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2025 (4) TMI 776 - AT - CustomsLevy of penalties u/s 114(iii) and Section 114AA of the Customs Act 1962 - due diligence was not done by the CHA in both the cases before filing the export documents with customs as they did not verify existence of the exporter at the given address - failure to fulfill its obligations under the Customs Broker License Regulations 2018 specifically under Regulation 10(d) and 10(n) of the Customs Broker License Regulations 2018 - HELD THAT - The department has not recorded the statement of the appellant in either of the case and made allegations without substantiating them. Neither the show cause notices nor the orders of the lower authorities bring out as to how appellant has abetted in wrong doings of the exporter to justify imposition of penalty on him under Section 114(iii) and submitted false and incorrect material for imposing penalty under Section 114AA of the Customs Act 1962. The SCNs invoke Regulation 13(d) and (n) of CHA Licensing Regulations 2013 but as the matter pertains to 2020 Customs Broker License Regulation 2018 should have been invoked. In the case of Bansal Fine Foods Pvt. Ltd. Vs. Commissioner of Customs Mundra 2022 (7) TMI 372 - CESTAT AHMEDABAD this Tribunal has held that CHA who filed shipping bills as per documents provided by Indian exporter is not liable to penalty under section 114 and 114AA of Customs Act 1962 when export consignment was rerouted to another country but ultimately delivered to original consignee. Thus it is clear that penalty on the CHA under the Customs Act can be imposed only if some positive Act of his involvement in fraudulent import/export is found with credible evidence. If there is failure on his part to fulfill the obligation cast upon him under CBLR 2018 appropriate action needs to be taken under those regulations. As discussed the department has not adduced any evidence in both the cases showing abetment by the CHA in alleged fraudulent activity of the exporter. They have also not brought forward any evidence to show that the CHA has used false and incorrect material in the cases. What has come out is that the CHA has received KYC documents export invoices packing lists etc. of the exporter through some other agency and filed the shipping bills with the Customs. Conclusion - The department has not brought out anything in either of the cases to sustain its allegation against the appellant. It is further found that the penalty has been imposed on the appellant without credible evidence and therefore it is held as unsustainable. Appeal allowed.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered by the Appellate Tribunal were: 1. Whether the penalties imposed on M/s Dhanlabh Logistics LLP under Section 114(iii) and Section 114AA of the Customs Act, 1962 were justified. 2. Whether M/s Dhanlabh Logistics LLP, acting as a Customs House Agent (CHA), failed to fulfill its obligations under the Customs Broker License Regulations, 2018, specifically under Regulation 10(d) and 10(n). ISSUE-WISE DETAILED ANALYSIS 1. Justification of Penalties under Section 114(iii) and 114AA of the Customs Act, 1962 Relevant Legal Framework and Precedents: Section 114(iii) of the Customs Act, 1962 imposes penalties on any person who abets the doing of any act or omission that renders goods liable to confiscation. Section 114AA penalizes the use of false and incorrect material in customs-related declarations. The Tribunal referred to several precedents, including the cases of Mr. K Natrajan, P.D. Prasad & Sons Pvt. Ltd., and Brijesh International, which emphasized that penalties under these sections require evidence of active facilitation or knowledge of the wrongful act. Court's Interpretation and Reasoning: The Tribunal found that the department had not provided evidence to establish that M/s Dhanlabh Logistics LLP or its employees played an active role in the alleged export of misdeclared goods. The Tribunal noted that the penalties were imposed without substantiating the allegations of abetment or the use of false material. Key Evidence and Findings: The Tribunal observed that the department did not record any statements from the appellant or present evidence of active involvement in the fraudulent activities. The Tribunal also noted that the CHA had received the export documents through another agency and had no direct involvement in the misdeclaration. Application of Law to Facts: The Tribunal applied the principles from the cited precedents, concluding that mere failure to verify the exporter's antecedents does not constitute abetment or justify penalties under Sections 114(iii) and 114AA. Treatment of Competing Arguments: The Tribunal dismissed the department's argument that the CHA failed in its due diligence obligations, highlighting the lack of evidence for active facilitation or knowledge of the fraud. Conclusions: The Tribunal concluded that the penalties imposed under Sections 114(iii) and 114AA were unsustainable due to the absence of credible evidence of abetment or use of false material by the appellant. 2. Fulfillment of Obligations under Customs Broker License Regulations, 2018 Relevant Legal Framework and Precedents: Regulation 10(d) requires the customs broker to advise clients to comply with customs laws and report non-compliance. Regulation 10(n) mandates verification of the client's identity and functioning at the declared address using reliable documents. Court's Interpretation and Reasoning: The Tribunal noted that the regulations do not require physical verification of the client's address, and the CHA fulfilled its obligations by verifying documents through available data sources. Key Evidence and Findings: The Tribunal found no evidence that the CHA failed to verify the necessary documents or that it knowingly facilitated the fraudulent exports. Application of Law to Facts: The Tribunal applied the regulatory framework, determining that the CHA's actions were in compliance with the obligations under the Customs Broker License Regulations, 2018. Treatment of Competing Arguments: The Tribunal rejected the department's assertion that the CHA failed in its due diligence, emphasizing the lack of evidence for any intentional wrongdoing. Conclusions: The Tribunal concluded that the CHA had not violated its obligations under the Customs Broker License Regulations, 2018, and that any failure to verify the exporter's antecedents did not warrant penalties under the Customs Act. SIGNIFICANT HOLDINGS The Tribunal held that penalties under Sections 114(iii) and 114AA of the Customs Act, 1962 require evidence of active facilitation or knowledge of the wrongful act. The Tribunal emphasized that mere failure to verify the exporter's antecedents does not constitute abetment. The Tribunal also established that the Customs Broker License Regulations, 2018 do not necessitate physical verification of a client's address, and compliance can be achieved through document verification. The Tribunal set aside the penalties imposed on M/s Dhanlabh Logistics LLP, allowing the appeals with consequential benefits as per law.
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