2024 (4) TMI 245 - AT - Customs

Revocation of CHA License - forfeiture of security deposit - Penalty - violation of Regulations 11(a), 11(b), 11(d), 11(n) 11(j) of the Custom Broker Licensing Regulations, 2013 - appellant failed to verify the address at which the two clients operated and that requirement of know your customer (KYC) was entirely different - HELD THAT - The appellant had, admittedly, filed bills of entry for twenty consignments of diamonds , valued at ₹ 66.15 crores and ₹ 31.5 crores, imported by the two holders of import export code (IEC) that, after clearance, were handed over and, doubtlessly, against authorization of the importers to a service provider. Investigation revealed that these were actually transacted by other persons and it is on record that the appellant had no connection with them. In the course of investigation, it was ascertained that multiple remittances were made overseas against the same goods indicating collusion among the several entities and persons. It is not the case of the respondent-Commissioner that the appellant had anything to do with the transactions beyond that of filing of bills of entry and coordinating clearance thereafter. Nonetheless, in the belief that obligations under the Customs Broker Licencing Regulations, 2013 had been breached, impugned proceedings got underway. The facts, as elicited during the inquiry, persuaded dropping of the charges pertaining to handling of imports without authorization from client and of failure to advise client to comply with statutory prescriptions. The appellant had, no doubt, undertaken know your customer (KYC) exercise which did not reveal anything untoward. However, the client claimed to be in the diamond trade which has its own peculiarities of confidentiality, of capital adequacy and of operating proximity and equations among its practitioners; all of these warranted a closer look at the antecedents of the client. It is not the defence of the appellant that the client was in the diamond trade and it is on lending of name , with its consequences, that the impugned transactions came in for adverse notice. It is that lack of diligence which was of significance to the finding in the inquiry report. The appellant has been found to have failed to verify antecedents and identity of client as well as that operations are carried out at the declared address. This is, probably, the one obligation that specifies action in the context of easily comprehended stipulation and against which failure to undertake those can be ascertained. It is on record that the appellant had not carried out any ascertainment of the premises of the client either directly or through another. That is the most fundamental of obligations and breach thereof jeopardizes the reliability of the broker. Thus, the charge sustains against the appellant. However, the consequence, insofar as offence under customs law is concerned, is far from clear in the record of proceedings as to immediately conclude that all three detriments in Customs Broker Licencing Regulations, 2013 must necessarily follow. The only breach that survives does not merit such harsh retribution. We, therefore, set aside the revocation of licence under regulation 18 of Customs Broker Licencing Regulations, 2013 and the penalty imposed under regulation 22 of Customs Broker Licencing Regulations, 2013. The forfeiture of deposit is upheld and, should the appellant, choose to operate the licence, the same shall be subject to fresh deposit being made towards security as prescribed in Customs Broker Licencing Regulations, 2018. Accordingly, the appeal is disposed off on these terms.

Issues Involved:
1. Revocation of customs broker licence.
2. Forfeiture of security deposit.
3. Imposition of penalty.
4. Alleged breach of Customs Broker Licencing Regulations, 2013.

Summary:

1. Revocation of Customs Broker Licence:
The appellant, M/s Commercial Clearing Agencies Pvt Ltd, faced revocation of their 'customs broker' licence u/s 18 of Customs Broker Licencing Regulations, 2013. The Principal Commissioner of Customs (General), Mumbai found them guilty of failing to verify the correctness, identity, and antecedents of their clients as required by regulation 11(n). The inquiry report absolved them of charges under regulations 11(a) and 11(d).

2. Forfeiture of Security Deposit:
The security deposit was forfeited under regulation 18 due to the appellant's failure to conduct due diligence on their clients, M/s Shree Charbhuja Diamonds Pvt Ltd and M/s Yogeshwar Diamonds Pvt Ltd, whose identities were misused by other individuals for multiple remittances.

3. Imposition of Penalty:
A penalty of Rs. 50,000 was imposed under regulation 22. The appellant argued that they complied with 'know your customer (KYC)' norms and verified the importers' authenticity through the Directorate General of Foreign Trade (DGFT) website, referencing the case of Transpeed Logistics Pvt Ltd v. Commissioner of Customs, New Delhi, which emphasized that physical verification of premises was not mandatory.

4. Alleged Breach of Customs Broker Licencing Regulations, 2013:
The appellant contended that the regulations did not stipulate the specific requirements imposed by the Principal Commissioner. The Tribunal noted that while the appellant had undertaken KYC procedures, the peculiarities of the diamond trade warranted a closer look at the client's antecedents. The appellant's failure to verify the client's operational address was deemed a significant breach.

Conclusion:
The Tribunal found that the appellant failed to verify the client's premises, a fundamental obligation. However, it concluded that the breach did not merit the harsh penalties imposed. The revocation of the licence and the penalty were set aside, but the forfeiture of the deposit was upheld. The appellant may operate the licence upon making a fresh security deposit as per Customs Broker Licencing Regulations, 2018. The appeal was disposed of on these terms.

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