmed valid GST registration and return filing until August 2019. The fact that the exporter had vacated the premises by February 2020 did not imply that it was non-existent during the export transactions.
Quoting extensively from its earlier decision in Mauli Worldwide Logistics, the Tribunal reiterated that Regulation 10(n) requires brokers to:
Verify correctness of IEC and GSTIN.
Establish client identity through reliable, independent, authentic documents/data/information.
Verify client’s functioning at the declared address through similar reliable means.
The Bench clarified that this does not mean physically visiting the premises or keeping continuous surveillance to ensure ongoing operations. Once official documents from government authorities (like GSTIN and IEC) are verified, the broker’s obligation is discharged unless there is evidence that such documents were obtained fraudulently.
Holding that the appellant had fulfilled all verification requirements and that subsequent physical verification showing the exporter had vacated could not be held against the broker, CESTAT found no violation of Regulation 10(n). The Tribunal set aside the Commissioner’s order, restored the customs broker licence, and granted consequential relief.
Appearance
Counsel For Appellant: Dr. G.K. Sarkar, Advocate
Counsel For Respondent: Mukesh Kumar Shukla
Cause Title: M/s Brightline (C&F) Agency V. Customs Commissioner
Case No: Customs Appeal No. 51157 OF 2022
Coram: Justice Dilip Gupta [President], P.V. Subba Rao [Technical Member]
