2021 (2) TMI 1029 - AT - Customs

Revocation of Customs Broker License - forfeiture of security deposit - imposition of penalty - It is the contention of the appellant that Encanterra Traders existed and was not a fictitious firm - HELD THAT - It is clear from the decision of the Delhi High Court in MILLENNIUM EXPRESS CARGO PVT. LTD VERSUS COMMISSIONER OF CUSTOMS 2017 (6) TMI 1060 - DELHI HIGH COURT that there is no obligation on the Customs House Agent to look into the information made available by the exporter/exporter. The Customs House Agent is merely a processing agent of documents with respect to clearance of goods through Customs House and he is not an inspector to weigh the genuineness of the transaction. 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 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 finding recorded by the Commissioner that the required documents were not submitted is, therefore, factually incorrect - the KYC documents were submitted by the appellant and the verification was undertaken by Anil, an employee who had made the Directors. The communications with the Encanterra Traders was also done through mail. The self attested Pan Card, Aadhar Card of the Director and Pan Card of the Company had been submitted by letter dated September 10, 2018. A physical verification of the premises, as noticed above, was not necessary to be carried out. The Commissioner, therefore, committed an error in holding that the appellant failed to ensure due compliance of the provisions of Regulations 10(n) of the 2018 Regulations. The decision of the Tribunal in Multi Wings Clearing Forwaring P. Ltd. vs. C. C. (General), New Delhi 2019 (4) TMI 1189 - CESTAT NEW DELHI does not also help the Department as it was found as a fact that the KYC documents were not available with the assessee at the time of visit of the Investigating Agency. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Violation of Regulations 10(a), 10(d), 10(e), and 10(n) of the Customs Brokers Licensing Regulations, 2018.
2. Revocation of Customs Broker License.
3. Forfeiture of security deposit.
4. Imposition of penalty.

Issue-wise Detailed Analysis:

1. Violation of Regulation 10(a):
Regulation 10(a) requires a Customs Broker to obtain an authorization from each company, firm, or individual by whom they are employed. The Commissioner found that the appellant failed to provide a valid authorization letter. The authorization letter submitted was dated nine months before the invoices, raising doubts about its authenticity. However, the Tribunal noted that the letter was signed by Rakesh Kumar, the Director of Encanterra Traders, and included KYC documents such as the Aadhar Card. The Tribunal held that the Commissioner erred in finding a violation of Regulation 10(a), as the authorization letter and KYC documents were valid and should not have been disregarded.

2. Violation of Regulations 10(d) and 10(e):
Regulation 10(d) requires a Customs Broker to advise clients to comply with the Act and Regulations, while Regulation 10(e) mandates due diligence to ascertain the correctness of information. The Commissioner found that the appellant failed to exercise due diligence, as Encanterra Traders was a fictitious firm. The Tribunal, however, cited the Delhi High Court's decision in Kunal Travels, emphasizing that a Customs Broker is not an inspector but a processing agent. The appellant had verified the KYC documents as per the Circular dated April 08, 2010, and there was no requirement for physical verification. The Tribunal concluded that the appellant had complied with the due diligence requirements, and the findings of violations under Regulations 10(d) and 10(e) were erroneous.

3. Violation of Regulation 10(n):
Regulation 10(n) requires verification of the Importer Exporter Code (IEC), GSTIN, identity, and functioning of the client at the declared address. The Commissioner found that the appellant did not verify the antecedents of Encanterra Traders, which was a fictitious firm. The Tribunal referenced the Delhi High Court's decision in Shiva Khurana, which clarified that a Customs Broker's duty is to verify the IEC and identity using reliable documents, not to conduct physical verification. The appellant had submitted the required KYC documents, and their employee had communicated with the Directors of Encanterra Traders. The Tribunal held that the appellant had not violated Regulation 10(n).

4. Revocation of Customs Broker License, Forfeiture of Security Deposit, and Imposition of Penalty:
The Commissioner revoked the Customs Broker License, forfeited the security deposit, and imposed a penalty based on the alleged violations of the Regulations. However, the Tribunal found that the appellant had complied with the necessary KYC procedures and due diligence requirements. The Tribunal set aside the Commissioner's order, thereby revoking the penalties and forfeiture imposed.

Conclusion:
The Tribunal concluded that the appellant had followed the required procedures and regulations, and the Commissioner had erred in finding violations. The order dated July 5, 2019, was set aside, and the appeal was allowed, reinstating the Customs Broker License and nullifying the penalties and forfeiture.