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TMI Blog2023 (4) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... ta for 2710 adversely reported cases, DGARM has identified 2005 risky-exporters involved in IGST refund fraud and it was revealed that total 62 Customs Brokers (CBs in short) had handled the consignments of such risky exporters. It was also alleged therein that such 62 CBs have violated KYC guidelines under CBLR, 2018 read with Board's Circular No. 09/2010-Cus dated 08.04.2010 and accordingly, a request was made to initiate an inquiry for violation of KYC guidelines under CBLR, 2018. A list consisting details of 10 exporters where the present appellants acted as CB was enclosed to the said alleged offence Report of DGARM. 2. An Assistant Commissioner of Customs, Airport & ACC Commissionerate was appointed as Inquiry Officer in the said SCN. The appellants under their letter dated 15.12.2020 before the Ld. Inquiry Officer submitted reply to the said SCN and contended, inter alia, that they were having in their possession all the KYC documents for all the exporters and accordingly, they prayed for dropping of the proceeding. 3. Under letter dated 12.04.2021, the Ld. Assistant Commissioner of Customs, CB Section, Customs House, Kolkata forwarded a copy of the Inquiry Report da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. of all the exporters under question from the respective official websites of the respective Governmental Authorities and had also verified the identity & functioning of each exporter from respective acknowledgment letters of Nationalized Banks confirming the signature and functioning of the respective exporter and hence, there cannot be any violation of Regulation 10(n) of CBLR, 2018 on the part of the appellants. 7. The Appellant further contented that the Ld. Pr. Commissioner has failed to appreciate that if the Government or Banks with all their men and machinery while issuing IEC/GSTIN/PAN/Aadhar etc. to any person did not question the existence of the said person/ exporter, the CB cannot be held responsible for subsequent non-existence of such person/ exporter. 8. The Appellant also contented that in terms of Regulation 17(7) of CBLR, 2018, the Principal Commissioner of Customs was under the obligation to pass his Final Order within ninety days from the date of submission of such Report by the Inquiry Officer which expired on 16.06.2021, in this case. He also argued that no order was passed by the Ld. Principal Commissioner for rejection or disagreement to the said Inqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he number of proficient and qualified persons required to carry out the job of CHA commensurate with the volume of import / export cargo. The Board also did not find any justification in prescribing a turnover based criteria for ascertainment of the number of CHA licenses required to be issued at a particular Custom House / Station, in as much as the practice of undertaking CHA services on the basis of Form 'C' intimation was already in vogue and would render such exercise meaningless. The Board, therefore, has decided against fixing a numeric criterion governing the number of CHA licenses being issued. Board has also decided that the examination under Regulation 8 shall be conducted on an annual basis instead of twice a year, by suitably amending the sub-regulation (1) to Regulation 8. (ii) Employment of person by a CHA: 4. In the present scheme of CHALR, 2004 under regulation 19(1), the Custom House Agent may employ any person who shall have a minimum educational qualification of 10+2 School education. However, appointment of such person shall be made only after obtaining approval of the Deputy Commissioner / Assistant Commissioner (DC/AC) designated by the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CHA's operations may be taken by the Commissioner of Customs at the station who issued the CHA license and such action would either be limited to a particular customs station where a violation has been noticed or action against the CHA in general, applicable at all customs stations where the CHA operates, depending upon the gravity and seriousness of the violation. Where the CHA licence is suspended, all 'G' and 'H' cards issued in respect of that licence would become non-operational. 5.2. Further, it is also clarified that the Commissioner of Customs at a customs station who had authorised a CHA to operate on 'C' form intimation, should inform the details of violations to the Commissioner of Customs at the customs station from where the CHA licence was issued for such CHA, so that necessary action for suspension or revocation of CHA licence, could be initiated by him. This would avoid duplication and ensure uniformity in adjudication of a case against a CHA in suspension or revocation proceedings by the Customs field formations. However, the Commissioner of Customs, who had authorised a CHA to operate on 'C' form intimation at a customs stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation against the report of AC/DC on the grounds not accepted by CHA, by reducing the time to thirty days in both the cases under the Regulations. 7.2. In cases where immediate suspension action against a CHA is required to be taken by a Commissioner of Customs under regulation 20(2), there is no need for following the procedure prescribed under Regulation 22 since such an action is taken immediately and only in justified cases depending upon the seriousness or gravity of offence. However, it has been decided by the Board that a 'post-decisional hearing' should be given in all such cases so that errors apparent, if any, can be corrected and an opportunity for personal hearing is given to the aggrieved party. Further, Board has also prescribed certain time limits in cases warranting immediate suspension under Regulation 20(2). Accordingly, the investigating authority shall furnish its report to the Commissioner of Customs who had issued the CHA license (Licensing authority), within thirty days of the detection of an offence. The Licensing authority shall take necessary immediate suspension action within fifteen days of the receipt of the report of the investigating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existed wherein a dispensation was prescribed vide Board's Circular No.48/2000-Customs dated 22.5.2000 for a specific period. Accordingly it was also decided by the Board that in case of Regulation 9 examination passed candidates under the CHALR, 1984, the relaxation provided in respect of educational qualifications vide Board's Circular No. 48/2000-Customs shall be extended on similar basis. 9. The aforesaid decisions of the Board involving change in the CHALR, 2004, has been implemented by issue of Notification No.30/2010-Customs (NT) dated 8.4.2010. 10. These instructions may be brought to the notice of the trade by issuing suitable Trade / Public Notices. Suitable Standing orders/instructions may be issued for the guidance of the field officers. 11. Difficulties faced, if any, in implementation of this Circular, changes made in the CHALR, 2004 may be brought to the notice of the Board immediately. Annexure Client/Customer Identification Procedure Features to be verified and documents to be obtained from clients/customers S.No Form of organisation Features to be verified Documents to be obtained 1 Individual (i) Legal name and any other names us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Departmental officers, they never existed in the first place and it was the obligation of the appellant as a Customs Broker 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" as provided in Regulation 10(n) of the CBLR 2018.The Departmental Representative argued that as the appellant failed to discharge this obligation they are liable for the consequences of revocation of their licence, forfeiture of the security deposit and imposition of penalty. The Departmental Representative cited the CBIC Circular No. 9/2010-Customs dated 8.4.2010 giving KYC guidelines and argued that the appellant failed to exercise due diligence and grossly violated the KYC guidelines of the said Circular dated 8.4.2010 read with CBLR, 2018 as number of exporters facilitated by the CB have been found to be untraceable. As per the mandate of Regulation 10(n) of the CBLR, 2018 read with the Circular no. 9/2010-customs dated 8.4.2010, it was incumbent upon the CB to verify the identity and function ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is evident that even as per the circular, obtaining a photograph and any two of the documents listed in the Annexure to the circular is sufficient compliance of Regulation 10(n) of CBLR, 2018. 'Any officially valid document identifying the partners and the person holding the Power of Attorney and their addresses' is cited as one of the documents for Partnership firms, trusts and foundations. The most important documents in these cases are the IEC and the GSTIN - one issued by the same department and the other by the DGFT. GSTIN which was not only issued by the same department but has also been cited in the investigation reports (RUDs to the SCN). The IEC issued by the DGFT in these cases is not disputed at all without which the goods could not have been exported at all. 15. The Customs Brokers play an important role in the Customs administration and have to fulfill their responsibilities and obligations under the law. The law in question in this case is Regulation 10(n) of CBLR, 2018. The allegation against the appellant is based on the reports of the jurisdictional officers in respect of the three RUDs attached to the DGARM Report. All of them show that the GSTIN were issued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows: a) Verify the correctness of IEC number b) Verify the correctness of GSTIN c) Verify the identity of the client using reliable, independent, authentic documents, data or information d) Verify the functioning of the client at the declared address using reliable, independent, authentic documents, data or information 23. Of the above, (a) and (b) require verification of the documents which are issued by the Government departments. The IEC number is issued by the Director General of Foreign Trade and the GSTIN is issued by the GST officers under the Central Board of Indirect Taxes and Customs of the Government of India or under the Governments of State or Union territory. The question which arises is has the Customs Broker to satisfy himself that these documents or their copies given by the client were indeed issued by the concerned government officers or does it mean that the Customs Broker has to ensure that the officers have correctly issued these documents. In our considered view, obligations under Regulation 10(n) of CBLR cannot be read to mean the latter as it would amount to treating the Customs Broker as one who is responsible to oversee and ensure the corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment over the certificate or registration issued by a Government officer so long as it is valid. In this case, there is no doubt or evidence that the IEC and the GSTIN were issued by the officers. So, there is no violation as far as the documents are concerned. 25. The third obligation under Regulation 10(n) requires the Customs Broker to verify the identity of the client using reliable, independent, authentic documents, data or information. In other words, he should know who the client is and the client cannot be some fictitious person. This identity can be established by independent, reliable, authentic: a) documents; b) data; or c) information 26. Any of the three methods can be employed by the Customs Broker to establish the identity of his client. It is not necessary that it has to only collect information or launch an investigation. So long as it can find some documents which are independent, reliable and authentic to establish the identity of his client, this obligation is fulfilled. If a document is issued by any other person not interested in the relationship of the client and the Customs Broker, it can be called independent. But it should also be reliable and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress, it would be reasonable for the Customs Broker to presume that the officer is not wrong and that the client is indeed, functioning at that address. In the factual matrix of this case, we find that the GSTIN issued by the officers of CBIC itself shows the address of the client and the authenticity of the GSTIN is not in doubt. In fact, the entire verification report is based on the GSTIN. Further, IECs issued by the DGFT also show the address. There is nothing on record to show that either of these documents were fake or forged. Therefore, they are authentic and reliable and we have no reason to believe that the officers who issued them were not independent and neither has the Customs Broker any reason to believe that they were not independent. In two of the cases, the GST officers have also received some GST returns from the clients. 28. The responsibility of the Customs Broker under Regulation 10(n) does not include keeping a continuous surveillance on the client to ensure that he continues to operate from that address and has not changed his operations. Therefore, once verification of the address is complete as discussed in the above paragraph, if the client moves to a new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate as to why and how the GST registration was issued when the exporters did not exist at all. We also find that there were other documents procured by the appellant issued by various other authorities which have not been alleged to be, let alone, proven to be fake or forged by the Revenue. Evidently, they also must have been issued by concerned officers like the GST Registration issued by the jurisdictional officers. 31. Unless all these officers of various organisations (including the jurisdictional GST officer who issued the registration in December 2018) either acted fraudulently or carelessly, the above could not have been issued. 32. The Customs Broker is not Omniscient and Omnipotent. The responsibility of the Customs Broker under Regulation 10(n) does not extend to ensuring that all the documents issued by various officers of various departments are issued correctly. The Customs Broker is not an overseeing authority to ensure that all these documents were correctly issued by various authorities. If they were wrongly issued, the fault does not lie at the doorstep of the Customs Broker and it is not up to the Customs Broker to doubt the documents issued by the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the declared premises. We proceed to examine this proposition. 39. It is common knowledge that in designing schemes for issuing registrations, certificates or providing incentives, two conflicting objectives of due diligence and facilitation are balanced. Too many checks can make life difficult for the exporter or the citizen and too much facilitation can open the doors for frauds. Determining the golden mean and where to draw the line is a matter of public policy. The extent of liberalization or tightening may also vary greatly from one system to another and that is also a matter of public policy. If one wants to obtain a passport, for example, which gives one nothing more than the right to leave the country and to return to it, the passport is issued either after or subject to police verification so that the passports are not issued incorrectly or misused. Similarly, if a poor hut-dweller wants a Ration Card which entitles him and his family to subsidized or free food from the State worth a few thousand rupees, such a card is issued only after verifying his address, the number of his family members, etc. so that the scheme may not be misused by those who are not entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efund and various export incentive schemes formulated by the DGFT. Thus, this is a very liberal, business-friendly, open, system which also makes it vulnerable to misuse. 42. While the DGFT issues the IEC, actual exports take place through the Customs which forms the second point of check over imports and exports which is also quite liberal. There are two levels of checks in Customs - assessment of the documents by the officer and physical examination of the goods being exported both of which are done only in selected cases and other cases are 'facilitated' i.e., the export is allowed without any officer either assessing the shipping bill or examining what was actually being exported to ensure that it matches with the shipping Bill. The customs Risk Management System (RMS) decides which shipping bill should be assessed and/or which export consignment must be subjected to physical 25 examination. The National Time Release Study12 by the CBIC reports as follows: "7. Exports - procedure, methodology and scope 7.1 Export procedure requires filing of electronic self-declaration (shipping bill) by exporter before the goods move from exporter's premises. The RMS allows the lowest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices Pvt Ltd concluded as under:- "46. Thus, both the financial gain to an individual and the aggregate financial impact on the budget are large but the policy and schemes are not designed mainly to facilitate the good guys and genuine exporters and not to keep the crooks out. This balance is a matter of policy. Learned departmental representative was correct in stating that the officers work within their mandate which may not include physical verification of the premises of the exporters. Nevertheless, the burden of this very liberal, open, scheme and its potential misuse cannot be put at the doorstep of a Customs Broker. Just as the officer's responsibility ends with doing his part of the job (which may be issuing a registration without physical verification or allowing exports without assessing the documents or examining the goods), the Customs Broker's responsibility ends with fulfilling his responsibilities under Regulation 10 of the CBLR, 2018. In dispute in this case is CBLR 10(n) which, as we have discussed above, does not require any physical verification of the address of the exporter/importer and the appellant has fully met his obligations under Regulation 10(n). 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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