Baid International Services Ltd. Vs Commr. of Customs (Airport & Air Cargo Complex Commissionerate) (CESTAT Kolkata)
CESTAT Kolkata held that Customs Broker cannot be held responsible for the exporters found to not exist during subsequent verification undertaken by the officers. Accordingly, revocation of Customs Broker licence unjustified.
Facts- The Appellant is a licensed Customs Broker. The license of the appellant was suspended under Regulation 16(1) of Customs Brokers Licensing Regulations 2018, (CBLR). The said suspension was challenged by them on the ground that it was based on erroneous and untenable facts in law. Subsequently, a Show Cause Notice was issued under Regulation 17(1) of CBLR for the revocation of the licence on the ground that the appellant had filed about 121 Shipping Bills pertaining to 15 exporters and who had violated various provisions of CGST Act, 2017 and they availed GST credit of approximately Rs. 8 crore by not complying with the CGST, laws and procedure.
The appellant submits that there has been no allegation, nor does the order charge the appellant for committing any offence under the Provisions of the Customs Act, 1962, in relation to various exports which were caused through the agency of their license. The appellants contend that the offence committed by the various exporters was extraneous to their (the appellant) functions as a Customs Brokers.
Conclusion- The responsibility of the Customs Broker as held by judicial bodies does not require then to maintain vigil and continuous surveillance on the client to ensure that they continue to operate from the address as given in the various KYC documents and in case of change as such get the documents amended.
Held that Customs Broker has not failed in discharging his responsibilities under Regulation 10(n) of CBLR, 2018 Under the circumstances, the Customs Broker cannot be held responsible for the exporters found to not exist during subsequent verification undertaken, by the officers or there has been unrealized IGST, availed of by the untraceable exporters.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The Appellants Baid International Services a licensed Customs Broker have filed appeal assailing the Order in Original No. KOL/CUS/AIRPORT/ADMN/15/2022 dated 06.05.2022. The Appellants are holder of Customs Broker license number B – 61, Code number 2183, valid up to 01.04.2027, issued by the Commissioner of Customs, (Airport and Admin.), Kolkata. They were accordingly permitted to transact business under the jurisdiction of Kolkata Customs Commissionerate, Mumbai Commissionerate and West Bengal (Prev.) Commissionerate.
2. The appellant submits that during the financial year 2019–20, 2020–21 they have filed several Bills of Entry and Shipping Bills for its customers numbering approximately 2000. They contend that before taking up the job and/or assignment under the Custom Brokers Licensing Regulations, 20181, they verify the antecedents and functioning of their clients at the declared address by reliable, independent, authentic document, data or information. In usual course they verify the importer exporter code number, GST number and identity of the clients by taking bank verified documents etc and conduct physical verification by visits, and only after being satisfied and bonafides of the client being established, the assignment of the work is accepted by them.
3. Briefly stated the aforesaid license of the appellant was suspended vide order number CB Order No.08/2021 dated 30.07.2021 by the Principal Commissioner of Customs (A & A), Custom House, Kolkata under Regulation 16(1) of Customs Brokers Licensing Regulations 2018, (CBLR). The said suspension was challenged by them on the ground that it was based on erroneous and untenable facts in law. Subsequently, a Show Cause Notice was issued under Regulation 17(1) of CBLR for the revocation of the licence on the undermentioned ground:
That the appellant had filed about 121 Shipping Bills pertaining to 15 exporters (as was indicated in the show cause notice) and who had violated various provisions of CGST Act, 20172 and they availed GST credit of approximately Rs. 8 crore by not complying with the CGST, laws and procedure.
4. The appellant submits that there has been no allegation, nor does the order charge the appellant for committing any offence under the Provisions of the Customs Act, 1962, in relation to various exports which were caused through the agency of their license. The appellants contend that the offence committed by the various exporters was extraneous to their (the appellant) functions as a Customs Brokers.
5. The genesis of the levelling of the charge against the Customs Broker is on the basis of an offence report dated 09.07.2021, received via email from ADG, DGARM New Delhi, wherein it was informed that in connection with the analysis being undertaken for identification of risky exporters involved in fraud relating to IGST refunds, the feedback from field formations was analysed to examine possible collusion of customs brokers with the risky exporters in export related frauds. It stated that after analysing 12135, risky exporters, 2513 exporters could not be physically verified.
The report stated that 18 Customs Brokers handled multiple consignments for these untraceable exporters. Thus a show cause notice No. 7/2021 dated 13.10.2021, was issued to the appellant in terms of Regulation 10(n) of CBLR as the Customs Broker is under obligation to verify correctness of IEC number, GST 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.
6. Fifteen of such exporters were linked with the appellant and reported as untraceable, with the appellants having filed 121 Shipping Bills of these exporters who were untraceable and a total IGST of over Rs.8 crore was involved in these cases. Of the 15 such exporters eight of them pertain to Surat, Gujarat, while the other seven fall apparently under the jurisdiction of Mumbai-based CGST Commissionerates, namely of Palghar, Belapur, Thane, Navi Mumbai, Mumbai, East, Mumbai Central and Mumbai West jurisdictions.
7. Before dwelling on the subject any further, it would be appropriate to reproduce Regulation 10(n) of the CBLR.
Regulation 10-Obligations of Customs Broker. – A Customs Broker shall :
(a) …………………….
(b) ……………………..
(c) ……………………..
(d) …………………………
(e) ……………………………..
(n) 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;
7.1. The show cause notice inter alia charged as under :
“7. On the basis of aforesaid Offence Report dated 09.07.2021, vide email dated 09.07.2021 from Addl. Director General, Directorate General of Analytics and Risk Management (DGARM), New Delhi, it appears that the Customs Broker has violated Regulation 10(n) of CBLR, 2018 which is as under :
Regulation 10(n) of CBLR, 2018: A Customs Broker shall 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.
In the present case, it appears that the CB did not 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. It appears that the CB has not even contacted the exporters and voluntarily in lieu of monetary consideration facilitated the exporters without verifying the KYC causing huge loss to the Department. Therefore, it appears that the CB violated the provisions of Regulation 10(n) of CBLR, 2018.”
8. The department for reasons supra therefore suspended the Customs Broker License of the appellant with immediate effect vide Order number 08/2021 dated 30.07.2021, under the Provisions of Regulation 16(1) of CBLR, pending completion of the enquiry contemplated against the appellant under regulation 17 of CBLR. This suspension was confirmed vide Order-in-Original No. KOL/CUS/AIRPORT/ADMN/19/2021 dated 09.09.2021. Subsequently, notice under Regulation 17(1) of CBLR was issued to the Customs Broker and enquiry ordered in the matter. The enquiry officer vide his report dated 23.12.2021 held that the Customs Broker had violated the Provisions of Regulation 10(n) of CBLR. The appellant’s representation against the said findings and conclusions were dismissed, resulting in the impugned order against which the appellants are aggrieved of.
9. The findings of the Enquiry Officer which forms the crux of the impugned order is enumerated hereunder:
“I have carefully gone through the Offence Report dated 09.07.2021 by Addl. Director General, Directorate General of Analytics and Risk Management (DGARM), New Delhi; the Show Cause Notice No. 07/2021 Pr. Commr. (A&A) dated 13.10.2021, written reply dated 03.11.2021 to the SCN; as well as oral submissions made by the proprietor Hearing on 01.12.2021. In the inquiry conducted by the undersigned in connection with the Show Cause Notice No. 07/2021 dated 13.10.2021 passed by the Pr. Commr. (A&A), following are the findings on alleged violations of regulations 10(n) of CBLR, 2018-
(a) Customs Broker has violated the Regulation 10(n) of CBLR,
2018
Findings:- As per Regulation 10(n) of CBLR, 2018, a Customs Broker shall verify correctness of Importer Exporter Code (IEC), Goods and Service 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.
I find that Regulation 10(n) of C.B.L.R., 2018 puts strict liabilities on the C.B. 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. Though, Mr. Praveen Kumar stated in his written submission as well as oral submission during PH that they had physically visited the premises of the exporters, he has no documentary evidence in this regard. It is admitted that physical verification of addresses of the exporters is not expected by the CB but there is no evidence to suggest that he verified the existence of the exporters over phone or mail. The plain reading of the obligation of Custom Broker under Rule 10 of CBLR, 2018 shows that Customs Broker is created as link between Customs authorities and the exporters/importers with an object of facilitating the clearances at Customs as well as the importers/exporters. The Hon’ble Supreme Court in K.M. Ganatra and Co. v. Commissioner of Customs reported in 2016(332) ELT 15(SC) while relying upon the decision of Mumbai Tribunal in the case of Noble Agency vs Commissioner of Customs, Mumbai reported in 2002 (142) ELT 84 has held as follows:
“The CHA occupies a very important position in the Custom House. The Customs procedures are complicated. The importers have to deal with a multiplicity of agencies viz. carries, custodians as well as the Customs. The importer would find it impossible to clear his goods through these agencies without wasting valuable energy and time. The CHA is supposed to safeguard the interests of both the importers and the Customs. A lot of trust is kept in CHA by the importers/exporters as well as by the Government agencies. To ensure appropriate discharge of such trust, the relevant regulations are framed. Any contravention of such obligations even without intent would be sufficient to invite upon the CHA the punishment listed in the Regulations….” (Emphasis Supplied)
9.1 The Ld. Adjudicating Authority, for the dwelt on the Board’s circular, issued in this behalf and observed as under :
In terms of Para 6 of Board Circular No. 09/2010-Cus dated 08.04.2010 F. No. 502/5/2008-Cus VI, detailed guidelines are given for Client/Customer Identification procedure and the Annexure attached to the said Circular narrates features to be verified and documents to be obtained from the client/customer. For KYC verification of a company/legal name; principal place of business/permanent address in full; mailing address; telephone, fax number, e-mail-ID, etc. In respect of a company, the documents to be obtained for KYC are – Certificate of incorporation, memorandum of Association/Articles of Association; Power of Attorney generated to its manager/officers to transact business on its behalf, copy of PAN allotment letter and copy of telephone bill and in respect of a partnership firm, the documents required for KYC are registration certification, partnership deed, power of attorney granted to a partner/employee to transact business and any official document for identification of partner as well as telephone bill in the name of firm/partners. However, subsequently, as per Board Circular no. 2/2018 dated 12.01.2018, the Board decided that in line with KYC norms stipulated by the Reserve Ban k of India, only two documents – one for proof of identity and other for proof of address are required for KYC verification.
The aforesaid KYC norms are basically intended to verify the correctness of IEC, GSTIN and address of the customer which has been incorporated under Rule 10(n) of CBLR, 2018. In their defence, the notice has simply said that they have followed the KYC norms but no evidence to this effect has been adduced in this regard. Their claim is negated by the investigation conducted by Addl. Director General, Directorate General of Analytics and Risk Management (DGARM), New Delhi which found the exporters non-existent (untraceable) at the given addresses and therefore, could not be verified physically. Thus, the CB failed in discharging his obligations stipulated under Rule 10(n) of CBLR, 2018. The Customs Broker had failed in observing due diligence about verifying the antecedents as well as KYC of the exporters which amounts to violation of Regulation 10(n) of CBLR, 2018 read with provisions of Board Circular No. 09/2010-Cus dated 08.04.2010 (P. no. 502/5/2008-Cus VI).
9.2 Referring to the investigations initiated at the end of DGARM, the Enquiry Officer’s order has the following to state :
As could also be seen from the documents that were relied upon to issue SCN, DGARM has obtained verification report of all the 15 exporters with regard to their antecedents. Perusal of documents reveals that most of the verification reports were issued during different months of 2020.Perusal of the documents submitted by the Customs Broker, Baid International Services reveals that the exports took place in different months of 2020. Going through the above reports, it is clear that the firms are not available in the addresses mentioned whereas the CB in his reply is claiming that physical visit was made by them before the export. It therefore appears that the CB has failed in his duties by not checking the antecedents as required under Rule 10(n) of CBLR, 2018.
The CB contends that since the documentation and details are correct, LEO was given and goods were exported. As could be seen from the above narration, all the export firms turned out to be false. Hence it is observed that the exports were made by mis-declaration of the exporter details. Therefore, the contention of CB cannot be accepted.
Further, their written submission as regard to issuance of IEC No. GSTIN No., PAN No., AD Code No. and procedure of filing Shipping Bills in EDI System is nothing but to divert their obligation under Rule 10(n) of CBLR, 2018.
In light of the above, the contention of the CB does not hold ground.”
10. The appellant filed detailed representation against the aforesaid findings of the Enquiry Officer, inter alia pointing out the fact that the Department did not present any cogent evidence to the effect, as to how they had colluded with the subject fifteen exporters who were said to be untraceable, that the offence report had not even a whisper of the enquiries that were conducted for the purpose at arriving at the aforesaid conclusion, that the Enquiry Officer did not consider the KYC tendered at the time of hearing. They further submitted as under :
“12(c) Circular No. 2/2018-Cus dated 12.01.2018 read with Circular No. 9/2010-Cus dated 08.04.2010 stipulates that Board had decided that two documents, one for proof of identity and other for proof of address are required for KYC verification and the features and documents obtained from clients to be verified by the Customs Broker. The department failed and/or neglected to follow the norms laid down in the circulars issued in this regard.
(d) It is admitted fact that KYC documents were submitted by the Customs Broker but the same has not been discussed in the enquiry report.
(e) The show cause notice has not been issued within the time limit stipulated under Regulation 17(1) of CBLR, 2018 and the explanation given for the delay does not appear to be satisfactory. Hence the entire proceeding is liable to be set aside on this ground alone.”
10.1 At the outset the appellant denied and disputed that they had handled consignments for multiple untraceable exporters. It was their claim that only after obtaining KYC documents from the said exporters, they processed the consignments for export. These KYC documents were produced by them before the departmental authorities and that the enquiry officer failed to appreciate the legal proposition laid down in the case of Perfect Cargo & Logistics, C.C.(Airport & General), New Delhi reported in 2021 (376 E.L.T. 649 (Tri-Del.) to the effect that basic requirement of Regulation 10(n) ibid was that the Customs Broker was required to verify identity of client and functioning of client at declared address by using, reliable, independent, authentic documents, data or information. The also criticized the show cause notice and the enquiry officers report to have been violative of Principles of Natural Justice as also for not having adhered to the timelines prescribed and in support relied on the decision of Hon’ble Madras High Court in the case of KTR Logistics Solutions Pvt. Ltd. reported in 2020(371) E.L.T. 685 (Mad.) to state that :
“if an order of suspension is passed suspending the license of the Customs Broker, either as an imminent action or pending enquiry, all further proceedings to be completed and a final order is passed within such time, and in absence thereof, suspension of the license is to be treated as deemed to have been lapsed and license is deemed to have been restored.”
10.2 Distinguishing the case laws referred to by the inquiry officer as of no relevance with the instant case, they pointed out that the Customs Brokers therein was involved in repeated violations of the Regulations and subletting the license, while in their case no such violation was alleged against the Customs Broker. Moreover, the inquiry officer did not refer to their pleas of the KYC documents tendered, and passed the inquiry report based on surmises and conjectures. They also contended that the department while allowing export of the goods had also verified the said KYC particulars.
11. The appellants further filed detailed written submissions vide their letters dated 1.3.2022 and 10.03.2022, before the adjudicating authority.
12. The Ld. Commissioner, however, observed that the said fifteen exporters found untraceable/non-existent were facilitated by the appellant herein; “as per the verification reports drawn by the respective GST Commissionerates, which implies that the Customs Broker did not verify the identity of his client and functioning of his client at the declared address by using reliable, independent, authentic documents, data or information.”
He, therefore, held that the Customs Broker had not even contacted the exporters and voluntarily in lieu of monetary consideration facilitated by the exporters, without verifying the KYC, caused huge loss to the Department. We are afraid that the said finding of the learned Commissioner is purely conjectural and without shred of evidence in support of his claim. We observe, and as submitted by the appellants repeatedly during the course of enquiry proceedings that they had complied with all norms of KYC prescribed under the CBLR and had also submitted to the authorities the requisite KYC documents at the time of shipment as also during enquiry proceedings ordered against them. Thus, there is sufficient force in their contentions. It is on record that the appellant submitted in each case, towards discharge of the KYC requirements, at least the following:
a) IEC number
b) GSTIN number
c) PAN number
d) A D Code number.
e) Address
Further, all the mandatory compliance field for processing of export shipping bills as required in the EDI system were duly filled by them. It be noted that the order of the adjudicating authority records as under:
“17.2 As per procedure all above from ‘a’ to ‘e’ are mandatory compliance fields for processing of export shipping bills in the EDI system as regards.
(a) IEC number: the same is uploaded digitally by DGFT on their website which also includes address, branch details if any, concerned person name etc. and can be viewed by all on DGFT portal/website.
(b) GSTN registration number are issued by Govt. of India and GST Department in the system and digitally uploaded in the system for all to verify on portal/website.
(d) PAN CARD numbers are also issued by the Govt. of India and IEC numbers and PAN card numbers are always same.
(e) D Code number are given by banker of the exporter to the Customs House and registered in the EDI system by the department.
(f) Address proof: All the documents issued by government Department and the bankers shows the same address of the exporter and we on our part has also visited the premises at the time when exporter had appointed us for the job at the address shown in documents to confirm their existence at that particular address, as shown on the authorization letter issued in our favour, and all other details were verified by us.”
14. We note that the aforesaid details (as in para 11) stated are in the nature of compulsory compliance requirements (CCRs). CCRs for processing of a shipping bill are required to be uploaded from the site of concerned Government Departments digitally and or transmitted on the shipping bill through the system, when documents are filed for processing online in the EDI system. Unless the requisite KYC documents are fed in, the system would not allow the document to be proceeded any further for processing thereof and unless the cargo declaration as per invoice are filed, no Let Export Order could have been issued. It is the case of the Customs Broker that they function on the basis of the documents submitted by the importer/exporter and it is not ordinarily possible to challenge those documents issued by the government agencies as fictitious or dubious.
15. We note that the Circulars number 02/2018 Cus dated 12.01.2018, and Circular number 09/2010 – Cus dated 08.04.2010, prescribe two documents to be furnished one for proof of identity and the other for proof of address as required for KYC verification. Having obtained copies of PAN card, Aadhaar card, GST, registration certificate, ITC certificate, ITR we are of the view tantamounts to sufficient compliance of the KYC requirements. The following table lists out exporterwise documents submitted by the appellant Customs Broker towards discharge of their KYC Obligation under Regulation 10(n), as also recorded in Para 17.4 of the impugned order.
Table of Documents Submitted:
