Case Law Details
Shakti Cargo Movers Vs Commissioner of Customs (CESTAT Delhi)
The case of Shakti Cargo Movers vs. Commissioner of Customs at CESTAT Delhi revolves around the revocation of a customs broker’s license and the imposition of a penalty due to alleged violations, primarily focusing on whether the appellant violated Regulation 10(n) of the Customs Brokers Licensing Regulations, 2013. The appellant, Shakti Cargo Movers, challenged the order revoking its license and imposing a penalty of Rs. 50,000.
The Directorate General of Analytics and Risk Management (DGARM) identified suspicious registrants under the Goods and Services Tax (GST), some of whom did not exist at their declared business addresses. DGARM further identified customs brokers who had processed exports for these entities, including the appellant. Based on this information, the Commissioner issued a show cause notice and appointed an inquiry officer.
The appellant contested the allegations, arguing that it did not violate Regulation 10(n). It claimed to have obtained authentic documents, including partnership deeds and official documents identifying partners and their addresses, GSTIN, IEC, Aadhar Card, PAN card, etc., issued by various government authorities. The appellant asserted that it fulfilled its obligations under the regulation and disputed procedural irregularities during the inquiry process.
The Revenue supported the impugned order, contending that the penalties were justified given the alleged violations.
After considering the submissions from both sides, the court found procedural irregularities, including the lack of access to crucial documents during the inquiry process, violating the principles of natural justice. Additionally, it examined the scope of the obligations of customs brokers under Regulation 10(n). This regulation requires customs brokers to verify the correctness of IEC number, GSTIN, identity of the client, and functioning of the client at the declared address using reliable, independent, authentic documents, data, or information.
The court clarified that customs brokers are not obligated to ensure the correctness of actions by government officers issuing certificates or registrations but must satisfy themselves that these documents were issued by the concerned officers. It emphasized that the responsibility of customs brokers does not extend to continuous surveillance of clients’ operations and address changes.
Based on these findings, the court concluded that the customs broker had not failed in discharging its responsibilities under Regulation 10(n). It set aside the impugned order and provided relief to the appellant.
FULL TEXT OF THE ORDER OF CESTAT DELHI
M/s. Shakti Cargo Movers1 filed this appeal to assail the order in original2 passed by the Commissioner revoking the Customs Brokers’ licence of the appellant and imposed a penalty of Rs. 50,000/-.
2. We have heard learned counsel for the appellant and the learned authorised representative for the Revenue and perused the records.
3. The issue which falls for consideration in this case is as follows:
“(a) Did the appellant violate regulation 10 (n) of the Customs Brokers Licensing Regulations, 2013? And
(b) If so, is the revocation of its Customs Broker’s licence and imposition of penalty of Rs. 50,000/- proportionate to the violation?”
4. Although some other violations were also alleged in the show cause notice3, these allegations were dropped in the impugned order and the issue attained finality to that extent.
5. The factual matrix of this case is that the Directorate General of Analytics and Risk Management4 of the Central Board of Excise and Customs5 analysed data, identified suspicious registrants under the Goods and Services Tax6 and got physical verification of some of these suspected registrants and found that they did not exist at all at the declared places of their business. It also found that some of these GST registrants also had importer exporter codes7 from the Directorate General of Foreign Trade8 and actually exported goods. DGARM further identified which Customs Brokers had processed their exports and conveyed the data to the concerned commissioners.
6. Among the Customs Brokers so identified by the DGARM was the appellant. Based on the information received from DGARM, the Commissioner (Airport & General) New Delhi, who had issued the Customs Broker’s licence to the appellant issued a show cause notice dated 24.4.2023 and appointed an inquiry officer. Meanwhile, the appellant’s licence was also suspended on 13.2.2023 and the suspension was confirmed by order dated 2.3.2023.
7. The inquiry officer submitted his report and finally the Commissioner passed the impugned order revoking the CB licence of the appellant and imposing the penalty of Rs. 50,000/-. Aggrieved, the appellant is before us.
Submissions on behalf of the appellant
8. Learned counsel for the appellant made the following submissions:
a) The SCN alleged violation of regulations 10 (d), 10 (e) and 10 (n) but after enquiry, the inquiry officer submitted his report that the appellant had not violated any of these. However, the Commissioner did not agree with the enquiry officer insofar as the violation of 10(n) is concerned and passed the impugned order. While the appellant was provided a copy of the enquiry report, no note of disagreement of the Commissioner with the inquiry report was given to the appellant. Therefore, the principles of natural justice have been violated.
b) The alleged violation of Regulation 10(n) is not supported by facts.
c) The report of DGARM which was the offence report in this case was not enclosed with the SCN nor otherwise provided to the appellant.
d) The alleged non-existent exporter, whose exports the appellant had processed was M/s. Shree Enterprises. The allegation that the appellant had not followed regulation 10(n) is not correct. As per the CBIC’s circular no. 9/2010-Cus date 8.4.2010, Customs Brokers had to obtain at least two of the documents listed in the circular to verify the authenticity of the exporter/importer. M/s. Shree Enterprises is a partnership firm and the appellant obtained it’s partnership deed and the official documents identifying the partners and their addresses. The appellant had also obtained GSTIN, IEC, Aadhar Card, PAN card, etc. issued by several government authorities.
e) While alleging on the one hand, that M/s. Shree Enterprises did not exist, the officers of Commissioner of Customs (Preventive) had recorded the statement of its partner Shri Neeraj Soni. Therefore, even the allegation that M/s. Shree Enterprises did not exist is also baseless.
f) Shree Enterprises not only existed but it was registered by the department under GST from 23.7.2020 and it has been filing returns with the department until 22 June 2021 when the department suo moto cancelled the registration. This can be seen from the printout of the status of the company from the GST portal itself (a hard copy is presented to the court).
g) Therefore, the impugned order may be set aside and the appellant’s Customs Brokers licence may be restored.
Submissions on behalf of the Revenue
9. Learned authorised representative for the Revenue supports the impugned order and asserts that it calls for no interference.
Findings
10. We have considered the submissions on both sides. DGARM did some analysis and came to the conclusion that several GST registrants did not exist and did not operate from their business addresses at all. It is undisputed that their registrations were issued by the very department which initiated the investigation. Thus, the irresistible conclusion is that if the DGARM is correct, then the department issued several benami (pseudonymous) GSTIN registrations to several entities which did not exist at all. Some of these non-existent entities were also filing GST returns with the department.
11. These allegedly non-existent entities were also issued importer exporter codes (IEC) by the Thus, if the DGARM is correct, DGFT had issued benami IECs.
12. As far as the appellant is concerned, the only allegedly non-existent exporter was M/s. Shree Enterprises. The findings of the impugned order that M/s Shree Enterprises did not exist at the business premises at all and therefore, the appellant had failed in its obligation under Regulation 10(n) to verify the identity of the client and its functioning at the business premises are based on:
a) A letter received from the DGARM; and
b) Report received after physical verification that M/s. Shree Enterprises did not exist at the premises.
13. Neither of these documents were enclosed to the SCN or provided to the appellant, let alone giving the appellant an opportunity to cross examine those who sent them. This is clearly a violation of the principles of natural justice and on this ground alone, the impugned order deserves to be set aside.
14. We now proceed to examine the scope of the obligations of the Customs Broker under Regulation 10(n). It requires the Customs Broker to verify correctness of Importer Exporter Code (IEC) number, Goods and Services 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. This obligation can be broken down as follows:
a) Verify the correctness of IEC number
b) Verify the correctness of GSTIN
c) Verify the identity of the client using reliable, independent, authentic documents, data or information
d) Verify the functioning of the client at the declared address using reliable, independent, authentic documents, data or information
15. Of the above, (a) and (b) require verification of the documents which are issued by the Government departments. The IEC number is issued by the Director General of Foreign Trade and the GSTIN is issued by the GST officers under the Central Board of Indirect Taxes and Customs of the Government of India or under the Governments of State or Union territory. The question which arises is has the Customs Broker to satisfy himself that these documents or their copies given by the client were indeed issued by the concerned government officers or does it mean that the Customs Broker has to ensure that the officers have correctly issued these documents. In our considered view, Regulation 10(n) does not place an obligation on the Customs Broker to oversee and ensure the correctness of the actions by the Government officers. Such an interpretation would amount to saying that the Regulations under the Customs Act prevail over the actions under the Foreign Trade (Development and Regulation) Act, 1992 under which the IEC is issued by DGFT and the Central Goods and Services Tax Act (or state GST Act) under which the GSTIN is issued by the GST officers. Therefore, the verification of certificates part of the obligation under Regulation 10(n) on the Customs Broker is fully satisfied as long as the Customs Broker satisfies itself that the IEC and the GSTIN were, indeed issued by the concerned officers. This can be done through online verification, comparing with the original documents, etc. and does not require an investigation into the documents by the Customs Broker. The presumption is that a certificate or registration issued by an officer or purported to be issued by an officer is correctly issued. Section 79 of the Evidence Act, 1872 requires even Courts to presume that every certificate which is purported to be issued by the Government officer to be genuine. It reads as follows:
“79. Presumption as to genuineness of certified copies. The Court shall presume to be genuine every document purporting to be a certificate, certified copy or other document, which is by Law declared to be admissible as evidence of any particular fact and which purports to be duly certified by any officer of the Central Government or of a State Government, or by any officer in the State of Jammu and Kashmir who is duly authorized thereto by the Central Government.
Provided that such document is substantially in the form and purports to be executed in the manner directed by law in that behalf. The Court shall also presume that any officer by whom any such document purports to be signed or certified, held, when he signed it, the official character which he claims in such paper.”
16. The onus on the Customs Broker cannot, therefore, extend to verifying that the officers have correctly issued the certificate or registration. Of course, if the Customs Broker comes to know that its client has obtained these certificates through fraud or misrepresentation, nothing prevents it from bringing such details to the notice of Customs officers for their consideration and action as they deem fit. However, the Customs Broker cannot sit in judgment over the certificate or registration issued by a Government officer so long as it is valid. In this case, there is no doubt or evidence that the IEC, the GSTIN and other documents were issued by the officers. So, there is no violation as far as the documents are concerned.
17. The third obligation under Regulation 10(n) requires the Customs Broker to verify the identity of the client using reliable, independent, authentic documents, data or information. In other words, he should know who the client is and the client cannot be some fictitious person. This identity can be established by independent, reliable, authentic:
a) documents;
b) data; or
c) information
18. Any of the three methods can be employed by the Customs Broker to establish the identity of his client. It is not necessary that it has to only collect information or launch an investigation. So long as it can find some documents which are independent, reliable and authentic to establish the identity of his client, this obligation is fulfilled. Documents such as GSTIN, IEC and PAN card issued etc., certainly qualify as such documents as none of these departments have any interest in the relationship between the client and the Customs Broker and these documents are presumed to be authentic and reliable having been issued by the Government officers. However, these are not the only documents the Customs Broker could obtain; documents issued by any other officer of the Government or even private parties (so long as they qualify as independent, reliable and authentic) could meet this requirement. While obtaining documents is probably the easiest way of fulfilling this obligation, the Customs broker can also, as an alternative, fulfill this obligation by obtaining data or information. In the factual matrix of this case, we are fully satisfied that the appellant has fulfilled this part of the obligation under Regulation 10(n).
19. The fourth and the last obligation under Regulation 10(n) requires the Customs Broker to verify the functioning of the client at the declared address using reliable, independent, authentic documents, data or information. This responsibility, again, can be fulfilled using documents or data or information so long as it is reliable, independent and authentic. Nothing in this clause requires the Customs Broker to physically go to the premises of the client to ensure that they are functioning at the premises. Customs formations are only in a few places while exporters or importers could be from any part of the country and they hire the services of the Customs Brokers. Besides the fact that no such obligation is in Regulation 10(n), it will be extremely difficult, if not, totally impossible, for the Customs Broker to physically visit the premises of each of its clients for verification. The Regulation, in fact, gives the option of verifying using documents, data or information. If there are authentic, independent and reliable documents or data or information to show that the client is functioning at the declared address, this part of the obligation of the Customs Broker is fulfilled. If there are documents issued by the Government Officers which show that the client is functioning at the address, it would be reasonable for the Customs Broker to presume that the officer is not wrong and that the client is indeed, functioning at that address. In the factual matrix of this case, we find that the GSTIN issued by the officers of CBIC itself shows the address of the client and the authenticity of the GSTIN is not in doubt. In fact, the entire verification report is based on the GSTIN. Further, IECs issued by the DGFT also show the address. There is nothing on record to show that either of these documents were fake or forged. Therefore, they are authentic and reliable and we have no reason to believe that the officers who issued them were not independent and neither has the Customs Broker any reason to believe that they were not independent.
20. The responsibility of the Customs Broker under Regulation 10(n) does not include keeping a continuous surveillance on the client to ensure that he continues to operate from that address and has not changed his operations. Therefore, once verification of the address is complete as discussed in the above paragraph, if the client moves to a new premises and does not inform the authorities or does not get his documents amended, such act or omission of the client cannot be held against the Customs Broker.
21. We, therefore, find that the Customs Broker has not failed in discharging his responsibilities under Regulation 10(n). The impugned order is not correct in concluding that despite obtaining and providing authentic documents issued by various Government officers, the Customs Broker has violated Regulation 10(n) because the exporters were found to not exist during subsequent verification by the officers.
22. In view of the above, the appeal is allowed and the impugned order is set aside with consequential relief to the appellant.
(Order pronounced in open court on 29/04/2024.)
Notes:
1 Importer
2 impugned order
3 SCN
4 DGARM
5 CBIC
6 GST
7 IEC
8 DGFT
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