2023 (7) TMI 724 - AT - Customs

Revocation of customs broker licence - forfeiture of security deposit - imposition of penalty - enabled certain persons to avail ineligible drawback and refund of integrated goods and service tax (IGST) in export of goods supported by fake purchase invoices to inflate the claims - involving misuse of importer-exporter code (IEC) of 41 purported exporters - HELD THAT - It cannot be accepted that customs brokers are obliged to deal directly and only with exporters. Implicitly there is recognition of intermediary as client of the customs broker. It also appears that these proceedings have been initiated primarily on account of the entire scheme having been master-minded by one or more beneficial owners taking recourse to documentation made available by exporters on record. There was a time when Customs Act 1962 in section 2(20) recognised exporters solely as inclusive of any owner or any person holding himself out to be exporter and only in relation to any goods between entry for export and actual export. Inevitably this always did and continues to exclude any transactions which precedes the filing of shipping bills under section 50 of the Customs Act 1962 and restricted to the owner or any person holding himself out to be an exporter. Subsequently by amendment of 2017 the term encompassed beneficial owners too. Consequently any person can be an exporter and any person may act on behalf of the exporter and thereby become a client of customs brokers. What we see here are several loose threads - loose threads that do not curtain off the threshold ingress but at the same time these loose threads have been twisted together to form a noose that does not hold - the finding of the licensing authority that obligation under regulation 1(4) 10(d) and 10(n) of Customs Brokers Licensing Regulations 2018 have been violated by the appellant cannot be concurred upon. The appellant had obtained even if not directly necessary documentation of the exporter on record and there is no evidence that the exporters did not exist at the given addresses. There is also no evidence that the client had not been exhorted to abide by the Customs Act 1962. The suspect transaction occurred before the goods were entered for export and the documents thereto pertain to transactions before the goods were entered for export. There are no merit in the impugned order which is set aside - appeal allowed.

Summary

Issues Involved:
1. Violation of Customs Brokers Licensing Regulations, 2018, specifically regulations 10(d), 10(n), and 1(4).
2. Proportionality of penalties imposed.
3. Validity of the licensing authority's findings and revocation of the customs broker license.

Summary:

1. Violation of Customs Brokers Licensing Regulations, 2018:
Proceedings were initiated against the appellant, M/s Total Clearance, under the Customs Brokers Licensing Regulations, 2018, for facilitating exports using fake purchase invoices and misuse of the 'importer-exporter code (IEC)' of 41 purported exporters. The appellant's customs broker license was suspended and later revoked, with the entire security deposit forfeited and a penalty imposed. The charges included breaches of regulations 10(d), 10(n), and 1(4), while charges under regulations 10(a), 10(c), and 10(m) were dropped.

2. Proportionality of Penalties:
The Tribunal found it surprising that despite some charges being unproven, no allowance was made for the dilution of the actual breach. Without delving into the proportionality of penalties, the Tribunal focused on the findings that led to the revocation of the license.

3. Evaluation of Licensing Authority's Findings:
- Regulation 1(4): The licensing authority contended that the customs broker admitted to procuring business through an intermediary and not handling goods in the port area, suggesting effective transfer of the license. However, reliance was placed on previous Tribunal decisions, which held that procuring business through an intermediary does not constitute sub-letting or transferring the license.

- Regulation 10(d): The customs broker is required to advise clients to comply with the Customs Act and report non-compliance. The licensing authority argued that the appellant failed to check client details and did not directly obtain authorization from the actual owner or purported exporter. The Tribunal referenced previous judgments, noting that the responsibility of customs brokers ends with fulfilling their obligations under the regulations, and physical verification of the exporter's address is not required.

- Regulation 10(n): The Tribunal cited previous decisions, emphasizing that the system of exports relies heavily on trust and facilitation. The customs broker's responsibility ends with fulfilling obligations under Regulation 10, and the burden of misuse of export promotion schemes cannot be placed solely on the customs broker.

Conclusion:
The Tribunal concluded that the appellant had obtained necessary documentation, and there was no evidence that the exporters did not exist at the given addresses or that the client had not been advised to comply with the Customs Act. The suspect transaction occurred before the goods were entered for export. Consequently, the Tribunal found no merit in the impugned order, set it aside, and allowed the appeal.

Order Pronounced:
The order was pronounced in the open court on 13/07/2023.