2017 (3) TMI 1494 - HC - Customs

Revocation of CHA licence - forfeiture of security deposit - penalty - it was alleged that there was a deliberate mis-declaration apropos the quality, quantity, value and weight of the consignments with the intention to defraud the government and illegitimately claim the benefit of duty-drawback - Held that - Any act to defraud presupposes the intention to obtain something fraudulently - In the present case there is no evidence of active facilitation of clearance of the consignment through customs by the appellant, hence, no mens rea can be inferred to defraud the government for obtaining duty drawback through a fraudulent transaction. Consequently, the appellant cannot be faulted or punished in the manner it has been. 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 and in that process only such authorized personnel of the CHA can enter the customs house area. What is noteworthy is that the IE Code of the exporter M/s H.M. Impex was mentioned in the shipping bills, this itself reflects that before the grant of said IE Code, the background check of the said importer/ exporter had been undertaken by the customs authorities, therefore, there was no doubt about the identity of the said exporter. 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. When such code is mentioned, there is a presumption that an appropriate background check in this regard i.e. KYC etc. would have been done by the customs authorities. There is nothing on record to show that the appellant had knowledge that the goods mentioned in the shipping bills did not reflect the truth of the consignment sought to be exported. In the absence of such knowledge, there cannot be any mens rea attributed to the appellant or its proprietor. The revocation of the appellant s CHA license is unjustified and is accordingly, set aside - the forfeiture of the security amount and the imposed penalty of ₹ 1 lakh also is set aside - appeal allowed - decided in favor of appellant-CHA.

Issues Involved:
1. Revocation of Customs House Agent (CHA) license.
2. Forfeiture of security deposit.
3. Allegations of mis-declaration and fraud in export documentation.
4. Due diligence and obligations under the Customs House Agents Licensing Regulations (CHALR), 2004.
5. Applicability of precedents and proportionality of penalties.

Detailed Analysis:

1. Revocation of Customs House Agent (CHA) license:
The appeals challenged the CESTAT's order upholding the revocation of the appellant's CHA license and forfeiture of the security deposit. The license was revoked due to alleged mis-declaration of export goods, which was claimed to be a deliberate attempt to defraud the government and illegitimately claim duty drawbacks. The appellant argued that the revocation was too harsh, especially since the actions were carried out by an unauthorized employee, Mr. Lalit Katoch, without the CHA's consent.

2. Forfeiture of security deposit:
The security deposit of ?1 lakh was forfeited along with the revocation of the CHA license. The appellant contested this penalty, asserting that the forfeiture was unjustified given the lack of direct involvement or authorization in the fraudulent activities.

3. Allegations of mis-declaration and fraud in export documentation:
The customs authorities found discrepancies in the declared weight and quality of the goods in the shipping bills filed by the appellant. The consignment's actual weight was significantly lower than declared, and the goods were of inferior quality. The appellant contended that the mis-declaration was not intentional and that the CHA should not be held responsible for the fraudulent actions of its employee, who acted beyond his authority.

4. Due diligence and obligations under the Customs House Agents Licensing Regulations (CHALR), 2004:
The CESTAT concluded that the appellant failed to comply with the due diligence requirements under Regulation 13 of CHALR, 2004, particularly in verifying the genuineness of the exporter and the consignment. The appellant argued that the CHA's role is limited to processing documents based on the information provided by the client and that it is not expected to conduct background checks on the exporter. The court noted that the CHA is not an inspector and cannot be held liable for the genuineness of the information provided by clients, especially when the exporter had a valid Import Export Code (IE Code).

5. Applicability of precedents and proportionality of penalties:
The appellant relied on the judgment in M/s Pranil Shipping Vs. CC, Jamnagar, arguing that the penalty was disproportionate. The CESTAT, however, found favor with the judgments cited by the respondent, which supported severe penalties for serious misconduct. The court emphasized the importance of proportionality in penalties, noting that not every infraction justifies revocation of the license. The court found that the appellant did not have knowledge of the fraudulent activities and that there was no evidence of active facilitation or mens rea.

Conclusion:
The court set aside the revocation of the appellant's CHA license, the forfeiture of the security deposit, and the penalty of ?1 lakh. The court held that the revocation, which had been in effect for nearly 12 years, was itself a severe punishment and served as a reprimand. The court directed that the security amount be credited to the appellant's account and provided guidelines for the renewal or extension of the CHA license in accordance with the extant regulations.

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