2023 (5) TMI 454 - AT - Customs

Levy of penalty on CHA u/s 114 and/or 114AA of Customs Act, 1962 - Availment of duty drawback making fraudulent export of readymade garments - bogus firm - violation of the provisions of regulation 11 (n) of the Customs Broker Licensing Regulation, 2013, (CBLR) - HELD THAT - There is no doubt that an obligation has been cast on the CHA / CB under the CBLR so as to ensure the documents as required for the purposes of enabling the export are forwarded to the Customs. Infact they are the link between the exporter and the Customs department, therefore has an important and responsible role to play while providing their services. The evidence collected during investigation clearly shows that it was a case of well planned conspiracy by the exporter, to defraud the Government by wrongly taking the export benefits by creating a bogus firm. The manner in which he indulged in fraudulently fabricating the documents and on the basis thereof he managed to obtain bogus PAN card, IEC code from DGFT and on that basis he opened a Bank Account. Neither the Income Tax Department verified the genuineness of the election voter card before issuing the PAN card nor DGFT while issuing the IEC code raised any objections on the authenticity of the documents - In this scenario to attribute any responsibility on the CHA to have verified the authenticity of these documents or the identity of the exporter seems to be too much and unpractical. It is absolutely impossible to expect from a CHA to act with such diligence that he could ascertain the veracity of the documents which even the departmental authorities could not ascertain. There are no hesitation in arriving at a conclusion that in the facts of the present case no violation can be attributed on the appellant being a Custom House Agent. The allegations that the appellant did not verify the KYC documents of M/s Anand Enterprises which was a bogus firm created with forged documents and that he abetted the export of readymade garments are unsustainable in as much as the allegations of forging the documents is solely on Anand Sharma and no connivance of the appellant in that regard has been pointed out by the Department - no penalty can be imposed on M/s KVS Cargo and, therefore, the impugned order is hereby set aside. There are no allegations of abetment are substantiated as it is not the case of the department that they were aware of the fraud or were beneficiary of the fraud. As pointed out above, the fraud played by Anand Sharma was not even ascertained even by public officials then how is it possible for a non official entity to identity the veracity of the documents. M/s Him Logistics was merely a facilitator in forwarding Anand Sharma to KVS Cargo, hence they cannot be roped in for any violation of the provisions of CBLR and therefore the penalty imposed on M/s Him Logistics by the impugned order is untenable. The impugned orders are set aside and consequently both the appeals are allowed.

Summary

Issues involved:
The issues involved in the judgment are the challenge to the order-in-appeal by M/s KVS Cargo and M/s Him Logistics Pvt Ltd regarding duty drawback scheme, fraudulent export of readymade garments, recovery of availed drawback amount, appropriation of funds, interest recovery, and imposition of penalties.

Fraudulent Export Scheme:
The case involved a fraudulent scheme where a non-existent firm, M/s Anand Enterprises, filed shipping bills for export of Ready Made Garments (RMG) to various countries under duty drawback scheme. The proprietor of the bogus firm, Shri Anand Sharma, created a fake identity and obtained a bogus PAN card and IEC code to avail duty drawback benefits amounting to Rs. 1,88,23,316. The real Shri Anand Sharma denied any involvement in exporting goods, indicating a clear case of fraud.

Show Cause Notice and Penalties:
The department issued a show cause notice to M/s Anand Enterprises, M/s KVS Cargo, and M/s Him Logistics Pvt Ltd, seeking confiscation of exported goods, recovery of availed drawback amount, appropriation of funds, interest recovery, and imposition of penalties under various sections of the Customs Act, 1962. Penalties were also proposed on M/s KVS Cargo and M/s Him Logistics under Sections 114 and/or 114AA of the Customs Act, 1962.

Customs Broker Obligations:
The appellants, M/s KVS Cargo and M/s Him Logistics, were accused of violating regulation 11(n) of the Customs Broker Licensing Regulation, 2013, which requires custom brokers to verify the antecedents of exporters and KYC documents before facilitating goods clearance. The appellants argued that they had obtained and verified relevant documents as required, and the validity of IEC code of M/s Anand Enterprises was confirmed by DGFT.

Tribunal's Decision - M/s KVS Cargo:
The Tribunal found that the appellant, M/s KVS Cargo, acted as a Custom House Agent (CHA) and could not be held responsible for verifying the authenticity of documents used by the exporter in the fraudulent scheme. The Tribunal referenced a High Court observation that imposed standards on CHAs were too high, considering their role as facilitators rather than investigators. Therefore, the penalty on M/s KVS Cargo was set aside.

Tribunal's Decision - M/s Him Logistics:
Regarding M/s Him Logistics, the Tribunal noted that their license was under suspension, and they merely forwarded documents to M/s KVS Cargo without acting as a CHA for the export in question. The Tribunal found no evidence of abetment or awareness of the fraud, concluding that no liability could be attributed to M/s Him Logistics under the provisions of CBLR. The penalty imposed on M/s Him Logistics was deemed untenable and set aside.

Precedents and High Court Decisions:
The Tribunal referred to previous decisions involving similar allegations against the appellants and cited High Court judgments that emphasized the limited role of CHAs as facilitators rather than investigators. The Tribunal also highlighted decisions where penalties were set aside due to lack of evidence of involvement or awareness of fraudulent activities.

Conclusion:
In conclusion, the Tribunal set aside the impugned orders and allowed both appeals filed by M/s KVS Cargo and M/s Him Logistics Pvt Ltd, ruling in favor of the appellants based on the lack of evidence to support the allegations against them.