2023 (3) TMI 77 - AT - Customs

Levy of penalty on Customs broker under Regulation 17(7) of the Customs Broker Licensing Regulations, 2018 (CBLR) - overvaluation of goods by exporter in order to claim excess export benefits - adjudicating authority was of the view that the KYC verification was not done in a proper manner and hence they had erred in their duty as a Customs Broker. HELD THAT - A penalty has been imposed on the appellant, for their alleged failure to do a proper KYC verification, arising from a lack of physical check of premises of the exporters as found required under Regulation (10)(n). it is seen from a plain reading of the said provision that the CB is required to verify correctness of Importer Exporter Code (IEC) number, Goods and Service Tax Identification Number (GSTIN), identity of his client and functioning of his client at the declared address by using reliable, independent, authentic documents, data or information. There is no reference to a physical verification of premises. CB these days service clients from all over the country and expecting them to verify individual premises located anywhere in the country for its functioning, would be very difficult for the CB. It is for this reason that the Regulation 10(n), states by using reliable, independent, authentic documents, data or information. i.e. The verification would be satisfied if done using authentic documents, data or information. No physical verification was called for. Hence since SVARAD had verified the relevant documents possessed by the exporters and issued by government departments, the authenticity of which is not under challenge, there is no failure in this regard on their part and the penalty imposed on them under the CBLR and is not sustainable. Thus, SVARAD cannot be said to have violated the provisions of Regulation 11(n) of CBLR, 2018 and there was no justifiable reason to impose a penalty on them - appeal allowed.

Summary

Issues:
Imposition of penalty on Customs broker for overvaluation of goods during export, Allegation of improper KYC verification by Customs broker.

Analysis:
The appeal was filed against a penalty imposed on a Customs broker for overvaluing goods during export. The Customs broker filed shipping bills for exporters of ladies footwear, which were found to be overvalued and of low quality during customs examination. The penalty was imposed under Regulation 17(7) of the Customs Broker Licensing Regulations, 2018, citing improper KYC verification by the broker.

During the hearing, the appellant's counsel argued that the Customs broker had fulfilled the KYC requirements by verifying IEC, GST documents, and other authorization documents of the clients. The counsel referenced previous tribunal decisions to support the argument that physical verification of premises is not mandatory for Customs brokers. The counsel also highlighted that discrepancies in exported goods do not necessarily indicate misdeclaration by the broker, as the shipping bill is based on information provided by the exporter.

The Revenue's representative reiterated the findings of the impugned order, stating that the exporter attempted to misdeclare goods to claim undue benefits. It was emphasized that proper KYC verification is crucial for Customs brokers, as seen in previous tribunal decisions holding brokers accountable for due diligence in verifying client identity.

The judgment emphasized that Customs brokers are required to verify importer/exporter details using authentic documents issued by government departments. The judgment noted that the penalty imposed on the broker under Regulation 17(7) was not sustainable, as the regulation pertains to license suspension matters, not improper KYC verification. It was also highlighted that physical verification of premises is not explicitly required under Regulation 10(n), and authentic document verification suffices. The judgment concluded that the Customs broker did not violate KYC provisions and set aside the penalty, allowing the appeal.

In summary, the judgment clarified the obligations of Customs brokers in verifying client details, emphasized the importance of authentic document verification, and ruled that the penalty imposed on the broker for improper KYC verification was not justified.