The Principal Bench of Customs, Excise & Service Tax Appellate Tribunal overturned the revocation of a customs broker's license by the Commissioner of Customs, underscoring the limitations of a broker's due diligence obligations.

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) in New Delhi, in its order dated June 4, 2024, reversed the Commissioner of Customs (Airport & General), New Delhi's decision to revoke the license of customs broker M/s Pushpanjali Logistics. The Tribunal determined that the Commissioner was not justified in revoking the license on the grounds of violations of Regulations 10(d) and 10(n) of the Customs Brokers Licensing Regulations, 2018 (CBLR).

The case originated from an investigation conducted by the Directorate General of Analytics and Risk Management (DGARM), which flagged certain exporters as potentially engaging in fraudulent practices. DGARM found that one such exporter, M/s Arise Enterprises, whose exports were handled by Pushpanjali Logistics, was nonexistent. Consequently, a Show Cause Notice (SCN) was issued to Pushpanjali Logistics on April 25, 2023.

The show cause notice alleged that the appellant violated Regulations 10(d), 10(e), and 10(n) of the CBLR, 2018 because it had filed two shipping bills on behalf of Arise, and exported ready-made garments against one of the bills, declaring high values to claim undue export benefits. On July 21, 2023, the inquiry officer submitted a report concluding that Pushpanjali Logistics had indeed violated Regulations 10(d), 10(e), and 10(n). Based on this report, the Commissioner passed an order on October 16, 2023, revoking Pushpanjali Logistics’ license, forfeiting their security deposit, and imposing a fine of Rs. 50,000. Pushpanjali Logistics appealed against this order before the Tribunal.

Tribunal's Rationale
Regulation 10(d): The Tribunal rejected the Commissioner's conclusion that Pushpanjali Logistics did not advise Arise Enterprises to comply with the provisions of the Customs Act or bring any non-compliance by Arise to the notice of the Deputy or Assistant Commissioner of Customs. It determined that the Commissioner made this conclusion without any evidence to support it. The Tribunal clarified that the responsibility of a customs broker under Regulation 10(d) is limited to providing advice to clients regarding import and export regulations relevant to the specific transactions handled by the broker. The Tribunal asserted that the scope of this responsibility does not extend to aspects like a client's GST registration or any dealings unrelated to the specific import or export consignment that the customs broker is handling. The Tribunal further noted that a customs broker is not responsible for the issuance of a benami GST registration, and once such registration is issued by the department, the customs broker has no choice but to accept it.

Regulation 10(n): The Tribunal also disagreed with the Commissioner's finding that Pushpanjali Logistics did not verify the correctness of Arise Enterprises’ Importer Exporter Code (IEC) number, Goods and Services Tax Identification Number (GSTIN), identity, and functioning at the declared address, using reliable, independent, and authentic documents, data, or information, as required under Regulation 10(n). The Tribunal, relying on the Delhi High Court’s judgment in Kunal Travels, and quoted

“the CHA is not an inspector to weigh the genuineness of the transaction. It is a processing agent of documents with respect of clearance of goods through customs house and in that process only such authorized personnel of the CHA can enter the customs house area…….. It would be far too onerous to expect the CHA to inquire into and verify the genuineness of the IE code given to it by a client for each import/export transaction. When such code is mentioned, there is a presumption that an appropriate background check in this regard i.e., KYC, etc. would have been done by the customs authorities…..”,

the bench further clarified that the Regulation 10(n) does not mandate customs brokers to physically verify a client's place of business. Further, citing Section 79 of the Evidence Act, 1872, the Tribunal stated that a customs broker is entitled to assume the validity of government-issued documents like IEC and GSTIN. The Tribunal clarified that the responsibility of a customs broker under Regulation 10(n) is to verify that the IEC and GSTIN were actually issued by government authorities, and they can satisfy this responsibility through methods like online verification.

The Tribunal elaborated that although obtaining documents is generally the easiest way for a customs broker to verify the identity of its client under Regulation 10(n), a customs broker may choose to instead use reliable, independent, and authentic data or information for this purpose. According to the Tribunal, it is not the customs broker’s responsibility to verify that government officers issue documents correctly, to continuously monitor the client’s business operations, or to keep track of whether the client has changed their business address.

Decision:
The Tribunal, based on its findings, concluded that the revocation of Pushpanjali Logistics’ license, the forfeiture of its security deposit, and the imposed penalty were unreasonable and could not be sustained, as there is no responsiblity of the Customs Broker under Regulation 10(n) as it 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. The Tribunal held that "Therefore, once verification of the address is complete as discussed in the above paragraph, if the client moves to a new premises and does not inform the authorities or does not get his documents amended, such act or omission of the client cannot be held against the Customs Broker." The Tribunal asserted that holding customs brokers accountable for the fraudulent activities of their clients, especially when the broker has exercised due diligence in verifying the client's credentials based on government-issued documents, would establish an unfair and impractical precedent.

CORAM: HON’BLE JUSTICE MR. DILIP GUPTA, PRESIDENT
HON’BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)

CUSTOMS APPEAL NO. 55801 OF 2023
[Arising out of the Order-in-Original No. 68/ZR/POLICY/2023 dated 16/10/2013 passed by Commissioner of Customs (Airport & General), New Delhi – 110 037.]
FINAL ORDER NO. 55892/2024
DATE OF HEARING : 29.04.2024
DATE OF DECISION: 04.06.2024