Proceedings against CHA not justified as CHA not required to verify genuineness of IE code of client

Akansha Logistics Vs Commissioner of Customs Airport & General (CESTAT Delhi)

CESTAT Delhi held that initiation of proceedings against customs broker for violation of regulation 11(d) and 11(n) of CBLR, 2013 not justified as CHA not required to enquire and verify the genuineness of IE code given to it by a client for each import/export transaction.

Facts- The appellant herein is a customs brokers having a license valid up to 04.10.2027. Office of Commissioner of Customs (Airport & General), New Delhi received an investigation report dated 10.01.2023 regarding investigation in respect of goods exported by M/s. Neminath Industries, M/s. Adinath Industries and M/s. Arihant Industries with respect to 1474 number of shipping bills by misuse of factory stuffing permission, forgery of customs documents with the intention of availing drawback and other incentives fraudulently.

Department alleged that these customs broker, owning to their acts of commission and omissions have aided and abetted the fraud committed by the exporter i.e. of willfully indulging themselves in making of fabricated export documents endorsing fake stuffing permission at both levels in central excise during stuffing of the containers and in customs during filing of the shipping bills, despite having no factory stuffing permission with them. Hence the Show Cause Notice was served upon all the concerned exporters and the above named Custom House Agents (CHA) including the present appellant. The appellant was accordingly alleged to have contravened Regulation 11 (d) and 11 (n) of CBLR, 2013. Hence another show cause notice has been served upon the appellant proposing revocation of his license and imposition of penalty upon the appellant. The said proposal has been confirmed vide the impugned order. Being aggrieved, the present appeal is filed.

Conclusion- It is held that it would be far too onerous to expect the CHA to enquire into and verify the genuineness of IE code given to it by a client for each import/export transaction.

In the present case, there is no evidence for the appellant to be the beneficiary of any drawbacks as alleged to have been wrongly received by the exporters.

Held that, in fact, there was no need for any proceedings under CBLR to have been initiated against appellant. Department could not produce any evidence proving violation of 11(d) and 11(n) of CBLR, 2013. Accordingly, the order under challenge confirming said violation is hereby set aside. Consequent thereto, the appeal is hereby allowed.

FULL TEXT OF THE CESTAT DELHI ORDER

The appellant herein is a customs brokers having a license valid up to 04.10.2027. Office of Commissioner of Customs (Airport & General), New Delhi received an investigation report dated 10.01.2023 regarding investigation in respect of goods exported by M/s. Neminath Industries, M/s. Adinath Industries and M/s. Arihant Industries with respect to 1474 number of shipping bills by misuse of factory stuffing permission, forgery of customs documents with the intention of availing drawback and other incentives fraudulently.

Further intelligence gathered indicated that several factory stuff containers were exported in the name of above mentioned companies and similar modus operandi have taken place on inflated value by manipulation of documents. It was found that no factory stuffing permission had been issue to three of the above mentioned exporters. Since they were found to have filed total number of 1474 shipping bills with total FOB value of Rs. 5,43,58,38,842/-. The customs brokers of these exporters were also investigated. Statements of all concerns were recorded by the department based whereupon following were found to be the customs brokers who filed shipping bills on behalf of the M/s. M/s. Neminath Industries, M/s. Adinath Industries and M/s. Arihant Industries:

M/s. Maj Shipping Pvt. Ltd.

M/s. IAL Cleford Logistics Pvt. Ltd.,

M/s. Bablani Clearing Forwarding & Logistic Co. Pvt. Ltd.

M/s. Ajay Overseas Shipping

M/s. Skystar Clearing & Forwarding Pvt. Ltd.

M/s. Ascent Logistics,

M/s. Threestar Forwarders Pvt Ltd

M/s/ Akansha Logistics

M/s. A M Logistics,

M/s. Premier Clearing Agency Pvt Ltd.

M/s. Indian Shipping Services,

M/s. Fourstar Enterprises

M/s. Purshotam Chatrabhuj Thackar

M/s. Tulip Enterprises

M/s. V & S Clearing Agency Pvt Ltd.

M/s. M.D. Ruparel & Songs

M/s. Bharat Logistic Solutions Pvt. Ltd.

M/s. Expert Cargo Movers

M/s. Jet Wings Freight Forwarders

1.1 Department alleged that these customs broker, owning to their acts of commission and omissions have aided and abetted the fraud committed by the exporter i.e. of willfully indulging themselves in making of fabricated export documents endorsing fake stuffing permission at both levels in central excise during stuffing of the containers and in customs during filing of the shipping bills, despite having no factory stuffing permission with them. Hence the Show Cause Notice No. 6339 dated 11.05.2023 was served upon all the concerned exporters and the above named Custom House Agents (CHA) including the present appellant. Vide which the appellant M/s. Akansha Logistics was proposed to be imposed with penalty under Section 114 (iii) of Customs Act, 1962. A suitable action as per regulation 19, 20 and any other regulation under Customs Brokers Licensing Regulations, 2013 was also proposed against the appellant. The appellant was accordingly alleged to have contravened Regulation 11 (d) and 11 (n) of CBLR, 2013. Hence another show cause notice no. 26/2023 dated 11.05.2023 has been served upon the appellant proposing revocation of his license and imposition of penalty upon the appellant. The said proposal has been confirmed vide the Order-in-Original No. 64/2023 dated 11.10.2023. Being aggrieved of the said order appellant is before this Tribunal.

2. We have heard Shri Alok Agarwal and Shri Prachit Mahajan, learned Advocates for the appellant and Shri M. R. Dhania, learned Authorized Representative for the respondent.

3. Learned counsel for the appellant has mentioned that the license of the appellant has been revoked vide the impugned order under challenge observing that the appellant has failed to advise their clients regarding filing of authentic/correct documents and has also failed to verify the KYC documents submitted by the exporters resulting into mis-declaration of the goods in order to claim inadmissible drawback benefits. Learned counsel has impressed upon that findings have not taken into consideration the correct facts i.e., the appellant had filed only 4 shipping bills of M/s. Arihant Industries where the goods were under factory stuffing permission as was given by the central excise authorities. It is impressed upon that once goods were factory stuffed, the CHA who is handling the container at port cannot be held liable for any other alleged mis-declaration.

3.1 It is further submitted that all the KYC documents were available with the appellant, hence, the appellant has wrongly been held liable for the alleged violation of Regulation 11 (n) of CBLR,2013. The documents such as GST registration, bank account details, excise registration, PAN card etc. were all government/bank issued documents. The appellant as CHA is not supposed to verify the correctness of those documents and cannot be held liable if any fault is found with those documents. Hence, the findings arrived at by the adjudicating authority are liable to be set aside. The Order-in-Original dated 13.09.2023 as has been passed with respect to the customs show cause notice has already refrained for recommending any action against CHA under CBLR, 2013. Learned counsel has relied upon the following decisions to impress upon that CHA cannot be held responsible for the acts of the exporter and even when the exporter is not traceable:

(i) Naman Gupta Vs. Commissioner of Customs, Airport & General reported as (2024) 15 Centax 329 (Del.)

(ii) J. Joshi & Sons Vs. CCE, Kandla reported as 1999 (113) ELT 900 (T)

(iii) Perfect Cargo & Logistics Vs. CC (Airport & General), New Delhi.

Accordingly, learned counsel has prayed for the order under challenge to be set aside and appeal is prayed to be allowed.

4. While rebutting these submissions, learned Departmental Representative has mentioned that present show cause notice has been issued based on the investigation report regarding the misuse of factory stuffing permission and the forgery of customs documents by few exporters involving 1474 shipping bills. The report has clearly highlighted the involvement of present appellant and its employees in filing of the said Bills of Entry as customs broker have failed to verify the identity of their clients, validity of their address. In fact the exporters were found to be non-existent. These facts are sufficient to suggest a serious lapse on the part of the customs broker leading to potential revenue loss. Hence, the action initiated against them, including the appellant, under CBLR, 2013 was actually required. The findings of the order under challenge are based on the evidences against the appellant. The containers were found to be stuffed with only 40 cartons contrary to the declared 70 cartons per container. The invoices submitted to Central Excise Department were different from those produced for customs clearance with discrepancies in the exporter’s name, carton count and net weight. It is only the customs broker who can be held responsible for such lapses, hence there is no infirmity in the order under challenge. Learned Departmental Representative has relied upon the following decisions:

(i) Baraskar Brothers Vs. Commissioner of Customs (General), Mumbai reported as 2009 (244) ELT 562

(ii) Commissioner of Customs Vs. K.M. Ganatra reported as 2016-TIOL-13-SC-CUS

Accordingly, appeal is prayed to be dismissed.

5. Having heard both the sides and perusing the entire records, We observe and hold as follows:

5.1 The order under challenge dated 11.10.2023 has ordered revocation of appellant’s license, forfeiture of its security deposit and imposition of penalty of Rs.50,000/- on the appellant holding that the appellant has not acted in accordance with their obligations as mentioned under Regulation 11(d) and 11(n) of CBLR, 2013. To adjudicate the correctness of these findings we foremost perused both these regulations:

Regulation 11(d) of CBLR, 2013: advise his client to comply with the provisions of the Act and in case f non-compliance, shall bring the matter to the notice of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be;

Regulation 11(n) of CBLR, 2013: verify antecedent, correctness of Importer Exporter Code (IEC) number, identity of his client and functioning of this client at the declared address by using reliable, independent, authentic documents, data or information;

5.2 We observe it to be the undisputed fact on record that the present appellant has filed only 4 shipping bills of M/s. Arihant Industries. It is also an admitted fact that factory stuffing permission though was not available with M/s. Neminath Industries and M/s. Adinath Industries but M/s. Arihant Industries had factory stuffing permissions as issued by the Central Excise Officers. It is Circular No. 20/2010 dated 22.07.2010 issued by CBEC which provides for factory stuffing permission. It is apparent from the circular that the concerned authorities having role in factory stuffing are customs stations and the central excise officers. It is also clear that the customs broker has no role to play in factory stuffing permission which is otherwise conducted under the supervision of Central Excise Officers and the permission is issued by customs station after the verification. The perusal of this circular makes it abundantly clear that CHA cannot be held responsible for any misdeclaration in the containers stuffed under factory stuffing permission. Above all, it is also an apparent fact on record that the appellant was never called nor ever summoned by the department to submit documents or container statements, thus, there is no evidence neither a statement of admission on part of the appellant nor any statement of exporter deposing that the appellant also had knowledge in the alleged fraudulent reports.

5.3 We further observe that with respect to the show cause notice dated 31.03.2023 as was issued to the exporter and of the customs brokers under Customs Act, 1962 with respect to the same investigation as is in the present case, the Order-in-Original dated 30.11.2023 has already been announced. The adjudicating authority has already held that customs brokers had no role in the present case of alleged fraud committed by the exporters. It has already been held as follows:

44.4 It is a matter of record that the Customs Brokers were engaged by the exporter for filing of Shipping Bill and were provided with the Invoice and Examination Report allegedly bearing the signatures of Central Excise Officers certifying the factory stuffing of goods in the containers. The Examination Report also had reference of the FSP under which the stuffing of containers were carried out under the supervision of the Central Excise Officers. In such a situation, when the Customs Brokers had no reason to doubt the authenticity of the documents or the genuineness of the exporters, merely filing Shipping Bills on the basis of these documents and completing the customs formalities for export of such consignments, cannot be said to be act or omission which would render the goods liable for confiscation under Section 113 or require levy of penalty under Section 114 of the Customs Act 1962 on such Customs Brokers.

44.5………… I find that Customs Brokers were never present at the time of stuffing of the container. In fact, there was no statutory or any other requirement stipulated under by way of any Instructions/ Standing Orders under the CBLR-2013 or the Customs Act, 1962,  to be present at the premises of the exporters at the time of examination/stuffing of the export goods, since the examination  and stuffing were carried out under the supervision of the  jurisdictional Central Excise officers and the containers were sealed with Central Excise Seals.

44.6 So long as the identity of the exporter is established based on the IEC, PAN and export documents are prepared based on documents given by the exporter and the container stuffing was done under the supervision of the Central Excise Officers, Customs Brokers’ action cannot be faulted. Even if there is any wrong declaration of the value of exports, the responsibility for the same cannot be fastened on to the Customs Brokers as the goods were examined, stuffed and sealed under the supervision of Central Excise Officers in presence of the exporter.

44.7 The investigation reveals that the Customs Brokers were contacted by the Drivers of the vehicles after the Central Excise sealed containers had reached DRT, Nhava Sheva on the phone number given by Mr. Lokesh Bansal. The sealed envelope, which contained the original documents and FSP, were carried by the Drivers, which were handed over to the Customs Officers posted at DRT. The said envelopes were opened either by Customs Broker in the presence of Customs officers or by Customs officers themselves. Accordingly, after satisfying the genuineness of the  documents including FSP, the seals were verified and LEO granted.

44.9 I find all the Shipping Bills filed by the Customs Brokers were  allowed for export by the proper officer under Section 51 of the  Customs Act, 1962 and no irregularities were noticed while  processing the documents submitted for export of the said consignments. I find that the Department raised no questions or objections when those consignments were cleared, about the Lo FSPs and no allegation of involvement/ abetment of the Customs Brokers in the fraudulent exports is established during the investigation. It is also not the case that there are any evidence of the involvement of Customs Brokers in tampering of the seals or in  preparation of the forged Invoices or Examination Reports of the  consignments.”

5.4 No doubt CHA occupies a very important position in the customs house and he is supposed to safeguard the interest of both the importers exporters and that of the customs department. A lot of trust is kept in CHA by the importers/exporter as well as by the government agencies as has been held by Hon’ble Supreme Court in K.M. Ganatra (supra) decision as relied upon by the department. Also that CHA cannot shy from the responsibilities and obligations casted upon them by law but at the same the impugned provisions of CBLR don not obligate the CHA to look into such information which may be available to it from the exporter/importer. This Tribunal in the case of Kunal Travels (Cargo) Vs. Commissioner of Customs (I&G) reported as 2017 (354) ELT 447 has hled that CHA is not an inspector to weigh genuineness of the transaction. It is a processing agent of documents with respect to clearance of goods through Customs House. The decision further holds that irrespective the exporters are found non-existent but since the IE code is issued after the background check of the importer/exporter had been undertaken by the customs authorities there can be no reason to doubt the identity of the importer or exporter named therein. It is held that it would be far too onerous to expect the CHA to enquire into and verify the genuineness of IE code given to it by a client for each import/export transaction.

5.5 In the present case, there is nothing or record to show that the appellant/CHA had a prior knowledge about the exporters mentioned in the IE code to be non-existing person. It is apparent from record that one M/s. Lokesh Bansal, the partner of Aadinath Industries, he only used to manage bank account of M/s. Neminath Industries. The factory stuffing permission is also alleged to have been forged in the name of M/s. Neminath Industries. Though the factory stuffing permission in name of M/s. Aadinath Industries i.e. the exporter of the present appellant is also found forged but It is also an apparent fact mentioned in the show cause notice itself that the export invoice for the containers was signed by the Central Excise Officer which later got forged. Similar had been the modus operandi in case of M/s. Arihant Industries but apparently there is no such allegation vis-à-vis M/s. Arihant Industries. Hon’ble Delhi High Court also in the case of Commissioner Vs. Shiva Khurana reported as 2019 (367) ELT 550 (Del.) has held as follows:

“Since appellant got all requisite documents from the exporter, he was not supposed to verify the identity but to believe the functioning of his client at the address mentioned in the documents. The CHA is not expected to background check of the exporter/client who approaches for facilitation services in export/imports. The CHA due diligence as is required under CBLR, 2011 is for information that he may give to his clients and not necessarily to do a background check of either the client or of the consignment. The documents prepared or filed by CHA are also on the basis of instructions/documents received from clients/importer/exporter. Wrong and incorrect information cannot be attributed to the CHA unless and until there is an apparent evidence for CHA involved in the alleged guilt.”

In the present case, there is no evidence for the appellant to be the beneficiary of any drawbacks as alleged to have been wrongly received by the exporters.

5.6 This Tribunal, Ahmadabad Bench, in the case of Purshotam Chatrabhuj Thackar Vs. CC, Kandla, Final Order No. 10041 dated 04.01.2024 also held as follows:

“A perusal of the order shows that the charge against the appellant is that they had failed to verify the identity of the clients and functioning of the clients at the declared address and dealt with Mr. Lokesh Bansal and Mr. Tarun Jain who claimed to be the exporter. It was alleged that Mr. Tarun Jain was neither the IEC Holder of any of five firms including Ms Adinath Industries nor was holding any post in any of the such firm. The second ground is that address mentioned of IEC of Ms. Adinath Industries and Others were found to be non-existent.”

“It is seen that the Commissioner in his order has observed that the appellant has failed to verify the antecedents of the exporters whereas there is a clear assertion on the part of the exporter that they had conducted the KYC on the basis of documents submitted by the exporter. There is no requirement under CBLR for the custom broker to physically verify the address. In these circumstances, we do not find any merit in the observations of the Commissioner on the basis of which the suspension was ordered to be continued. The impugned order is therefore set aside and appeal is allowed.”

6. In view of the entire above discussion and the decisions discussed, we hold that, in fact, there was no need for any proceedings under CBLR to have been initiated against appellant. Department could not produce any evidence proving violation of 11(d) and 11(n) of CBLR, 2013. Accordingly, the order under challenge confirming said violation is hereby set aside. Consequent thereto, the appeal is hereby allowed.

[Order pronounced in the open court on 17.10.2024]