SMS Logistics Vs Commissioner of Customs (General) (Delhi High Court)
Introduction: In the case of SMS Logistics vs. Commissioner of Customs, the appellant, a customs broker, was accused of contravening certain regulations, leading to disciplinary proceedings. This article delves into the allegations against the appellant, the relevant regulations, and the analysis of the punishment imposed in this context.
Detailed Analysis: The appellant faced allegations of contravening Regulations 11(d), 11(e), and 11(m) of the CBLR-2013. These regulations pertain to advising clients on compliance, diligence in providing information, and prompt discharge of duties, respectively.
The central issue revolved around a sale transaction between TDAAL and IDDSL. The respondent argued that filing a Bill of Entry in the name of TDAAL violated the Customs Act. However, it was argued that even if the sale was incorrectly reflected as a High Sea Sale (HSS), the error was not of material consequence. Moreover, the appellant questioned why the Bill of Entry should be filed by the seller (TDAAL) rather than the purchaser (IDDSL).
Regulations 11(e) and 11(m) require customs brokers to perform their duties with diligence and efficiency. The key question here was whether treating the sale as an HSS instead of a normal sale amounted to non-compliance with these regulations.
The court emphasized that disciplinary proceedings like these aim to ensure compliance with statutory provisions, and the Customs Department should have confidence in customs brokers’ diligence. However, it acknowledged that punitive measures should be proportionate.
The Supreme Court’s precedent illustrated the principle of proportionality in punitive measures. Punishments should not be excessive and should bear a reasonable relationship to the violation.
Regulation 18 of the CBLR-2013 provided the Commissioner of Customs with various punitive measures, including penalty imposition or license revocation. The court stressed that punishment should match the violation and should not deprive a broker of their livelihood unnecessarily.
The court also highlighted that judicial review typically doesn’t interfere with the quantum of punishment unless it shocks the conscience or appears arbitrary. Article 14 of the Indian Constitution addresses arbitrariness.
In this case, it was crucial to consider whether there was any actual loss of revenue due to the appellant’s actions, as this should factor into the punitive measure. Failure to consider relevant factors in decision-making could render it arbitrary.
Conclusion: In the SMS Logistics vs. Commissioner of Customs case, the court analyzed the punishment imposed on the customs broker in light of the alleged contravention of regulations. It stressed the importance of proportionality in punitive measures, considering the gravity of the violation and the harm caused. Ultimately, the court found the revocation of the customs broker’s license to be disproportionately excessive and emphasized the need for a balanced approach in such cases.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
The petitioner has filed the present petition under Section 130 of the Customs Act, 1962 (hereafter ‘the Customs Act’) impugning an order (Final Order No.52861/2018 dated 24.08.2018 – hereafter ‘the impugned order’) passed by the learned Customs Excise and Service Tax Appellate Tribunal (hereafter ‘the CESTAT’) rejecting Appeal No. C/51898/2017.
2. The appellant had filed the said appeal against an Order-in-Original dated 15.11.2017 passed by the respondent revoking the appellant’s Custom Broker License and further imposing a penalty of Rs.25,000/-.
Factual Matrix
3. The appellant is a custom broker holding a license to act as a Customs Broker (CB License No.R-37/DEL/CUS/2015 – hereafter ‘the CB License’), which was valid up to 25.04.2023. Proceedings under the Customs Brokers Licensing Regulation, 2013 (hereafter ‘CBLR-2013’) were initiated against the appellant by the respondent on receipt of an offence report in the form of an Order-in-Original dated 15.03.2017 passed by the Additional Commissioner of Customs.
4. The controversy relates to clearance of goods imported under Bill of Entry No.8606801 dated 18.02.2017. The appellant had filed the said Bill of Entry on behalf of M/s Tim Delhi Airport Advertising Pvt. Ltd. (hereafter ‘TDAAL’) in respect of the clearance of goods declared as “71 pieces of Samsung 65 LED Monitor of Model No. LH65QMFPLGC/XL” (hereafter ‘the goods’) declaring an assessable value of ₹1,50,59,101/-. TDAAL declared that the goods were purchased on High Sea Sales (HSS) basis from M/s Infosoft Digital Designs and Services Pvt. Ltd. (hereafter ‘IDDSL’). IDDSL had imported the goods from M/s Beetel Teletech Singapore Private Limited, Singapore (hereafter ‘Beetel’). TDAAL had purportedly purchased the goods from IDDSL under a Commercial Invoice No.115 dated 16.02.2017 on HSS basis.
5. The goods were examined and there is no dispute that they confirmed to the declared description.
6. The appellant had filed the Bill of Entry on behalf of TDAAL and submitted a copy of the HSS Agreement notarized on 16.02.2017. The concerned authority had doubts in respect of the said HSS Agreement. The allegation being that it was notarized prior to dispatch of the shipment from the foreign country – Singapore. Part of the goods were dispatched from the Singapore Airport on 17.02.2017 and the remaining were dispatched on 18.02.2017. According to the concerned authority, a sale on HSS basis could be affected only after the goods had left the territory of Singapore and prior to their arrival in India. IDDSL claimed that it had sold the goods by means of an HSS Contract for lack of knowledge.
7. The total custom duty payable in respect of the goods imported under the Bill of Entry in question was ₹44,33,550/-. TDAAL attempted to pay a sum of ₹27,47,552/- by way of cash and the balance amount of ₹16,85,998/- by way of Served From India Scheme (SFIS) Scrip No. 0510397433 issued to it.
8. The offence report indicates that the concerned custom authority had held that the real importer of the goods was IDDSL and an attempt to evade the custom duty was made by misusing the SFIS Scrips. The SFIS scrip was issued under Chapter 3 of the Foreign Trade Policy to TDAAL and in terms of the Custom Notification No. 91/2009, TDAAL was allowed to import goods and pay the duty through the SFIS Scrips, subject to the certain conditions.
9. The custom authorities asked the concerned parties (TDAAL, IDDSL, and the appellant) to submit their explanation. In response to the same, IDDSL furnished a letter dated 28.02.2017, inter alia, stating as under:
“As per your intimation the agreement is not valid and we have to clear the shipment in our name. Due to lack of our knowledge all this happen, kindly allow us to file bill of entry in our name and we request your goodselves not to impose any penalty/other changes. Kindly give us waiver of any additional charges.”
10. In conformity with the above stand, TDAAL also sent a letter on 08.03.2017 confirming IDDSL would import the shipment and the Bill of Entry shall be issued in the name of IDDSL and it would pay the custom duty.
11. The appellant furnished a letter dated 08.03.2017, inter alia, stating as under:
“As per the provision of custom manual on self assessment 2011, the HSS agreement in respect of BE 8606801 is found to be incorrect. So please allow us the BE by changing importer name to Infosoft Digital Design & Services pvt. ltd.”
12. The concerned authority found that HSS Agreement was not in accordance with relevant statute and IDDSL should have filed the Bill of Entry (and not TDAAL) and was therefore, liable to pay the duty. It was also held that IDDSL was not eligible for using the SFIS scrip in question as the same was issued to TDAAL and was not transferable. The aforesaid findings were in turn based on the findings that the goods were dispatched on 17.02.2017 and 18.02.2017, and the HSS Agreement was entered into prior to the said dispatch, that is, on 16.02.2017. On the aforesaid basis, the concerned authority, inter alia, imposed penalties on TDAAL as well as on the appellant.
13. The proceedings under the CBLR-2013 were initiated against the appellant. The Inquiry Officer submitted a report dated 18.08.2017, whereby it concluded that the appellant had violated various provisions of CBLR-2013. The respondent had held that the appellant had contravened the provisions of Regulation 11(d), 11(e) and 11(m) of CBLR-2013. The respondent, accordingly, revoked the appellant’s CB License and also imposed a penalty of ₹25,000/-.
14. It was the appellant’s case before the respondent that it had not violated any of its obligations under the CBLR-2013. The appellant stoutly disputed that HSS Agreement was invalid. The appellant submitted that the consignment of the goods was handed over to the airlines in Singapore for onward shipment to India on 16.02.2017. After the goods had been so handed over, the IDDSL and TDAAL entered into an HSS Agreement on the same date. The appellant contended that the goods had already moved beyond the control of Beetel or IDDSL at the material time, when the HSS Agreement was signed by IDDSL and TDAAL. This contention was rejected. It was held that HSS is a sale made after the goods have crossed the territorial borders of the country of export but had not reached the destination. According to the respondent, it meant that the goods had left the port or airport origin but had not arrived at the port or airport of the destination. The facts in the present case indicated that the goods were dispatched on 17.02.2017 and 18.02.2017 but the HSS Agreement was executed earlier.
15. In addition, the letter sent by the appellant to the custom authorities admitting that the HSS Agreement is incorrect was also read against the appellant.
16. The learned CESTAT rejected the appellant’s appeal. It did not consider the appellant’s contention that the agreement between TDAAL and IDDSL for sale and purchase of the goods in question, was a valid transaction on HSS basis, on merits; the learned CESTAT found that the appellant had admitted that HSS Agreement was incorrect and what was admitted did not require to be proved.
Appellant’s case
17. In the aforesaid backdrop, the appellant has projected the following questions for consideration:
“a. Whether the CESTAT was justified in passing the impugned order and sustaining the order of revocation of Custom Broker License without considering/ dealing with the specific submissions / grounds so raised by the appellant in its appeal?
b. Whether the CESTAT was justified in passing the impugned order solely on the basis of alleged letter of Appellant that HSS Agreement was found to be incorrect, without seeing the mens rea behind the letter?
c. Whether the CESTAT was justified in passing the impugned order which has caused revocation of the Custom Broker License despite the matter being Revenue Neutral in nature, where High Sea Sales lead to Custom Duty on an enhanced value of the goods by 2%.
d. Whether the CESTAT was justified in passing the impugned order by following Strict Interpretation of the term High Sea Sale, since revocation of Custom Broker License has caused loss of employment and livelihood to its many employees.
e. Whether, in the facts of the case and in law, the revocation of the Custom Broker license of the Appellants is commensurate with the alleged contravention of the CBLR, 2013.”
18. Although the appellant has projected several questions for consideration of this Court, Mr. Jain, learned counsel appearing for the appellant had confined the challenge to the punitive measures imposed on the appellant on two grounds. First, that the learned CESTAT had failed to consider the appellant’s case that the HSS Agreement between TDAAL and IDDSL was valid, on merits. And second, that the punishment of revocation of the appellant’s CB License was harsh and disproportionate.
19. He contended that once the goods had been handed over to the airlines, they were beyond the control of the importer. The sale made thereafter, while the goods are in transit, would be HSS as the goods were in possession of the shipper and not in control of the exporter or the importer. He submitted that even if such transaction is in respect of the goods that have not left the territorial waters of the country of export, however, in a broader perspective, the sale must be considered as the HSS as the goods are in transit and exporter had yielded control of the goods.
20. He submitted that in a case of transportation of goods by air, the time period between the goods leaves the shores of the country of export and arrive at the country of destination is very short and a strict interpretation of the HSS for the purposes of imposing a punitive measure was not justified.
21. In addition, he submitted that the punishment of revocation of license was too harsh and disproportionate as there was no loss to the Revenue. He also referred to the decision of the Division Bench of this Court in M/s Ashiana Cargo Services v. Commissioner of Customs (I&G)1.
22. The learned counsel for the respondent countered the aforesaid submissions. He submitted that violation of CBLR-2013 on the part of the appellant, as alleged, was established and, therefore, the respondent’s order to revoke the appellant’s license under Regulation 18 of CBLR-2013 (corresponding to Regulation 14 of CBLR-2018) was within the statutory framework as such it warranted no interference. He contended that, thus, no question of law arises in the present appeal.
Reasons and Conclusion
23. The principal question that falls for consideration of this Court is whether in the given facts, the punishment of revocation of license is disproportionately excessive. The second question that arises is whether the appellant’s contention that the learned CESTAT was required to consider the merit of the appellant’s contention that the sale and purchase of goods between TDAAL and IDDSL on HSS basis was valid.
24. There is no credible dispute with regard to the material facts that had led the respondent to pass an order revoking the appellant’s CB License. The appellant had filed the Bill of Entry on behalf of TDAAL on the basis that TDAAL had purchased the goods on HSS from IDDSL. The allegation in respect of the transaction as noted by the Adjudicating Authority in the offence report (Order-in-Original dated 15.03.2017), as relied upon by the respondent in the Order-in-Original dated 15.11.2017, is that the HSS was not in accordance with the provisions of the Sales Tax Act, 1956, Sales of Goods Act, 1930 read with Section 14 of the Customs Act, and in terms of the Customs Manual on Self-Assessment – 2011. It was alleged that the actual importer of goods was IDDSL and that it should have filed the Bill of Entry instead of TDAAL. The relevant extract of the offence report as also noted in the Order-in-Original dated 15.11.2017 is set out below:
“i. The High Sea Sale is not in accordance with the provisions of Central Sales Tax Act, 1956 and Sales of goods Act, 1930 read with section 14 of the Customs Act, 1962 and in terms of Customs Manual on Self-Assessment – 2011 available in Public Domain. The actual importer of the goods in this case is M/s IDDSL who should have filed the B/E under Section 46 of the Customs Act, 1962. Therefore, M/s Infosoft Digital Designs & Services (Pvt.) Ltd., 104-105, Suneja tower-1, District Centre, Janak Puri, Delhi, pin code-110058, is liable for payment of appropriate Customs Duty leviable under the provisions of The Customs Tariff Act, 1975.
ii. M/s IDDSL is not eligible for the duty exemption by way of using the SFIS scrip, under Notification No. 91/2009-Customs dated 11.09.2009, which is not admissible for the goods imported vide Bill of Entry No. 8606801 dated 18.02.2017 and the goods are liable for levy of customs duties under the provisions of Section 12 of the Customs Act, 1962. However, the said provisions have not been adhered to in the instant case by the concerned parties.
11. From above, it transpires that:
a. M/s TDAAL and M/s IDDSL had entered into High Sea Sale Agreement on 16th February, 2017. After completion of High Sea Sales Agreement between the parties, goods were dispatched on 17th February, 2017 and 18th February, 2017, respectively. The fact has been admitted by both the parties as well as their authorised representative. The High Sea Sale Agreement is for goods sold on High Seas i.e. sale by the consignee while the goods are yet on high seas or after their dispatch abroad and before their arrival in India. Therefore, High Sea Sale Agreement becomes nullified for the purpose of levy of duty. M/s Infosoft Digital Designs & Services (Pvt.) Ltd, New Delhi is the actual owner of the goods as per the Commercial Invoice No. 5070101744 dated 03.02.2017, Packing List, etc. issued by the foreign supplier M/s Beetel Teletech Singapore Private Limited, Singapore and airway bill mentioned in the instant Bill of Entry and they are liable for payment of appropriate duty.”
25. The appellant had contested the said allegation. However, neither the Adjudicating Authority in offence report (Order-in-Original dated 15.03.2017) nor the Order-in-Original dated 15.11.2017 passed by the respondent indicates as to how the sale transaction is violative of the Central Sales Tax Act or the Sales of Goods Act. The only allegation is that it was contrary to the Customs Manual on Self-Assessment – 2011, which contains provisions for goods sold on high sea.
26. The Adjudicating Authority passing the offence report (Order-in-Original dated 15.03.2017) as well as the respondent relied on the definition of ‘High Seas’ as per the “Convention of High Seas done at Geneva on 29th April, 1958, United Nations, Treaty Series”. The said convention defined ‘High Seas’ to mean “all parts of the sea that are not included in the territorial sea or in the internal waters of a state.” Thus, according to the concerned authorities, HSS necessarily mean sale in respect of the goods that are outside the territorial waters of the country of export or the country of import. This is the foundation of the punitive measure imposed on the appellant. However, none of the authorities have discussed as to how the sale and purchase of the goods between IDDSL and TDAAL offended the Sales tax Act, as according to the said authorities the said transaction was effected while the goods in question were still in Singapore.
27. The term ‘High Sea Sales’ has not been defined in the Customs Act or the Rules. The respondent’s case is, essentially, based on the Customs Manual on Self Assessment – 2011 although the relevant extract of the said Manual has not been quoted in either of the concerned orders – the offence report, the orders passed by the respondent, and the impugned order.
28. The concerned authorities referred to HSS at Page 20 of the Customs Manual on Self-Assessment – 2011, which was reportedly available in Public Domain. The reference to HSS is in Article 14 of the said manual, which contains provisions for valuation of goods. Article 14 essentially contains provisions to ensure that the goods are correctly valued. Article 14 of the said Manual, as placed in public domain, is reproduced below for ready reference:
