Customs Broker License cannot be revoked without giving opportunity for Cross-Examination

Perfect Cargo and Logistics Vs Commissioner of Customs (CESTAT Delhi)

The contention of the appellant is that the G-Card holder acted strictly in accordance with the guidelines issued in the Circular dated April 8, 2010. According to the appellant, the G-Card holder exercised due diligence by procuring all independent and authentic documents.

39. As noticed above, if the documents that were submitted to the G-Card holder, prima-facie appeared to be authentic, there was no reason for the G-Card holder to verify the contents of the documents. The grant of an Importer Exporter Code number was held by the Delhi High Court in Kunal Travels to pre-suppose verification of facts. The decision rendered by the Tribunal in Millenium Express does not help the Department in view of the judgments of the Delhi High Court in Kunal Travels and Shiva Khurana. The decision of the Tribunal in HLPL Global Logistics would not be applicable in the present case since this decision relates to violation of the provisions section 114 of the Customs Act, 1962 and not the Licensing Regulations. The decision of the Patna High Court in Bhaskar Logistic also does not help the Department. The misuse of Importer and Exporter Code had been detected in the case. The decision of the Tribunal in Multi Wings does not also help the Department as it was found as a fact that the KYC documents were not available with the assessee at the time of visit of the Investigating Agency.

It also needs to be noted that the statement of the Customs Broker in the present case was not recorded and only the statement of C/50863/2020 his G-Card holder was recorded by the Investigating Agency. It was necessary to record the statement of the Customs Broker as allegations have been made against the Customs Broker. This fact has also been noticed by the Tribunal in G.M. Enterprises vs. Commissioner of Cus. (Export), Nhava Sheva¹⁴.

The inevitable conclusion, therefore, that follows is that the Commissioner was not justified in revoking the License of the appellant or forfeiting the security deposit or imposing penalty.

Thus, for all the reasons stated above, it is not possible to sustain the impugned order dated June 26, 2020 passed by the Commissioner. It is, accordingly, set aside and the appeal is allowed.

FULL TEXT OF THE CESTAT JUDGEMENT

1. M/s Perfect Cargo and Logistics¹ has filed this appeal for setting aside the order dated June 26, 2020 passed by the Commissioner of Customs (Airport and General)², by which the Customs Broker Licence³ of the Appellant which was valid up to November 07, 2027 has been revoked. The order also forfeits the security deposit of Rs. 5 lakhs and imposes penalty of Rs. 50,000/-.

2. The records indicate that the Deputy Director, DRI, DZU, New Delhi, by a letter dated September 03, 2019, informed the office of the Commissioner that the Appellant had undertaken customs clearance for export of goods of two firms, namely, M/s Impex Trading and M/s Global Trading, without verifying the existence of the exporters and without even meeting the partners of the said firms and investigation also revealed that the said firms and their partners did not exist at the addresses given in their Import Export Code/ Bank Accounts and that the Bank Realisation Certificates were not received against the exports made by them. The investigation report and copies of the statement of Virdender Kumar Saraswat, a G-Card holder of the Appellant, were forwarded to the office of the Commissioner for action under the provisions of the Customs Brokers Licensing Regulations, 2018⁴.

3. It, therefore, appeared to the Department that the Appellant had failed to comply with the provisions of Regulations 10(a), 10(d), 10(e), 10(n) and 13(12) of the Licensing Regulations and so action could be taken under the Licensing Regulations, including revocation of license, forfeiture of part or whole of security and imposition of penalty. The Deputy Commissioner in the office of the Commissioner of Custom (Airport & General) was appointed as the Inquiry Officer. Thereafter, a show cause notice dated December 03, 2019 was issued to the Appellant requiring the Appellant to show cause as to why it should not be held responsible for contravention of the aforesaid C/50863/2020 provisions of the Licensing Regulations and why the Licence should not be revoked and part or whole of the security submitted at the time of issue of the License be not forfeited. The Appellant was also asked to show cause as to why penalty should not be imposed in terms of Regulation 18 read with Regulation 17 of the Licensing Regulations.

4. The Appellant, by a letter dated January 02, 2020, submitted a detailed reply stating, inter alia,:

(i) The Appellant and the G-Card holder had before filing the shipping bill, fulfilled the “know your customer”⁵ norms by asking for the documents mentioned in Regulation 10 (n). The partnership deeds, service tax registration, voter cards, PAN card and Importer Exporter Code were submitted and the addresses of the firms were available in the Importer Exporter Code Certificates.

(ii) Though the G-Card holder had not personally met all the partners of the exporting firms, but as per the practice he had met the representative of the exporting firms for taking the authorisation letters and also documents including export documents, as required by KYC norms, on the basis of which the shipping bills were filed. Copies of the authorisation letter and various emails and KYC documents were also enclosed with the reply.

(iii) It was not the duty of the Appellant to verify the addresses of the exporters by personally visiting the addresses given in the export documents or in the Importer Exporter Code or in the registration certificates.

(iv) Evidence of over valuation was not in the knowledge of the Appellant and hence there was no question of advising the client. As per the practice, the address and verification of the Importer Exporter Code number, GST number and identity of the client are done by taking all the KYC norm documents prescribed in Circular No. 9 of 2010 dated April 8, 2010. The bank verifies the correctness of the address of the exporters by following the KYC norms verification. Hence, it is not correct to allege that the Appellant had violated Regulation 10(e) of the Licensing Regulations. The Appellant had exercised proper supervision over the conduct of the G-Card holder and the G-Card holder had also discharged his duty as per the Licensing Regulations. There was no act or omission on the part of the G-Card holder.

(v) There was, therefore, no violation of Regulations 10(a), 10(d), 10(e), 10(n) and 13 (12) of the Licensing Regulations.

(vi) Case laws in support of the contentions raised in the reply were referred to.

5. The reply filed by the Appellant, however, did not find favour of the Commissioner, who by order dated June 26, 2020 revoked the Licence of the Appellant by exercising powers under Regulation 14 of the Licensing Regulations.

6. The Appellant has submitted a chart that contains the Regulation of which violation has been alleged, the ingredient of the Regulation, the finding of the Commissioner and the submissions of the Appellant. The same are contained in the following Table:

7. Shri Alok Agarwal, learned Counsel for the Appellant made the following submissions:

(i) The Appellant was issued the Licence 20 years back. The Department started investigation in 2017 against various exporters of readymade garments and during investigation it was found that five exports pertained to the Appellant. In the show cause notice dated December 3, 2019 issued to the Appellant, it was mentioned that two exporters, namely, M/s Impex Trading and Global Trading were not available at the address provided in the KYC documents. The Department visited the address for physical verification after a long gap of 18 months and it appeared that the exporters in order to avoid the investigation abandoned the given address.

(ii) The Appellant had followed all the provisions of the Licensing Regulations and infact had duly carried out the KYC procedure norms provided for in the Licensing Regulations and the Board Circular dated April 08, 2010;

(iii) The Appellant had no reason to doubt the veracity of the facts mentioned in the KYC documents as the same had been issued by the Government of India. All these documents were submitted by the Appellant to the Investigation Agency;

(iv) There was no violation of Regulations 10(a), 10(d), 10 (e), 10(n) and 13 (12) of the Licensing Regulations. Copies of the authorisation letters had been submitted as also the Importer Exporter Code number and GST number. The identity of clients was established by the KYC documents. The Appellant also submitted the partnership deed, service tax registration, PAN card, electricity bill, rent agreements, bank details and mobile number of the partners and email id. Due diligence as per the practice was undertaken by the Appellant. There was also no act or omission on the part of the G-Card holder since he acted in accordance with the Board Circular and exercised due diligence by procuring all the documents in accordance with the Regulations;

(v) The duty of a Customs Broker is confined to obtaining the relevant KYC documents and he cannot be held responsible for not physically verifying the address of the exporter, as has been observed by the Tribunal in various decisions; and

(vi) In support of the submissions, learned counsel for the Appellant placed reliance on the following decisions:

(a) Kunal Travels (Cargo) vs. CC (I & G), IGI Airport, New Delhi⁶.

(b) Commissioner of Customs vs. Shiva Khurana⁷.

(c) Nimesh Suchde vs. Commissioner of Customs, Nhava Sheva⁸

(d) Setwin Shipping Agency vs. Commissioner of Cus. (General), Mumbai⁹

8. Shri Rakesh Kumar, learned Authorised Representative of the Department, however, supported the order and made the following submissions:

(i) The Appellant had done customs clearance of goods for two firms M/s Impex Trading and M/s Global Trading without even verifying the existence of the exporters. Investigations revealed that the two firms were non-existent at the address given in the Importer Exporter Code/ Bank Accounts and no Bank Realisation Certificates were received against the exports made by them;

(ii) Statements made by Vivek Kumar, a G-card holder of the Appellant, on January 28, 2017 and March 29, 2019 support the case of the Department;

(iii) The exporters never responded to the summons and the letters addressed to them returned with a note that the exporters or the firm have not been found at the address;

(iv) Proper authorisation was not obtained as per Regulation 10 (a) and so the question of exercising due diligence under Regulation 10(e) and advising the client to adhere to the provisions of the Act and the Regulations, as contemplated under Regulation 10 (d), does not arise;

(v) Regulation 10 (n), which requires the Customs Broker to verify the genuineness of documents, has also not been followed;

(vi) Regulation 13 (12), which requires the Customs Broker to exercise such supervision as may be necessary to ensure proper conduct of his employees in the transaction of business, has also not been followed; and

(vii) In support of the submissions, reliance has been placed on the following decisions:

(a) Millenium Express Cargo Pvt Ltd. vs. Commr. of Cus., New Delhi¹⁰.

(b) HLPL Global Logistics Pvt. Ltd. vs. Commr. of Cus. (Airport & Admn.), Kolkata¹¹

(c) Bhaskar Logistic Services Pvt Ltd. vs. Union of India¹².

(d) Multi Wings Clearing & Forwaring P. Ltd. vs. C.C. (General), New Delhi¹³.

9. The submissions advanced by the learned Counsel for the Appellant and the learned Authorised Representative of the Department have been considered.

10. The License was issued to the Appellant about 20 years back. The Appellant, as a holder of the License, had done customs clearance for firms. The Department had started investigation in 2017 in respect of various exports of readymade garments and during this investigation it was found that five of such exports pertained to the Appellant. According to the show cause notice dated December 03, 2019 that was issued to the Appellant, of the five exporters, two exporters, namely, M/s Impex Trading and Global Trading were not available at the address mentioned in the KYC documents. The Appellant claims that the officers of the Department visited the address provided by these two firms after a long period of about 18 months.

11. The show cause notice alleges violation of Regulations 10 (a), (d), (e), (n) and 13 (12) of the Licensing Regulations. They are reproduced:

“10. Obligations of Customs Broker.-A Customs Broker shall-

(a) obtain an authorisation from each of the companies, firms or individuals by whom he is for the time being employed as a Customs Broker and produce such authorisation whenever required by the Deputy Commissioner of Customs or Assistant Commission of Customs, as the case may be;

(d) advise his client to comply with the provisions of the Act, other allied Acts and the rules and regulations thereof, and in case of non-compliance, shall being the matter to the notice of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be;

(e) exercise due diligence to ascertain the correctness of any information which he imparts to a client with reference to any work related to clearance of cargo or baggage;

(n) 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;

13. Engagement or employment of persons-

(12) The Customs Broker shall exercise such supervision as may be necessary to ensure proper conduct of his employees in the transaction of business and he shall be held responsible for all acts or omissions of his employees during their employment.”

12. The Appellant, in his defence referred to a Circular dated April 08, 2010 issued by the Central Board of Excise and Customs, New Delhi. The relevant clarification relating to Know Your Customer (KYC) norms for identification of clients by Customs House Agents in the said Circular is reproduced below:

CIRCULAR DATED 08-04-2010

“(iv) Know Your Customer (KYC) norms for identification of clients by CHA’s:

6. In the context of increasing number of offences involving various modus-operandi such as misuse of export promotion schemes, fraudulent availment of export incentives and duty evasion by bogus IEC holders etc., it has been decided by the Board to put in place the “Know Your Customer (KYC)” guidelines for CHA‟s so that they are not used intentionally or unintentionally by importers/exporters who indulge in fraudulent activities. Accordingly, Regulation 13 of CHALR, 2004, has been suitably amended to provide that certain obligations on the CHAs to verify the antecedent, correctness of import export code Number, identity of his client and the functioning of his client in the declared address by using reliable, independent, authentic documents, data or information. In this regard, a detailed guideline on the list of documents to be verified and obtained from the client/ customer is enclosed in the Annexure. It would also be obligatory for the client/ customer to furnish to the CHA, a photograph of himself/herself in the case of an individual and those of the authorised signatory in respect of other forms of organisation such as company/trust etc., and any two of the listed documents in the annexure.”

(emphasis supplied)

13. The relevant portion of the Annexure of the said Circular containing the features to be verified and the documents to be obtained from the client/ customers in relation to Partnership Firms is reproduced below:

Client/Customer identification Procedure
Features to be verified and documents to be obtained from clients/
customers

14. The Commissioner, before examining the violation of the various provisions of the Regulations, examined whether the two firms existed and in this context observed that these two firms ^„were non-existing‟. The observations are as follows:

“25. I observe that the investigations conducted by DRI have revealed that the two firms in the name & style of M/s Impex Trading and M/s Global Trading, having same partners, were found non-existing. None of the partners of the said firm were available at their addresses given in the documents and the said two firms were also not found operating at their address as given in the IEC/ Bank Account. The Summons issued to the said two firms as well summons issued to the stated partners of the said firms were returned undelivered by the postal authorities. Physical verification of the given addresses were also done and it was found that no such firms existed at the said given addresses. No BRC was received against the exports made in the name of the said two firms. I further observed that at no place or time during the course of investigation or in their defense submissions before the Inquiry Officer or in the court of proceedings in this office, the CB has ever asserted that M/s Impex Trading and M/s Global Trading the two firms for whom he has been doing customs clearance do really exist, nor the CB has controverted the allegation of non-existence of the said firms and thus he has admitted the fact on non-existence of the said two firms. Thus, I find that non-existence of the said two firms M/s Impex Trading and M/s Global Trading is a true and is an undisputed fact.”

(emphasis supplied)

15. Each violation of the Regulation alleged in the show cause notice shall be taken up separately.

10 (a) of the Licensing Regulations

16. Regulation 10(a) deals with obligations of Customs Broker and provides that the Customs Broker shall obtain an authorisation letter from each of the companies, firms or individuals by whom he is for the time being employed as a Customs Broker and produce such authorisation whenever required by the Deputy Commissioner of Customs or Assistant Commissioner of Customs. The Commissioner has recorded the following finding in regard to violation of Regulation 10 (a):

“In this regard, agreeing with report of the inquiry officer, and as already discussed by me in the foregoing part, I find that it has been conclusively proved by ample of evidence that the two firms in the name & style of M/s Impex Trading and M/s Global Trading, were found non­existing. The CB has also at no stage of proceedings contradicted or controverted the alleged fact that the said firms are non-existing. I further notice that the CB has submitted the copy of the authorization in respect of M/s Global Trading dated 04/01/2017 and M/s Impex Trading dated 07/01/2017 before the inquiry officer. I find it unconceivable that there can be a true authorisation from a firm which does not physically exist at the ground. The authorisation produced by the CB itself loses it credibility in law when the firm whose authorisation it claims to be, it non-existing. Thus, I concur with the findings of the IO and hold that the CB has failed to comply with Regulation 10(a) of the CBLR, 2018.”

(emphasis supplied)

17. The contention of the Appellant is that the authorisation letter dated January 04, 2017 issued by M/s Global Trading and the authorisation letter dated January 07, 2017 issued by M/s Impex Trading had been submitted by the Appellant. The Commissioner has noted that these two authorisation letters were submitted, but he has observed that Regulation 10(a) was not complied with since the authorisation letters produced by the Customs Broker would have no credibility in law as the firms did not exist.

18. This conclusion drawn by the Commissioner is clearly erroneous. The Regulation requires the Customs Broker to obtain an authorisation, which the Appellant did. It is not the case of the Department that the signatures on the authorisation letter were forged or that the persons authorising the Appellant denied having given the authority letters. This apart, the Appellant also claims that due diligence was carried out for ascertaining the functioning of the C/50863/2020 clients at the address declared by the clients and in this connection the partnership deed as well as service tax registration, PAN card, Import Export Code, voter card, electricity bill, bank details and mobile number of the partners with email id were also examined. The Commissioner, therefore, committed an illegality in holding that Regulation 10(a) of the Licensing Regulations had been violated.

10(d) and 10 (e) of the Licensing Regulations

19. These two Regulations were taken up together by the Commissioner. Regulation 10(d) requires a Customs Broker to advice his client to comply with the provisions of the Act and the Rules and Regulations. Regulation 10(e) requires a Customs Broker to exercise due diligence to ascertain the correctness of any information which he imparts to a client with reference to any work related to clearance of cargo or baggage.

20. The Commissioner has placed much emphasis on the statements made by Virender Kumar Saraswat, who is a G-Card holder. The Commissioner noted that he had made a statement that he had never visited the firms nor he had met any of the partners of the said firms and that it was Shashank Sharma who used to meet the G-Card holder on behalf of the two firms to hand over the papers. Emphasis has been also placed on his statement that he had asked Shashank Sharma for verification of the two firms. The Commissioner, therefore, concluded that the Customs Broker and his G-Card holder were conscious of the fact that the two firms, for whom they were making customs clearance, were fictitious or non-existing. After having so noted, the Commissioner made the following observations:

“I, therefore, hold that the CB has failed to exercise due diligence to ascertain the correctness of any information which he furnished for the said firms. Further, as the firms in question were proved to be non-existing there is no question of advising his client to comply with the provisions of the Act, other allied Acts and the rules and regulations thereof and the CB has definitely failed to do so. I have gone through the submissions of the CB in this regard and find no force in his submissions in view of the above. I observed that the inquiry officer too in his report has observed that the case has to be analysed in the totality of circumstances and he ultimately concluded that CB has contravened the provisions of 10(d) & 10(e) of the CBLR, 2018.

Thus, I concur with the finding of the IO that the CB has violated the provisions of 10(d) and 10(e) of the CBLR, 2018 (erstwhile Regulation 11(d) and 11(e) of the CBLR, 2013).”

(emphasis supplied)

21. Learned Counsel for the Appellant submitted that due diligence does not mean actual physical verification. In fact, the practice always has been to verify the correctness of the information provided by examining the KYC documents prescribed in the Circular dated April 08, 2010.

22. Paragraph 6 of the Circular provides for certain obligations on the Customs Broker to verify the correctness of Import/Export Code Number, identity and functioning of the client at the declared address by using reliable, independent, authentic documents, data or information. For this purpose, detailed guidelines on the features to be verified and obtained from the clients have been provided in the Annexure to the Circular. It has also been mentioned in the Circular that it would be obligatory for the client/customer to furnish a photograph in the case of an individual and those of the authorised C/50863/2020 signatory in respect of other forms of organisations, such as company/trusts and any two of the listed documents mentioned in the Annexure.

23. The Annexure to the Circular, in the case of a partnership firm, requires certain features to be verified and documents to be obtained. The features to be verified are as follows:

(i) legal name

(ii) Permanent address, in full, complete and correct.

(iii) Name of all partners and their addresses in full and correct.

(iv) Telephone, fax number, e-mail address of the firm and partners.

24. The documents to be obtained are as follow:

(i) Registration certificate, if registered

(ii) Partnership deed

(iii) Power of Attorney granted to a partner or an employee of the firm to transact business on its behalf.

(iv) Any officially valid document identifying the partners and the person holding the Power of Attorney and their addresses

(v) Telephone bill in the name of firm/partners.

25. Out of the documents listed in the Annexure to the Circular, only two documents have to be obtained. The Appellant did obtain two documents. Neither the Circular nor the Annexure requires any physical verification of the premises. It is not the case of the
Department that the documents that had been obtained were forged documents. The reply submitted by the Appellant has not been discussed at all nor any reason has been assigned as to why these documents could not be considered. The Commissioner appeared to have been swayed by the fact that the two firms did not exist at the C/50863/2020 addresses provided and so the documents cannot be relied upon. It needs to be noted that this verification of the address was undertaken by the Department after 18 months.

26. The provisions of Regulation 10(e) of the Licensing Regulations were examined at length by the Delhi High Court in Kunal Travels and the relevant observation are as follows:

“12.Clause (e) of the aforesaid Regulation requires exercise of due diligence by the CHA regarding such information which he may give to his client with reference to any work related to clearance of cargo. Clause (l) requires that all documents submitted, such as bills of entry and shipping bills delivered etc. reflect the name of the importer/exporter and the name of the CHA prominently at the top of such documents. The aforesaid clauses do not obligate the CHA to look into such information which may be made available to it from the exporter/importer. The CHA is not an inspector to weigh the genuineness of the transaction. It is a processing agent of documents with respect to clearance of goods through customs house and in that process only such authorized personnel of the CHA can enter the customs house area. What is noteworthy is that the IE Code of the exporter M/s. H.M. Impex was mentioned in the shipping bills, this itself reflects that before the grant of said IE Code, the background check of the said importer/exporter had been undertaken by the customs authorities, therefore, there was no doubt about the identity of the said exporter. 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. There is nothing on record to show that the appellant had knowledge that the goods mentioned in the shipping bills did not reflect the truth of the consignment sought to be exported. In the absence of such knowledge, there cannot be any mens rea attributed to the appellant or its proprietor. Whatever may be the value of the goods, in the present case, simply because upon inspection of the goods they did not corroborate with what was declared in the shipping bills, cannot be deemed as misdeclaration by the CHA because the said document was filed on the basis of information provided to it by M/s. H.M. Impex, which had already been granted an IE Code by the DGFT. The grant of the IE Code presupposes a verification of facts etc. made in such application with respect to the concern or entity. If the grant of such IE Code to a non-existent entity at the address WZ-156, Madipur, New Delhi – 63 is in doubt, then for such erroneous grant of the IE Code, the appellant cannot be faulted. The IE Code is the proof of locus standi of the exporter. The CHA is not expected to do a background check of the exporter/client who approaches it for facilitation services in export and imports. Regulation 13(e) of the CHALR, 2004 requires the CHA to : “exercise due diligence to ascertain the correctness of any information which he imparts to a client with reference to any work related to clearance of cargo or baggage” (emphasis supplied). The CHAs due diligence is for information that he may give to its client and not necessarily to do a background check of either the client or of the consignment. Documents prepared or filed by a CHA are on the basis of instructions/documents received from its client/importer/exporter. Furnishing of wrong or incorrect information cannot be attributed to the CHA if it was innocently filed in the belief and faith that its client has furnished correct information and veritable documents. The misdeclaration would be attributable to the client if wrong information were deliberately supplied to the CHA. Hence there could be no guilt, wrong, fault or penalty on the appellant apropos the contents of the shipping bills. Apropos any doubt about the issuance of the IE Code to M/s. H.S. Impex, it was for the respondents to take appropriate action. Furthermore, the inquiry report revealed that there was no delay in processing the documents by the appellant under Regulation 13(n).”

(emphasis supplied)

27. It is clear from the aforesaid decision of the Delhi High Court that there is no obligation on the Customs House Agent to look into the information made available by the exporter/exporter. The Customs House Agent is merely a processing agent of documents with respect to clearance of goods through Customs House and he is not an inspector to weigh the genuineness of the transaction. When the Importer/Exporter Code Number was provided and before this code was issued a background check of the said importer/exporter is C/50863/2020 undertaken by the Customs Authority, there should be no doubt about the identity of the said exporter. It would be too onerous to expect a Customs House Agent to inquire into what is stated in the documents when there is a presumption that an appropriate background check is done by the Customs Authorities. In fact, the grant of Importer/Exporter Code Number is a proof regarding verification of facts and if the grant of such a code number to an entity at the address mentioned is in doubt, then for such erroneous grant of the Importer/Exporter Code Number, the Appellant cannot be faulted.

28. The Appellant has also stated that the Service Tax Registration Certificate, Voter Card, PAN Card of partners, the Importer Exporter Code Number and Rent Agreement were submitted and in this connection has pointed out that for issuance of these documents the following documents are required :

29. It transpires that for issuance of the aforesaid documents, a person has to make available number of authentic documents, most of which are documents issued by the Government of India.

30. The Commissioner was, therefore, not justified in ignoring the documents provided by the Appellant. Reliance placed by the Commissioner on the statement made by Virender Kumar Saraswat is misplaced. As noted above, the verification is required to be undertaken on the basis of the documents and it is not possible to draw any inference from the said statement that he had any serious doubts about the existence of the firms. The findings that the Appellant had not followed the provisions of Regulations 10(d) and 10(e) of the Licensing Regulations is, therefore, erroneous.

10(n) of the Licensing Regulations

31. Regulation 10(n) requires the Customs Broker to verify the correctness of Importer/Exporter Code Number, Service Tax Identification Number, identity card of the client and functioning of the client at the declared address by using reliable, independent, authentic documents, data or information.

32. The Commissioner, after referring to the Board Circular dated April 08, 2010 and its Annexure, observed as follows:

“In this regard, the Inquiry Officer observed that to verify above said feature of partnership firm any two of the above said documents had to be obtained. In the instant case, CB has provided partnership deed. But CB has failed to provide any other document i.e. either registration certificate of partnership firm or Power of Attorney granted to a partner or an employee of the firm to transact business on its behalf or any officially valid document identifying the partners and the person holding the Power of Attorney and their addresses or Telephone bill in the name of firm/ Partners. Further, the Inquiry Officer found from the statement recorded on two occasions of Shri Virender Kumar Saraswat that he did not specifically mentioned that he obtained partnership deed from the exporting firms neither he forwarded any such deed to DRI through his mail whereas he forwarded other documents to the DRI on their mail. Therefore, the inquiry officer rightly held that the partnership deed produced during subject proceedings cannot be attributed as an authentic document as at this stage it cannot be verified simply because neither partner of the firm nor the firms are existent and traceable and concluded that CB that failed to produce any of the documents as listed in the above table and hence the contravened the provisions of Regulation 10(n) of CBLR, 2018 (read with erstwhile regulation 11(n) of CBLR, 2013). Further, regarding the contention of the CB that it is not compulsory for CB to physically verify the existence of importer/ exporter, the inquiry officer found that CB is not required to physically verify the existence of the importer/ exporter at the declared address but CB is bound to verify the existence of importer/ exporter at the declared address as per the Regulation 10(n) of CBLR, 2018 as well as CBIC Circular No. 09/2010 by obtaining prescribed documents from their clients. Further, the inquiry officer observed that CB has not checked the authenticity of the representative/ manager of export firm i.e. Shri Shashank Sharma and even CB has failed to obtained any authorisation in favour of Shri Shashank Sharma. The inquiry officer found no merit in the submissions of the CB and concluded that the CB has violated provisions of the said Regulation 10(n). I have also gone through the submissions of the CB in this regard and find no force in his submissions in view of the above.

In view of above, I concur with the observations of the IO and hold that the CB has violated provisions of the said Regulation 10(n) of CBLR, 2018.”

(emphasis supplied)

33. The Delhi High Court in Shiva Khurana had an occasion to examine the provisions of Regulation 13(o) of the 2004 Regulations, which Regulation is similar to Regulation 10(n) of the Licensing Regulations, and the relevant observations are as follows :

“7. This court is of the opinion that the impugned order is justified in the facts and circumstances of the case. The reference to the verification of “antecedents and correctness of Importer Exporter Code (IEC) Number” and the identity of the concerned exporter/importer, in the opinion of this Court is to be read in the context of the CHA’s duty as a mere agent rather than as a Revenue official who is empowered to investigate and enquire into the veracity of the statement made orally or in a document. If one interprets Regulation 13(o) reasonably in the light of what the CHA is expected to do, in the normal course, the duty cast is merely to satisfy itself as to whether the importer or exporter in fact is reflected in the list of the authorized exporters or importers and possesses the Importer Exporter Code (IEC) Number. As to whether in reality, such exporters in the given case exist or have shifted or are irregular in their dealings in any manner (in relation to the particular transaction of export), can hardly be the subject matter of “due diligence” expected of such agent unless there are any factors which ought to have alerted it to make further inquiry. There is nothing in the Regulations nor in the Customs Act which can cast such a higher responsibility as are sought to be urged by the Revenue. In other words, in the absence of any indication that the CHA concerned was complicit in the facts of a particular case, it cannot ordinarily be held liable.”

34. The basic requirement of Regulation 10 (n) is that the Customs Broker should verify the identity of the client and functioning of the client at the declared address by using, reliable, independent, authentic documents, data or information. For this purpose, a detailed guideline on the list of documents to be verified and obtained from the client is contained in the Annexure to the Circular dated April 8, 2010. It has also been mentioned in the aforesaid Circular that any of the two listed documents in the Annexure would suffice. The Commissioner noticed in the impugned order that any two documents could be obtained. The appellant had submitted two documents and this fact has also been stated in paragraph 27(a) of the order. It was obligatory on the part of the Commissioner to have mentioned the documents and discussed the same but all that has been stated in the impugned order is that having gone through the submissions of the Customs Broker, it is found that there is no force in the submissions.

The finding recorded by the Commissioner that the required documents were not submitted is, therefore, factually incorrect.

35. The Commissioner, therefore, committed an error in holding that the appellant failed to ensure due compliance of the provisions of Regulations 10(n) of the Licensing Regulations.

13 (12) of the Licensing Regulations

36. This Regulation provides that the Customs Broker shall exercise such supervision as may be necessary to ensure proper conduct of his employees in the transaction of business and he will be held responsible for all acts and omissions of his employees during their employment.

37. The Commissioner has made the following observations to conclude that the provisions of Regulations 13(12) of the Licensing Regulations have not been complied with:

“I find that the Inquiry Officer in his report after considering the submissions of the CB observed that the CB has failed to explain in what manner he used to supervise the functioning of this employee. The Inquiry Officer also found from the
statement dated 28.01.2017 of Sh. Virender Kumar Saraswat that he had oral understanding with CB firm and all the export papers/shipping bills of CB at Delhi Air Cargo filed by him. He also stated that he was in charate of overall supervision of all the exports made through the firm M/s Perfect Logicare Private Limited. Further, the Inquiry Officer found that he stated that he joined CB firm in 2008 and till now he had been working with the CB firm. The Inquiry Officer rightly observed from the statement of Sh. Virender Kumar Saraswar that he is overall in charge of the CB firm at Delhi. CB has failed to explain in what manner he used to supervise the functioning of his G-Card employee. It was the responsibility of CB to ascertain from his G-Card holder that nature of documents that he obtained from his clients for KYC purpose are legally valid. But the CB has failed to do the same. Had the CB exercised his proper supervision on the functioning of his G-Card employee, the fictitious exporting firms would have not succeeded in exporting the overvalued goods with intention to avail ineligible drawback. The Inquiry Officer found no merit in the contentions of CB and concluded that CB has contravened the provisions of Regulation 13(12) of CBLR, 2018 {read with erstwhile regulation 17(9) of CBLR, 2013}

In view of the above, I concur with the observations of the IO and hold that the CB has violated provisions of the said Regulation 13(12) of CBLR, 2018 {read with erstwhile regulation 17(9) of CBLR, 2013}.”

(emphasis supplied)

38. The contention of the appellant is that the G-Card holder acted strictly in accordance with the guidelines issued in the Circular dated April 8, 2010. According to the appellant, the G-Card holder exercised due diligence by procuring all independent and authentic documents.

39. As noticed above, if the documents that were submitted to the G-Card holder, prima-facie appeared to be authentic, there was no reason for the G-Card holder to verify the contents of the documents. The grant of an Importer Exporter Code number was held by the Delhi High Court in Kunal Travels to pre-suppose verification of facts. The decision rendered by the Tribunal in Millenium Express does not help the Department in view of the judgments of the Delhi High Court in Kunal Travels and Shiva Khurana. The decision of the Tribunal in HLPL Global Logistics would not be applicable in the present case since this decision relates to violation of the provisions section 114 of the Customs Act, 1962 and not the Licensing Regulations. The decision of the Patna High Court in Bhaskar Logistic also does not help the Department. The misuse of Importer and Exporter Code had been detected in the case. The decision of the Tribunal in Multi Wings does not also help the Department as it was found as a fact that the KYC documents were not available with the assessee at the time of visit of the Investigating Agency.

40. It also needs to be noted that the statement of the Customs Broker in the present case was not recorded and only the statement of C/50863/2020 his G-Card holder was recorded by the Investigating Agency. It was necessary to record the statement of the Customs Broker as allegations have been made against the Customs Broker. This fact has also been noticed by the Tribunal in G.M. Enterprises vs. Commissioner of Cus. (Export), Nhava Sheva¹⁴.

41. The inevitable conclusion, therefore, that follows is that the Commissioner was not justified in revoking the License of the appellant or forfeiting the security deposit or imposing penalty.

42. Thus, for all the reasons stated above, it is not possible to sustain the impugned order dated June 26, 2020 passed by the Commissioner. It is, accordingly, set aside and the appeal is allowed.

(Pronounced on December 17, 2020)