prpri CESTAT upholds Penalty on CHA Company & Director for not following KYC Norms CESTAT upholds Penalty on CHA Company & Director for not following KYC Norms

Case Law Details

Case Name : HLPL Global Logistics Pvt. Ltd. Vs CC, New Delhi (CESTAT Delhi)
Appeal Number : Appeal No. C/50697/2018-DB
Date of Judgement/Order : 08/11/2018
Related Assessment Year :

HLPL Global Logistics Pvt. Ltd. Vs CC, New Delhi (CESTAT Delhi)

We are in agreement with the finding of the ld. Adjudicating authority that CHA helps not properly verified the functioning of the client from at the declared address by using reliable independent and authenticate documents. This was a serious lapse on part of the CHA in verifying the KYC before taking up the Customs clearance of consignment of rough diamond imported by M/s Neotex Exim Pvt. Ltd. The appellants, considering the nature of the imported goods i.e. rough diamond, would have exercised more vigilant approach before taking up the consignment for Customs clearance after verification of KYC norms of the importer, which has not been done in this case. It is stated by the ld. Advocate that the order of the adjudicating authority has failed to discuss the various case law and their relevance in the case at hand. We find that the adjudicating authority has dealt with each and every case law cited by them at length and concluded that those are not relevant in the fact and circumstances of the present case.

FULL TEXT OF THE CESTAT JUDGMENT

These appeals are filed against the common adjudication order No. 12/2017 dated 27.10.2017 passed by the Commissioner, Customs, New Customs House, New Delhi. Vide the impugned order, the appellant No. 1 – M/s HLPL was imposed a penalty of Rs. 10 lakhs and appellant No. 2 – Shri Ashok Sharma was imposed penalty of Rs. 5 lakhs under the provisions of Section 114AA of Customs Act, 1962 (Act, for short).

2. The brief facts of the case are that the appellant, a CHA firm had been appointed by the importer viz. Newtex Exim Pvt. Ltd., 1077, Gandhi Gali, Fatehpuri, Delhi-110006 for clearance of their cargo. The appellant is a company having its Director Mr. Ashok Sharma and engaged in the business of Custom House Agent service for which licence has been issued to them by Commissioner (Import & General), New Delhi, under Regulation 9(1) of CHALR, 2004 Licensing Regulation having its validity till 9.10.2022. The appellant was engaged by importer M/s Newtex Exim Pvt. Ltd. for the clearance of their consignment of rough diamond. The appellant has taken the necessary documents required for the purpose of Customs clearance and KYC norms such as IEC certificate, address proof, identity proof, (PAN Card, Voter ID or passport), bank statement, bank attested signature of the proprietor/company of the importer firm. The appellant, after verifying and satisfying themselves all these documents, have filed the Bill of Entry No. 4314276 dated 10.1.2004 for clearance of rough diamond imported on behalf of their client, M/s Neotex Exim Pvt. Ltd. However, the consignment was detained by the Commissioner of Customs for the alleged undervaluation and subsequently the valuation of the imported consignment was determined by the jewellery appraiser on 10.2.2010. It was found, on examination, that the declared value of imported item i.e. rough diamond was highly inflated in the said Bill of Entry filed for the clearance of the goods. As per the jewellery appraiser, the actual value of the consignment was to the extent of USD 14,297 instead of the declared value of USD 88,641.40. After having a preliminary scrutiny of the documents, the case was transferred by the Commissionerate, to Department of Revenue, Intelligence (DRI), New Delhi for further investigation. During the course of enquiry by the DRI, it was alleged that the CHA company also was involved in the case of overvaluation of the import consignment, which was on the basis of report received from the Jewellery Expert. It was alleged that the CHA/Director failed to verify the KYC norms under the CHALR, 2004 and therefore, a Show Cause Notice bearing No. 33A/XI/32/2013-CI(NEO)/428 dated 29.1.2015 was issued to them asking as to why penalty should not be imposed on them under Section 112(a) & (b), (iii) and (iv) and under Section 114AA of the Customs Act. The case was adjudicated by the impugned adjudication order and the appellants were imposed a penalty of Rs. 10 lakhs in case of the appellant No. 1 (HLPL) under Section 114AA of the Act and Rs. 5 lakhs on Appellant No. 2 (Shri Ashok Sharma) under the provisions of Section 114AA of the Act.

3. Ld. Advocate on behalf of the appellants submit that appellant No. 1 (M/s HLPL) was granted the permission to work as a Custom House Agent, vide Licence No. R-49/DEL/Cus/2012 on 10.10.2012 by the respondent Commissioner under Regulation 9(1) of CHALR, 2004 which was in vogue till 9.10.2022 and the appellant No. 1 was doing the work of customs clearance at different ports all over India by getting a requisite permission from the competent authority.

  • That during the normal business activity in the beginning of 2014, some of the importer approached the appellant No. 1 for the clearance of their import consignment of rough diamond. Before the job of clearing was undertaking by the appellant NO. 1, they requested them to supply KYC norms from the importer such as IEC certificate, address proof, identity proof (PAN card, Voter ID or passport etc.) bank statement, bank attested signature of the proprietor/partners/Director of the company.
  • That after getting the copy of all the document, the appellants cross checked the same with the original copy of the import document and thereafter verified the IEC code from the DGFT website. After getting satisfied with the relevant record provided for KYC norm, appellant accepted the import documents and filed the relevant bills of entry.
  • That the appellant filed the Bill of entry for clearance of rough diamond on behalf of their client, Neotex Exim Pvt. Ltd. However, the said consignment was detained by the Commissioner of Customs and later on the valuation had been done by the Jewellery Appraiser on 10.2.2014, where he concluded that the declared value of the imported rough diamond, was much more than prevalent market price/import price. As per the Jewellery Appraiser report, the actual value of the consignment was arrived at USD 14,297 instead of declared value of USD 88,641/-.
  • That, after the preliminary investigation the case was transferred to the DRI by New Custom House. That, in the course of enquiry that the statement of G card holder of the appellant company has been recorded on 17.6.2014 and thereafter the statement of appellant No. 2 – Shri Ashok Sharma, Director of the appellant company (Appellant No. 2) was recorded on 2.7.2014 where inter alia, stated that :-

(i) That Shri Uday Bhagat has approached them in the first week of the January, 2014 for clearance of the aforesaid consignment and after verification of KYC documents they prepared the check list on the basis of documents supplied by the importer, which led to the filing of Bill of Entry. The Bill of entry was filed on the first check basis.

  • That during the investigation it was found by the DRI that the import was routed through Axis Bank, who vide their letter dated 11.7.2014 informed the DRI that the amount has not been remitted to the foreign supplier and that the account was opened by one Shri Uday Bhagat. Thereafter, the consignment was seized by the DRI, on the reasonable belief that the goods imported are liable for confiscation under the provisions of Custom Act for the alleged violation as stated above.
  • That during the course of enquiry, it was found by the DRI that the building which was declared in the KYC norm i.e. premises No. 1079-80, Gandhi Gali, Fatehpuri, New Delhi, was found locked. The statement of Shri Vivek Sharma, was recorded under Section 108 of the Customs Act who stated that:

(a) He had gone to collect some import documents from Shri Uday Bhagat from his office premises at 1077, Gandhi Gali, Fatehpuri, Delhi and he had his mobile number Shri Uday Bhagat.

(b) That after not getting their address conveniently he talked to Shri Uday Bhagat, who described the address, and then he went inside a building where Shri Uday Bhagat was present, although there was no signboard of any office.

After getting the show cause notice, the appellants vide their letter dated 4.1.2016 has raised the two objections before the adjudicating authority which is as under:

(i) As the CHALR, 2004 was superseded vide Notification dated 21.6.2013 and new Regulation called CBLR, 2013 hence alleging contravention of CHALR, 2004 is illegal and penalty cannot be imposed on them under the provision of old Act.

(ii) The show cause notice dated 29.1.2015 has been issued under Section 110(2) of the Customs Act, 1962 and, therefore, penalty should not be imposed unless the show cause notice is issued under Section 124 of the Customs Act, 1962.

  • That the appellant vide letter dated 8.8.2016, addressed to the Assistant Commissioner of Customs (Adj.) informed that the allegation that the appellant has not filed the reply of show cause notice is incorrect as the appellant vide their letter dated 2.1.2016 has raised their objection on two grounds, first the alleged violation of CHALR, 2004 is not applicable in their case due to superseding the same by CBLR, 2013 and secondly the show cause notice has not been issued under Section 124 of the Act. It was also stated by the appellant that it is an established Rule that physical verification of premises or personal meeting the importer is not required for the verification of KYC norms as per CBLR Regulation 2013.
  • That the appellant only came to know about the alleged mis-declaration of the imported goods after examination by Jewellery Appraiser and further by the government registered valuer. Thus, the value declared at the time of filing of Bill of Entry, they could not have known about the alleged mis-declaration by the importer. Finally, it was also argued for contravention of provisions of CBLR, 2013, penalty cannot be imposed under Section 112(a) (b) of the Customs Act, 1962 and proposed action under Section 114AA has not been explained /mentioned in the show cause notice. Considering the above submission it was argued that the show cause notice deserves to be dropped.

4. On the other hand, the ld. DR supported the impugned order and reiterated the grounds contained therein. He has thus argued that impugned order is not suffering from any infirmities and required to be upheld.

5. We have heard rival contentions and perused the case record.

The issue before us is to decide as to whether the appellants has any role in the deliberate overvaluation of the imported goods by the importer and also whether they have failed to verify the KYC norm as per the CBLR, 2013. We find that the show cause notice has been issued under Section 110(2) of the Act and not under the Section 124 of the Customs Act. For the better appreciation of the fact, we hereby reproduce the provisions of Section 110 of the Act:

110. Seizure of goods, documents and things.

(1) If the proper officer has reason to believe that any goods are liable to confiscation under this Act, he may seize such goods: Provided that where it is not practicable to seize any such goods, the proper officer may serve on the owner of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer. 1[(1A) The Central Government may, having regard to the perishable or hazardous nature of any goods, depreciation in the value of the goods with the passage of time, constraints of storage space for the goods or any other relevant considerations, by notification in the Official Gazette, specify the goods or class of goods which shall, as soon as may be after its seizure under sub-section (1), be disposed of by the proper officer in such manner as the Central Government may, from time to time, determine after following the procedure hereinafter specified.

(1B) Where any goods, being goods specified under sub-section (1A), have been seized by a proper officer under sub-section (1), he shall prepare an inventory of such goods containing such details relating to their description, quality, quantity, mark, numbers, country of origin and other particulars as the proper officer may consider relevant to the identity of the goods in any proceeding under this Act and shall make an application to a Magistrate for the purpose of

(a) certifying the correctness of the inventory so prepared; or

(b) taking, in the presence of the Magistrate, photographs of such goods, and certifying such photographs as true; or

(c) allowing to draw representative samples of such goods, in the presence of the Magistrate, and certifying the correctness of any list of samples so drawn.

(1C) Where an application is made under sub-section (1B), the Magistrate shall, as soon as may be, allow the application.]

(2) Where any goods are seized under sub-section (1) and no notice in respect thereof is given under clause (a) of section 124 within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized: Provided that the aforesaid period of six months may, on sufficient cause being shown, be extended by the 2[Commissioner of Customs] for a period not exceeding six months.”

Section 110(2) of the Act deals with extension of time period for issuance of show cause notice within prescribed period of six months of the seizure of the goods”.

6. It is obvious from the show cause notice that the same has not invoked the provisions of Section 124 of Customs Act in this case. The adjudicating authority has dealt with the above issue in the order at para 27.19 of the Act, wherein it is mentioned as under :

“27.19 I find that importer; its director and the CHA have submitted in their written submissions as well as during the course of PH that impugned Show Cause Notice has been issued under Section 110(2) of the Customs Act, 1962. In this regard they submitted that unless the SCN was issued under Section 124 of the Customs Act, 1962, penalty could not be imposed on the noticees. They relied upon the Karnataka High Court Judgement in Commissioner Vs. Kesar Marble & Granites as reported in 2012 (278) ELT 42 (Kar.). I find that the ratio of this case is not applicable in the present case in hand. In Kesar Marbles & Granites the SCN was mistakenly issued under Section 124 of the Customs Act, 1962 demanding duty of Rs. 1,43,45,371/-and proposing penalties. The assessee appeared and contended that the provisions of the Customs Act were not applicable to the present case. Realising the said mistake the revenue issued a letter dated 12.12.2000 for demand of duty under the provisions of the Central Excise Act, 1944. The circumstances of the present case are totally different. The goods under dispute were seized under Section 110 of the Customs Act, 1962 and SCN was rightly issued under Section 110(2) of the Customs Act, 1962 read with Section 124 ibid. Further the noticee had relied upon the CBEC Circular 65/2000-Cus. dated 27.7.2000. I find that prior to issue of the current SCN a Show Cause Notice DRI F. No. 33A/XI/32/2013-CI(NT) dated 7.7.2014 read with Addendum dated 10.7.2014, was issued for extension of time limit in respect of goods imported vide Bill of Entry No. 4314276 dated 10.1.2014. The Commissioner of Customs (I&G), New Customs House, New Delhi vide Order-in-Original No. 50/NLB/Commr./I&G/2014 dated 25.7.2014 extended the time limit for issue of Show Cause Notice under Section 124 of the Customs Act, 1962 in respect of the detained goods imported vide Bill of Entry No. 4314276 dated 10.1.2014 by six months i.e. up to 29.1.2015, under the proviso to sub section (2) of Section 110 of Customs Act, 1962. Consequently, SCN dated 29.1.2015 was issued under proviso to Section 110(2) of the Customs Act, 1962 read with Section 124 ibid.”

7. From the aforesaid discussion of ld. Adjudicating authority, it is evident that the another show cause notice has been issued by the DRI dated 7.7.2014 (supra) read with Addendum dated 10.7.2014 and the Commissioner (I&G), New Customs House has extended the time limit for issue of show cause notice under Section 124 of the Customs Act in respect of detained goods vide Bill of Entry No. 4314276 dated 10.1.2014 by six months i.e. up to 29.1.2019 under the provisions of sub-section (2) of Section 110 of the Customs Act. From the above, it has been held that the present show cause notice is issued in continuation to the earlier show cause notice issued by the DRI where the provisions of Section 124 of the Act has been invoked. The appellant has not provided the copies of these orders before us so as to arrive at the conclusion as to whether the impugned show cause notice and adjudication order is the extension of the previous show cause notices along with addendum which has been clearly spelt out with adjudicating authority. Therefore, we have no option but to hold that the present show cause notice in effect has to be treated as having been issued under Section 124 of the Customs Act in effect has to be treated as proviso under 110(2) of the Act.

8. Regarding the following of the KYC norms by the appellant, we find that the statement of Shri Vivek Sharma letter dated 21.1.2015, the employee of M/s HLPL, has stated that when he went to collect the documents, Shri Uday Bhagat asked him to come in a street at Fatehpuri, wherein he was standing before a building which did not have any sign board or bear a number. It is seen from the adjudication order that the declared residential premises of Shri Uday Bhagat and Shri Sunder Prakash Sharma, the Directors of M/s Neotex Exim Pvt. Ltd. that they were not residing at the declared premises. The adjudicating authority also found that the IEC of the importer revealed that no firm/business enterprises in the name of M/s Neotex Exim Pvt. Ltd. existed at the given address and the enquiries conducted at the declared residential premises revealed that the said address was incomplete or fictitious. Under the circumstances, we are in agreement with the finding of the ld. Adjudicating authority that CHA helps not properly verified the functioning of the client from at the declared address by using reliable independent and authenticate documents. This was a serious lapse on part of the CHA in verifying the KYC before taking up the Custom clearance of consignment of rough diamond imported by M/s Neotex Exim Pvt. Ltd. The appellants, considering the nature of the imported goods i.e. rough diamond, would have exercised more vigilant approach before taking up the consignment for Customs clearance after verification of KYC norms of the importer, which has not been done in this case. It is stated by the ld. Advocate that the order of the adjudicating authority has failed to discuss the various case law and their relevance in the case at hand. We find that the adjudicating authority has dealt with each and every case law cited by them at length and concluded that those are not relevant in the fact and circumstances of present case.

9. In view of above, we do not want to discuss the same again for sake of brevity in our order. In view of above, we hold that the impugned order is correct, legal and proper under the provisions of Customs Act and merits no interfere. Accordingly, we reject the appeals filed by the appellants.

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