Transpeed Logistics Pvt. Ltd. Vs Commissioner of Customs (CESTAT Delhi)
Regulation 10(n) of Customs Brokers Licensing Regulations, 2018 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.
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 finding recorded by the Commissioner that the required documents were not submitted is, therefore, factually incorrect.
As noticed above, the KYC documents were submitted by the appellant and the verification was undertaken by Anil, an employee who had made the Directors. The communications with the Encanterra Traders was also done through mail. The self attested Pan Card, Aadhar Card of the Director and Pan Card of the Company had been submitted by letter dated September 10, 2018. A physical verification of the premises, as noticed above, was not necessary to be carried out. 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 2018 Regulations.
FULL TEXT OF THE CESTAT JUDGEMENT
The order dated July 05, 2019 passed by the Commissioner of Customs (Airport and General)1 revoking the Customs Broker License2 of the appellant and also forfeiting the security deposit and imposing penalty has been assailed in this appeal.
2. The records indicate that an offence report dated October 15, 2018 with a show cause notice dated September 28, 2018 was submitted by the Deputy Director, Directorate of Revenue Intelligence to the Commissioner on October 22, 2018. The offence report mentions that certain importers were misusing the Duty Free Import Authorization3 by importing maize popcorn and declaring the same as maize-corn under CTH Code 10059000 and thus availing undue benefits of DFIA. It was also stated that the exporters had obtained DFIA by exporting corn starch, maize starch powder, protein concentrate corn gluten, liquid glucose, maize corn starch, in which locally procured agricultural products had been used as the main ingredient. Acting on the said intelligence, there was an alert which was put on October 26, 2017 through Risk Management Division, Mumbai for the Bills of Entry where the goods were classified under CTH 10059000.
3. During the scrutiny of the data base, it was found that one importer by the name of M/s Encanterra Traders Pvt. Ltd.4 had imported the said goods by filing two bills of entry at Chennai Seaport in which the goods were declared as popcorn variety of maize corn and thus DFIA benefit was availed to the tune of Rs. 42,56,540/-. It was further noticed that Encanterra Traders had also imported the goods at ICD, Tughlakabad and at Nhava Sheva Port and thus claimed benefits of Rs. 65,67,614/-and Rs. 26,11,520/- respectively. The goods at these two ports were also declared as “popcorn variety of maize corn” under Customs Notification dated April 01, 2015.
4. During the scrutiny it was also found that Enacnterra Traders had exported „protein concentrate pop-corn gluten‟ under DFIA from ICD Tughlakabad through six Shipping Bills and the customs clearance work of export was facilitated by a Customs Broker called M/s Transpeed Logistics International Private Limited, which is the appellant in this appeal.
5. The dispute in this appeal is restricted to these six export Shipping Bills.
6. A statement of Lal Chand Sharma, F-card holder of the appellant was recorded on September 04, 2018 under section 108 of the Customs Act, 1962, wherein he interalia stated that the customs clearance of export shipments covered under the aforesaid six Shipping Bills of Encanterra Traders was done by them and the goods exported were „protein concentrate protein gluten‟ under DFIA. It was further stated by Lal Chand Sharma that Rakesh Kumar and Manoj Kumar were Directors of Encanterra Traders and that proper „Know Your Customer‟5 documents were submitted by him. He also stated that the details of the Directors and contact details of Encanterra Traders were referred by M/s Reliance Freight LLC, which is a Dubai based company. He also stated that Anil, an employee of the appellant, had been contacting Rakesh Kumar, Director of Encanterra Traders for KYC and other documents which were required for export and all the documents were provided by Rakesh Kumar and that communications with the Directors were done either through telephone or through e-mail and the printout of the e-mails were also submitted by Lal Chand Sharma.
7. The Commissioner of Customs, by order dated October 30, 2018 suspended the License of the appellant with immediate effect under regulation 16(1) of the Customs Brokers Licensing Regulations, 20186. The aforesaid suspension order was, thereafter, confirmed by the Commissioner of Customs by order dated November 22, 2018. This order was assailed by the appellant by filing Customs appeal NO. 54037 of 2018 before the Tribunal. The appeal was allowed and the suspension order dated November 22, 2018 was set aside by order dated June 19, 2019. The relevant portion of the order passed by the Tribunal is reproduced.
“11. Having considered rival contentions, we find that the allegations of Revenue against the Appellant CHA are prima-facie vague for the reason that the offence report is based on one show cause notice No. 121/2018, issued in September, 2018 on the aforementioned parties being M/s Encanterra Traders Private Limited, M/s Chef‟s Choice, M/s Hira Traders and their Directors/Partners/Prop Wherein the Appellant CHA has not been made a co-noticee. Further, there is no allegation of connivance on the part of the Appellant CHA firm with the aforementioned parties. Further, the offence report has been issued almost after one year when the offence was detected in October, 2017 and investigations began. We also find that the Appellant have not violated any of the CHA regulations and have obtained proper documents required to meet the requirement of KYC. Further, no means rea has been alleged against the Appellant nor there is any finding regarding illegal gain made against the CHA. Further, Shri Lal Chand Sharma of the CHA company have retracted his statement particularly answer given to Question No. 1 and 2 in the statement recorded on September 04, 2018 at the first opportunity by letter dated September 10, 2018, addressed to the Deputy Director, DRI, Delhi, stating there that the answer to the said questions were dictated by the officer threatening him of harassment, if he does not toe their line. It was further clarified that the Appellant undertook work after proper authorization. Further, we find that the subsequent non availability of the said M/s Encanterra Traders Private Limite at their address or its Directors at their earlier residential address does not lead to any conclusion that the said M/s Encanterra Traders Private Limited is a fictitious company. We further find that it is nowhere alleged, in what way the Appellant did any irregularity in handling export consignment, for which they have filed the Bill of Entry on behalf of the said M/s Encanterra Traders Private Limited. The Appellant have had also verified the IEC code of the said client M/s Encanterra Traders Private Limited and found to be in order. Further, no physical verification of the premises or address of the IEC holder is mandated in the CBLR regulation, nor it is a general requirement. Thus, we find the that there is no case made out against the Appellant CHA, as alleged in the offence report or in the impugned order of suspension. Accordingly, we set aside the impugned order of suspension and allow the appeal.”
(emphasis supplied)
10. However, before the matter was decided by the Tribunal, a show cause notice dated January 14, 2019 had been issued to the appellant to show cause as to why-
(a) The Customs Broker should not be held responsible for contravention of various provisions of regulations 10(a), 10(d), 10 (e) and 10 (n) of the 2018 Regulations;
(b) The License should not be revoked and part or whole of the security submitted at the time of issuance of the License, should not be forfeited in terms of regulation 18 of the 2018 Regulations for failure to comply with the provisions of regulations 10(a), 10(d), 10(e) and 10(n) of the 2018 Regulations; and
(c) Penalty should not be imposed in terms of regulation 18 of the 2018 Regulations.
11. The appellant was granted time to file a reply to the show cause notice before the enquiry officer, who was further directed to submit a report within ninety days. This report was directed to be shared with the appellant for comments.
12. The enquiry officer found the charges levelled against the appellant in the show cause notice to be proved. After submission of the enquiry report, the appellant was granted a personal hearing. Thereafter, the order dated July 05, 2019 was passed revoking the License of the appellant and also forfeiting the security deposit. Penalty was also imposed upon the appellant.
13. It is this order dated July 5, 2019 that has been assailed in this appeal.
14. Shri Akhil Krishan Maggu, learned Counsel for the appellant made the following submissions:-
(i) The appellant had followed all the provisions of the 2018 Regulations and infact had duly carried out the KYC procedure norms provided for in the said Regulations and the Board Circular dated April 08, 2010;
(ii) 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;
(iii) There was no violation of regulations 10(a), 10(d), 10 (e) and 10(n) of the 2018 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. Due diligence as per the practice was undertaken by the appellant. There was also no act or omission on the part of the F-Card holder since he acted in accordance with the Board Circular and exercised due diligence by procuring all the documents in accordance with the 2018 Regulations;
(iv) 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
(v) 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 Delhi7.
(b) Commissioner of Customs vs. Shiva Khurana8.
(c) Nimesh Suchde vs. Commissioner of Customs, Nhava Sheva9
(d) Setwin Shipping Agency vs. Commissioner of Cus. (General), Mumbai10
15. Shri Vivek Pandey, Authorised Representative of the Department made the following submissions:-
(i) As per DGFT Policy Circular dated June 1, 2009, it is clear that at the time of issuance of IEC, DGFT is only conducting limited physical verifications (10%) of IEC holders. It is part of the Government Policy not to physically verify the address of the IEC holders at the time of issuance of IEC. However, at the time of import and export, the intent of the Government to get address of the IEC holders verified by the CHA is very clear from regulation 10 of the 2018 Regulations;
(ii) The mandate of regulation 10(n) , which requires the CHA to verify the correctness of importer exporter code (IEC) and functioning of his client at the declared address using reliable, independent, authentic documents, data or information , cannot be ignored . Hence, it will not to correct to say that the responsibility of address verification of IEC holders is on the issuing authority i.e. DGFT or on the assessing officer of customs and not on the CHA. The CHA, inspite of being a private entity, is a licensee under bond and has to follow these regulations framed by the Government;
(iii) The above stand that the responsibility of CHA is not merely to take documents but also to verify the address fully completely and correctly has been expressed by the Tribunal in Millennium Express Cargo Private Limited Commr. Of Cus. (Airport & Admn.), Kolkata11, which has been approved by the Delhi High Court in appeal. Thus, the decision of the Delhi High Court in Kunal Travels and Shiv Khurana would not come to the aid of the appellant;
(iv) The so called authorisation letter for customs clearance dated September 19, 2016 appears to be an afterthought as it does not bear any acknowledgement or receipt. The said authorisation is dated September 19, 2016, which is nine months in advance to the first export shipment which was done in June 2017, and so makes it suspect;
(v) The Director of Encanterra Traders, Rakesh Kumar never appeared before Customs or DRI during the entire investigation in spite of seven summons issued to him; and
(vi) Tarun Jain and Pankaj Batra have clearly accepted and elaborated the dummy nature of Encanterra Traders in their voluntary statements which have never been retracted.
16. The submissions advanced by the learned Counsel for the appellant and the learned Authorised Representative of the Department have been considered.
17. The show cause notice alleges violation of regulations 10 (a), (d), (e) and (n) of the 2018 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;
18. The Circular dated April 08, 2010 issued by the Central Board of Excise and Customs, New Delhi contains clarifications relating to Know Your Customer (KYC) norms for identification of clients by Customs House Agents. 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)
19. The appellant has submitted a chart that contains the regulations of which violation has been alleged, the ingredient of the regulations, the findings of the Commissioner and the submissions of the appellant. The same are contained in the following Table:
