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Case Law Details

Case Name : Souparnika Shipping Services Vs Principal Commissioner of Customs  (CESTAT Chennai)
Appeal Number : Customs Appeal No. 40199 of 2020
Date of Judgement/Order : 05/01/2024
Related Assessment Year :

Souparnika Shipping Services Vs Principal Commissioner of Customs (CESTAT Chennai)

Introduction: In a recent ruling by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in Chennai, the case of Souparnika Shipping Services versus the Principal Commissioner of Customs was brought under scrutiny. The appeal challenged the decision of the Principal Commissioner of Customs, Chennai, regarding the revocation of the appellant’s Customs Broker License under the Customs Broker Licensing Regulations (CBLR), 2018. The tribunal’s detailed analysis and subsequent ruling shed light on the complexities of customs regulations and the balance between punitive measures and procedural fairness.

Background: Souparnika Shipping Services, based in Thambuchetty Street, Chennai, held a Customs Broker License (R-148/CHA), with Mr. K.V. Prabhakaran as the proprietor. The appeals (C/40199/2020 & C/40248/2020) arose from allegations of procedural violations and non-compliance with customs regulations concerning two separate instances of customs clearance for imported and exported goods.

Key Issues and Findings: The tribunal scrutinized each appeal independently, assessing the alleged violations and the subsequent actions taken by the customs authorities.

Appeal C/40199/2020:

  • The appellant acted as the Customs Broker for a consignment of Rice Cookers and Rice Cooker Spare Parts for M/s. Aarthi International.
  • Contraband cigarettes were found concealed within the declared goods during examination, leading to allegations of violations of CBLR, 2018 regulations.
  • The Principal Commissioner of Customs, Chennai, revoked the appellant’s Customs Broker License and imposed a penalty of Rs. 50,000, along with the forfeiture of the security deposit.
  • Despite the absence of communication regarding the rejection of the enquiry report absolving the appellant, the tribunal found the revocation order legally untenable.
  • Citing precedents and legal principles, the tribunal emphasized the necessity of proportionality in imposing penalties and revoked the revocation of the Customs Broker License.

Appeal C/40248/2020:

  • The appellant acted as the Customs House Agent (CHA) for M/s. Galaxy Impex in exporting Decorative Wall Paper.
  • Allegations of overvaluation of export goods and attempted illegal IGST refund led to an investigation and subsequent finding of non-compliance with CBLR, 2018 regulations.
  • The tribunal considered the appellant’s involvement in other cases, including attempted smuggling of cigarettes and misdeclaration of goods, as part of the overall assessment.
  • Despite the seriousness of the allegations, the tribunal found the revocation of the license too harsh a punishment, considering the suspension already endured by the appellant.
  • While setting aside the revocation and forfeiture of the security deposit, the tribunal upheld the penalty imposed under CBLR, 2018.

Conclusion: The ruling by CESTAT Chennai exemplifies the delicate balance between enforcing customs regulations and ensuring procedural fairness. While acknowledging the seriousness of the alleged violations, the tribunal emphasized the need for proportionality in imposing penalties. By reinstating the Customs Broker License while upholding the penalty, the tribunal ensures that justice is served without unduly impeding the livelihood of the appellant. This decision underscores the importance of due process and adherence to legal principles in administrative actions, setting a precedent for future cases in customs law.

FULL TEXT OF THE CESTAT CHENNAI ORDER

Customs Appeal Nos. 40199 / 2020 & 40248 / 2020 have been filed by M/s. Souparnika Shipping Services (the appellant herein), assailing the Orders of the Principal Commissioner of Customs, Chennai under Customs Broker Licensing Regulations (CBLR), 2018.

2. Brief facts of these appeals are as follows:-

3. M/s. Souparnika Shipping Services, Thambuchetty Street, Chennai, is the holder of Customs Broker License No. R-148/CHA issued by Chennai Customs Commissionerate valid up to 15.03.2024 and Shri K.V. Prabhakaran is the proprietor of CHA.

4.1 C/40199/2020:- The appellant has acted as the Customs Broker for M/s. Aarthi International for clearance of imported goods declared as “Rice Cookers and Rice Cooker Spare Parts”, whereas on detailed examination of the imported consignment, contraband Cigarettes were found concealed behind the declared goods which were valued at Rs.6.82 crores. Investigations conducted revealed that the CHA has violated the provisions of Regulations 10 (b), 10(d), 10(e) and 10(n) of the CBLR, 2018. The CHA was found to have not exercised due diligence to ascertain the correctness of information regarding the importer and also deliberately not verified the antecedents of GST holder, correctness of Importer Exporter Code (IEC) number, identity of the client and the declared address by using reliable, independent, authentic documents, data or information as mandated in the Regulations, 2018. It was found that the documents were handled by one Shri Kalaivanan who was not an employee of the CHA firm. As a prima facie case existed against the Customs Broker and in case he was allowed to continue to operate, it would be detrimental to the interest of Revenue and to prevent the Customs broker from further misuse of the CHA license, the Customs Broker license R-148/CHA of M/s. Souparnika Shipping Services was suspended vide suspension order dated 15.07.2019 pending enquiry. Further, an order of continuation of suspension was issued under Regulation of 16 (2) of CBLR, 2018 vide order dated 06.08.2019. Against the continued suspension, the appellant filed an appeal vide No. C/41487/2019 before the Tribunal.

4.2 The Principal Commissioner of Customs, Chennai has revoked the Customs Broker License of the appellant under Regulation 17(7) of the CBLR, 2018 which is the order impugned in the above appeal No. 40199/2020. Further, a penalty of Rs.50,000 was imposed under Regulation 18(1) of CBLR, 2018 apart from ordering forfeiture of whole amount of the Security Deposit of Rs.25,000/- furnished by the licensee under Regulation 14 of the CBLR, 2018. Consequent to passing the revocation order as above, the appellant has withdrawn the appeal No. 41487/2019 which was filed against continued suspension of the CHA license.

5.1 C/40248/2020:- The facts leading to passing the impugned order in this appeal are the appellant had acted as the CHA for M/s. Galaxy Impex, Surat, Gujarat, who had filed two shipping bills for export of goods declared as “Decorative Wall Paper”. The total invoice value declared was Rs.8.91 crores whereas on suspicion that the export goods were overvalued, the goods were examined and after necessary market enquiries, the actual value of the export goods was ascertained to be only Rs.1,16,70,750/-. The exporter had active assistance of the CHA who had unsuccessfully attempted to obtain illegal IGST refund to the tune of Rs.1,60,39,239/- by resorting to over valuation of the export consignments. On the basis of investigations conducted and statements recorded from various persons involved in this case, the Customs Broker was found to be not complying with the provisions of the Regulations 10 (b), 10(d), 10(e) and 10(n) of the CBLR, 2018. The enquiry officer in his enquiry report dated 06.12.2019 has concluded that the appellant has not complied with the Regulations 10 (b), 10(d), 10(e) and 10(n) of the CBLR, 2018.

5.2 As per Regulation 10(n) of CBLR, 2018, the Customs Broker is required to verify correctness of Importer Exporter Code (IEC) number, Goods and Services Tax Identification Number (GSTIN), identity of the client and functioning of the client at the declared address by using reliable, independent, authentic documents, data or information. The Customs Broker failed to verify the identity of the client and functioning of the client at the declared address. Shri Prabhakaran, Proprietor of M/s. Souparnika Shipping Services had narrated that he received the documents from one Shri Kukan Rajavelu. All attempts were made to search the premises of the exporter firm when it was found the proprietor of the premises of the export firm company was unaware of the operation of the firm and also about export consignments. Implying that the documents handed over to the Customs Broker were forged. Thus, CHA has failed to verify the authenticity of the documents. Shri Kukan Rajavelu who handed over the documents and the proprietor of the export firm could not be traced. Shri Kukan Rajavelu was allegedly introduced by the CHA’s ex-employee Shri Prabhakaran. Shri Kukan Rajavelu gave him the phone number of Smt. Lalitha Sharma reportedly in charge of M/s. Galaxy Impex but could not be interrogated for want of correct address. When officers of DGCEI, Surat conducted investigations, it was revealed that address of M/s. Galaxy Impex, Surat, Gujarat, was in fact the residential address of Shri Prakas Bahurav Panpatil who has confirmed that he was not aware of existence of any firm by name and style of M/s. Galaxy Impex, neither he was knowing anything about operation of the firm nor any export being made. He was not aware as to who obtained the GST registration in the name of M/s. Galaxy Impex with his residential address.

5.3 Further, the appellant was also allegedly involved in the case of attempted smuggling of Cigarettes into the country having a value of Rs.6.82 crores leading to revocation of his license vide Order-in-Original No. 74163/2020 dated 28.02.2020. The adjudicating authority has also referred to a case where the appellant was involved where Red Sanders were attempted to be exported. M/s. Rubicon Mineral Process filed a Shipping Bill No. 1326995 dated 28.02.2014 for export of 1440 Bags of Potash Feldspar 200 Mesh to Korea. On the basis of specific intelligence, the officers of DRI, Chennai Zonal Unit, when intercepted the container, Red Sanders valued at Rs.3.6 crores were seized which was stacked behind the declared item i.e., Potash Feldspar 200 Mesh bags. There also the appellant was found to have allowed one Shri C.K. Litheesh of M/s. Flamingo Shipping Services to use the Customs Broker license of M/s. Souparnika Shipping Services for a consideration of Rs.1000/- per consignment and he had admitted that no authorisation from the exporter M/s. Rubicon Mineral Process was obtained by him and he had no knowledge about the exporter. On adjudication of the above case, Rs.50 lakhs penalty was informed to have been imposed under Section 114 of the Customs Act, 1962 on the appellant. As the Customs Broker was found undertaking Customs clearance work without due diligence and in contravention of provisions of the CBLR, 2018 and the Customs law and as he was involved in successive cases of evasion of duty and misuse of export benefits, the Principal Commissioner of Customs, Chennai vide Order-in-Original No. 74601/2020 dated 18.03.2020 has confirmed the revocation of Customs Broker License of M/s. Souparnika Shipping Service under Regulation 17(7) of CBLR, 2018 (Customs Broker license has been already revoked in terms of earlier Order-in-Original No. 74163/2020 dated 28.02.2020). Further, a penalty of Rs.50,000/- was imposed on the appellant under Regulation 18(1) of CBLR, 2018. The adjudicating authority has ordered for forfeiture of whole amount of the Security Deposit of Rs.25,000/- furnished by the licensee under Regulation 14 of CBLR, 2018.

6.1 The Ld. Advocate Shri B. Sathish Sundar representing the appellant have submitted that the enquiry report dated 06.12.2019 has concluded that all the charges levelled against the appellant were not proved. In the impugned order by the adjudicating authority, no reasons were mentioned for non-acceptance of the said enquiry report. He has drawn our attention to the decision rendered in the case of Accrete Shipping Services Vs. Commissioner of Customs, Cochin [2021 (375) ELT 613 (Ker.)] wherein the Hon’ble High Court of Kerala has held that when an enquiry report furnished before the Commissioner in proceedings under the CBLR, 2018 and the enquiry report is in favour of the petitioner, then the notice subsequently issued by the respondent ought to have indicated very clearly as to whether the respondent was proposing to accept the enquiry report or not accepting the same. Only such a notice would have indicated to the petitioner the future course of action proposed against him by the respondent. In as much as there was no notice issued to the petitioner, whereby the respondent indicated that he was not ready to accept the enquiry officer report, the petitioner cannot be faulted for having assumed that the enquiry report that was in his favour would be accepted by the respondent.

6.2 He has further argued that the allegations levelled against them regarding violation of Regulations 10 (b), 10(d), 10(e) and 10(n) of the CBLR, 2018 cannot be sustained, in view of the decisions rendered in the cases of:-

i. Ashiana Cargo Services Vs. Commissioner of Customs (I&G) [2014 (302) ELT 161 (Del.)]

ii. Commissioner Vs. Ashiana Cargo Services [2015 (320) ELT A175 (SC)]

iii. Commissioner of Customs Vs. KM Ganatra & Co. [2016 (332) ELT 15 (SC)]

iv. Kunal Travels (Cargo) Vs. Commissioner of Customs (I&H) [2017 (354) ELT 447 (Del.)] and

v. Commissioner of Customs Vs. Shiva Khurana [2019 (367) ELT 550 (Del.)]

The onus of verification of the veracity of the documents furnished by an exporter or an importer is not on the Customs broker as he transacts business on the basis of documents furnished to him and he is not an inspector of the goods. He has submitted that in all the cases, referred to supra, the Hon’ble Courts including the Hon’ble Supreme Court had affirmed that expecting a Customs broker to ascertain and verify each and every aspect of any business transaction conducted by any importer or exporter as the case may be, is not only onerous but also unsustainable.

6.3 He has put forth that in the impugned order No. 74601/2020 dated 18.03.2020, imposition of penalty and forfeiture of whole amount of the Security Deposit (already forfeited completely as per the impugned order No. 74163 dated 28.02.2020) had no legal and factual basis. He has prayed for restoration of the Customs Broker License, setting aside the orders of revocation of License and imposition of penalty and forfeiture of Security Deposit.

7. The Ld. Authorised Representative Shri N. Satyanarayanan representing the Revenue has submitted that the Customs broker was repeatedly involved in various offence cases and acted in contravention of provisions of the CBLR, 2018. He has referred to the smuggling cases of Cigarettes which were valued at Rs.6.83 crores in the consignment of Rice Cookers and Rice Cookers Spare Parts and attempted illegal IGST refund by over valuation of export goods of Decorative Wall Papers. The appellant/CHA was also involved in the case of export of Potash Feldspar by M/s. Rubicon Mineral Process where DRI, Chennai seized Red Sanders valued at Rs.3.6 crores. In all the above cases, the Customs Broker was found not complying with the provisions of the CBLR, 2018. He has justified revocation of the Customs Broker License, imposition of penalty and forfeiture of Security Deposit.

8. Heard both sides and we have carefully considered the documents available in both the appeals.

9.1 In Customs appeal No. 40199/2020, the CHA was issued with a Show Cause Notice for contravention of:-

i. Regulation 10 (b) of CBLR, 2018, in as much as they had not transacted business in the Customs Station either personally or through an authorised employee duly approved by the Deputy Commissioner of Customs or Assistant Commissioner of Customs.

ii. Regulation 10 (d) of CBLR, 2018 had been violated in as much as they had deliberately not advised their client to comply with the provisions of the Act and in case of non-compliance, had not brought the matter to the notice of the Deputy Commissioner of Customs or Assistant Commissioner of Customs.

iii. Regulation 10 (e) of CBLR, 2018 had been violated in as much as they had not exercised due diligence to ascertain the correctness of any information which they imparted to a client with reference to any work related to clearance of cargo or baggage.

iv. Regulation 10 (n) of CBLR, 2018 had been violated in as much as they had deliberately not verified the antecedents of IEC holder, correctness of importer Exporter Code (IEC) number, identity of their client and functioning of their client at the declared address by using reliable, independent, authentic documents, data or information.

9.2 The adjudicating authority has revoked the license, imposed the penalty and forfeited the Security Deposit, though the enquiry report held that the charges levelled against CHA as not proved. The Ld. Advocate relying upon the decision in the case of Accrete Shipping Services supra by the Hon’ble High Court of Kerala has submitted as they were absolved by the enquiry report, they should have been given a notice before revocation of license or imposition of penalty or forfeiture of Security Deposit. We have gone through the enquiry report and the impugned order and also various statements recorded from the persons connected including Shri K.V. Prabhakaran, proprietor of the Customs Broker.

9.3 Though enquiry report has absolved the Customs Broker from all the charges levelled against him, the reasons were not accepted, the enquiry report was not communicated to the appellant, violating the principles of natural justice as held by the Hon’ble High Court of Kerala in the case of Accrete Shipping Services supra.

9.4 The Hon’ble High Court of Delhi in the case of Kunal Travels (Cargo) Vs. Commissioner of Customs (I&G), New Delhi [2017 (354) ELT 447 (Del.)] has held that Customs House Agents are only processing agent of documents for clearance of goods through Customs House. They are not inspectors to weigh genuineness of transaction, and there is no obligation to look into information from exporter/importer. It is onerous to expect CHA to inquire into and verify genuineness of IE Code given by client for each import/export transaction. When such code is mentioned, there is a presumption that appropriate background check in this regard would have been done by Customs authorities. In absence of knowledge that goods mentioned in shipping bills did not reflect truth of consignment sought to be exported, CHA or its proprietor cannot be attributed with mens rea – If goods did not corroborate with declaration in shipping bills, it cannot be deemed to be the mis-declaration by CHA.

9.5 In the case of Ashiana Cargo Services Vs. Commissioner of Customs (I&G) [2014 (302) ELT 161 (Del.)], the Hon’ble High Court of Delhi has held that revocation of CHA license is justified only in cases of aggravating factors that allow infraction to be labelled as grave. Though it is not possible to make exhaustive list of such aggravating factors, precedent cases show that revocation of licence has been upheld where there was an element of active facilitation of infraction, i.e., a finding of mens rea, or a gross and flagrant violation of CHA Regulations. In line with proportionality analysis, only grave and serious violations justify revocation. In other cases, suspension for adequate period of time resulting in loss of business and income suffices, both as punishment for infraction and as a deterrent to future violations. This does not mean that trust operating between Customs Authorities and CHA is to be taken lightly, or that violations of CHA Regulations should not be dealt with sternly.

9.6 The Ld. Advocate has also referred to the decision in the case of Commissioner of Customs Vs. Shiva Khurana [2019 (367) ELT 550 (Del.)]. The relevant paragraphs extracted as under:-

“6. The Regulation in question reads as follows :

“13. Obligations of Customs House Agent. – A Customs House Agent shall –

xxx                                   xxx                                        xxx

(o) verify antecedent, correctness of Importer Exporter Code (IEC) Number, identity of his client and functioning of his client at the declared address by using reliable, independent, authentic documents, data or information.”

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.”

9.7 We find that the appellant was not issued with any notice when enquiry report dated 06.12.2019 is not accepted by the adjudicating authority. In compliance with the judicial discipline as held by the Hon’ble High Court of Kerala in the case of Accrete Shipping Services supra, we have to hold that the impugned order No. 74163/2020 dated 28.02.2020 is not legally maintainable and so ordered to be set aside.

10.1 Further, in the first impugned order No. 74163/2020 dated 28.02.2020, whole amount of the Security Deposit was forfeited under Regulation 14 of CBLR, 2018. Again ordering for forfeiture of whole amount of the Security Deposit in the second impugned order No. 74601/2020 dated 18.03.2020 is not legally correct or valid. The Customs Broker failed to verify correctness of IEC, GSTIN and identity of his client by adopting any reliable means, thus, contravening the Regulation 10(n) of CBLR, 2018. The persons who have handed over the documents could not be traced and Customs Broker’s negligence was evident. His repeated involvement in facilitating fraudulent import and export transaction reflect directly or indirectly that the Customs Broker has not done due diligence in handling Customs work.

10.2 The Customs Broker license was suspended vide F.No. R-498/CHA dated 15.07.2019, thus, more than four years passed since the time of suspension. In the case of K.S. Sawant & Co. Vs. Commissioner of Customs (General), Mumbai [2012 (284) ELT 363 (Tri. -Mum.)], it was held that mere signing of documents by a CHA would not prove that the clearances were undertaken by the CHA and punishment for the same could not be revocation of license of the CHA as that would be extreme and harsh. Further, in the cases of L.M.S. Transport Co. Vs. Commissioner of Customs (General), Mumbai [2014 (299) ELT 368 (Tri.- Mumbai)] and Thawerdas Wadhoomal Vs. Commissioner of Customs (General), Mumbai [2008 (221) ELT 252 (Tri.- Mum.)], it was held that the revocation of license is not justified when third party was merely bringing business to the CHA and also when the CHA is filing the documents in good faith on the basis of the material handed to him by his clients.

10.3 In this context, we also refer to the decision rendered in the case of M/s. Ashiana Cargo Services Vs. Commissioner of Customs (I&G) [2014 (302) ELT 161 (Del.)], wherein it was held as under:-

”12. Learned Senior Standing Counsel for the Customs has stressed that the infraction in this case is not a routine matter, but rather, illegal smuggling of narcotics by the G card users. However, given the factual finding that the CHA was not aware of the misuse of the G cards (and thus, also unaware of the contents being smuggled), no additional blame can be heaped upon the CHA on that count alone. Rather, the only proved infraction on record is of the issuance of G cards to non-employees, as opposed to the active facilitation of any infraction, or any other violation of the CHA Regulations, whether gross or otherwise. Neither have any such allegations been raised as to the past conduct of the appellant, from the time the license was granted in January, 1996. Equally, it is important to note that the appellant has – as of today – been unable to work the license for 8 years, and thus been penalized in this manner. This is not to say that the trust operating between the Customs Authorities and the CHA is to be taken lightly, or that violations of the CHA Regulations should not be dealt with sternly. A penalty must be imposed. At the same time, the penalty must – as in any ordered system – be proportional to the violation. Just as the law abhors impunity for infractions, it cautions against a disproportionate penalty. Neither extreme is to be encouraged. In this case, in view of the absence of any mens rea, the violation concerns the provision of G cards to two individuals and that alone. A penalty of revocation of license for this contravention of the CHA Regulations unjustly restricts the appellant’s ability to engage in the business of the CHA for his entire lifetime. As importantly, it skews the proportionality doctrine, substantially lowering the bar for revocation as a permissible penalty, especially given the dire civil consequences that follow. On the other hand, the minority Opinion of the CESTAT, delivered by the Judicial Member, correctly appreciates the balance of relevant factors, i.e. knowledge/mens rea, gravity of the infraction, the stringency of the penalty of revocation, the fact that the appellant has already been unable to work his license for a period of 6 years (now 8 years), and accordingly sets aside the order of the Commissioner dated 24-1-2005.”

(Emphasis supplied)

11. Appreciating the above judicial precedents and having regard to the facts of these appeals, we are of the view that revocation of Customs Brokers License is too harsh a punishment which is bound to affect the livelihood of the Customs Broker and his employees and by taking into consideration that the Customs Broker License was suspended on 15.07.2019 and thus more than four years’ time elapsed since, thus, the revocation is set aside. We direct the Customs authority to issue / revive the Customs Brokers License as the Broker was out of Business for more than four years which is enough punishment for the lapses on his part.

12. As the security deposit was confiscated vide Order-in-Original No. 74163/2020 dated 28.02.2020, ordering for its confiscation again vide Order-in-Original No. 74601/2020 dated 18.03.2020 cannot be sustained. However, imposition of a penalty of Rs.50,000/- under Regulation 18(1) of CBLR, 2018 cannot be termed as excessive. As such, the penalty of Rs.50,000/- imposed vide impugned Order-in-Original No. 74601/2020 dated 18.03.2020 is upheld.

13. The impugned Order-in-Original No. 74163/2020 dated 28.02.2020 in appeal No. 40199/2020 is set aside. In the second appeal No. 40248 of 2020, the impugned order is ordered to be modified to the extent of setting aside revocation and forfeiture of Security Deposit but upholding the penalty of Rs.50,000/- (Rupees Fifty Thousand Only) imposed under Regulation 18(1) of CBLR, 2018.

14. Thus, the appeal No. C/40199/2020 is allowed. The appeal No. C/40248/2020 is partly allowed with consequential reliefs, if any, as per the law.

(Order pronounced in open court on 05.01.2024)

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