2020 (12) TMI 649 - AT - Customs

Revocation of Customs Broker Licence - forfeiture of security deposit - imposition of penalty - failure to to comply with the provisions of Regulations 10(a), 10(d), 10(e), 10(n) and 13(12) of the Licensing Regulations - Circular dated April 08, 2010 issued by the Central Board of Excise and Customs, New Delhi - case of Revenue is that of the five exporters, two exporters, namely, M/s Impex Trading and Global Trading were not available at the address mentioned in the KYC documents - Appellant claims that the officers of the Department visited the address provided by these two firms after a long period of about 18 months. Violation of 10 (a) of the Licensing Regulations or not - HELD THAT - Regulation 10(a) deals with obligations of Customs Broker and provides that the Customs Broker shall obtain an authorisation letter from each of the companies, firms or individuals by whom he is for the time being employed as a Customs Broker and produce such authorisation whenever required by the Deputy Commissioner of Customs or Assistant Commissioner of Customs - The Regulation requires the Customs Broker to obtain an authorisation, which the Appellant did. It is not the case of the Department that the signatures on the authorisation letter were forged or that the persons authorising the Appellant denied having given the authority letters. This apart, the Appellant also claims that due diligence was carried out for ascertaining the functioning of the clients at the address declared by the clients and in this connection the partnership deed as well as service tax registration, PAN card, Import Export Code, voter card, electricity bill, bank details and mobile number of the partners with email id were also examined. The Commissioner, therefore, committed an illegality in holding that Regulation 10(a) of the Licensing Regulations had been violated. Violation of 10(d) and 10 (e) of the Licensing Regulations or not - HELD THAT - These two Regulations were taken up together by the Commissioner. Regulation 10(d) requires a Customs Broker to advice his client to comply with the provisions of the Act and the Rules and Regulations. Regulation 10(e) requires a Customs Broker to exercise due diligence to ascertain the correctness of any information which he imparts to a client with reference to any work related to clearance of cargo or baggage - When the Importer/Exporter Code Number was provided and before this code was issued a background check of the said importer/exporter is undertaken by the Customs Authority, there should be no doubt about the identity of the said exporter. It would be too onerous to expect a Customs House Agent to inquire into what is stated in the documents when there is a presumption that an appropriate background check is done by the Customs Authorities. In fact, the grant of Importer/Exporter Code Number is a proof regarding verification of facts and if the grant of such a code number to an entity at the address mentioned is in doubt, then for such erroneous grant of the Importer/Exporter Code Number, the Appellant cannot be faulted - The Commissioner was, not justified in ignoring the documents provided by the Appellant. Reliance placed by the Commissioner on the statement made by Virender Kumar Saraswat is misplaced. As noted above, the verification is required to be undertaken on the basis of the documents and it is not possible to draw any inference from the said statement that he had any serious doubts about the existence of the firms. The findings that the Appellant had not followed the provisions of Regulations 10(d) and 10(e) of the Licensing Regulations is, therefore, erroneous. Violation of 10(n) of the Licensing Regulations or not - HELD THAT - Regulation 10(n) requires the Customs Broker to verify the correctness of Importer/Exporter Code Number, Service Tax Identification Number, identity card of the client and functioning of the client at the declared address by using reliable, independent, authentic documents, data or information - 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, data or information. For this purpose, a detailed guideline on the list of documents to be verified and obtained from the client is contained in the Annexure to the Circular dated April 8, 2010. It has also been mentioned in the aforesaid Circular that any of the two listed documents in the Annexure would suffice. The Commissioner noticed in the impugned order that any two documents could be obtained - Thus, committed an error in holding that the appellant failed to ensure due compliance of the provisions of Regulations 10(n) of the Licensing Regulations. Violation of Regulation 13 (12) of the Licensing Regulations or not - contention of the appellant is that the G-Card holder acted strictly in accordance with the guidelines issued in the Circular dated April 8, 2010. According to the appellant, the G-Card holder exercised due diligence by procuring all independent and authentic documents - HELD THAT - This Regulation provides that the Customs Broker shall exercise such supervision as may be necessary to ensure proper conduct of his employees in the transaction of business and he will be held responsible for all acts and omissions of his employees during their employment - if the documents that were submitted to the G-Card holder, prima-facie appeared to be authentic, there was no reason for the G-Card holder to verify the contents of the documents. The grant of an Importer Exporter Code number was held by the Delhi High Court in Kunal Travels to pre-suppose verification of facts. The inevitable conclusion, therefore, that follows is that the Commissioner was not justified in revoking the License of the appellant or forfeiting the security deposit or imposing penalty. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Revocation of Customs Broker License
2. Forfeiture of Security Deposit
3. Imposition of Penalty
4. Alleged Violations of Regulations 10(a), 10(d), 10(e), 10(n), and 13(12) of the Customs Brokers Licensing Regulations, 2018

Detailed Analysis:

Revocation of Customs Broker License:

The Appellant's Customs Broker License was revoked by the Commissioner of Customs based on allegations that the Appellant failed to verify the existence of two firms, M/s Impex Trading and M/s Global Trading, for which it had undertaken customs clearance. The Commissioner concluded that the Appellant did not comply with the provisions of Regulations 10(a), 10(d), 10(e), 10(n), and 13(12) of the Licensing Regulations. The Appellant argued that it had fulfilled the "know your customer" (KYC) norms by obtaining necessary documents such as partnership deeds, service tax registration, voter cards, PAN cards, and Importer Exporter Code (IEC) certificates. The Appellant contended that physical verification of the addresses was not required under the regulations.

Forfeiture of Security Deposit:

The order also included the forfeiture of the security deposit of ?5 lakhs. The Appellant argued that it had submitted all required KYC documents and exercised due diligence as per the Licensing Regulations and the Board Circular dated April 08, 2010. The Commissioner, however, found that the Appellant failed to verify the existence of the firms and thus concluded that the Appellant violated the Licensing Regulations.

Imposition of Penalty:

A penalty of ?50,000 was imposed on the Appellant. The Appellant argued that it had no knowledge of any overvaluation or fraudulent activities by the exporters and had complied with all regulatory requirements. The Commissioner, however, held that the Appellant failed to exercise due diligence and supervise its employees properly, leading to the imposition of the penalty.

Alleged Violations of Regulations:

Regulation 10(a):
The Commissioner concluded that the Appellant violated Regulation 10(a) by failing to obtain valid authorizations from non-existent firms. The Appellant argued that it had submitted authorization letters from the firms, and there was no evidence that the signatures were forged or unauthorized. The Tribunal found the Commissioner's conclusion erroneous, as the Appellant had indeed obtained the required authorizations.

Regulations 10(d) and 10(e):
The Commissioner held that the Appellant failed to advise its clients to comply with the provisions of the Act and exercise due diligence. The Appellant argued that due diligence does not require physical verification and that it had verified the information through KYC documents. The Tribunal noted that the Appellant had obtained all necessary documents as per the Circular dated April 08, 2010, and there was no requirement for physical verification. The Tribunal found the Commissioner's findings erroneous.

Regulation 10(n):
The Commissioner concluded that the Appellant failed to verify the correctness of the IEC, GSTIN, and the identity of the clients. The Appellant argued that it had submitted all required documents, including partnership deeds, service tax registration, PAN cards, and IEC codes. The Tribunal found that the Appellant had complied with the requirements of Regulation 10(n) by obtaining the necessary documents, and the Commissioner's findings were factually incorrect.

Regulation 13(12):
The Commissioner held that the Appellant failed to supervise its employees properly, leading to the export of overvalued goods by fictitious firms. The Appellant argued that its G-Card holder had acted in accordance with the guidelines and exercised due diligence. The Tribunal found that the Appellant had indeed supervised its employees and that the documents provided were prima facie authentic. The Tribunal also noted that the statement of the Customs Broker was not recorded, which was necessary for the investigation.

Conclusion:
The Tribunal concluded that the Commissioner was not justified in revoking the License, forfeiting the security deposit, or imposing the penalty. The impugned order dated June 26, 2020, was set aside, and the appeal was allowed.