Revocation of Customs Broker licence as exporters untraceable during subsequent verification unjustified

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:

16. In view of above it is categorical to note that the learned Commissioner has recorded in his adjudication order below the table in para 17.4 that the Customs Broker is in possession of KYC documents, alongwith Authorisation Letters from each of the subject fifteen exporters.

17. Despite aforesaid, categorical assertion by the Adjudicating Authority, it is observed that for no wonton reason the learned Commissioner affixes the Customs Broker with the charge of failure of their duties, and responsibilities. In Para 17.4 the Adjudicating Authority records as under :

“17.4(d) As per the Inquiry Report of the Inquiry Officer, I also find that the CB has failed to provide any evidence to suggest that they verified the existence of the exporters over phone and got the authorization for filing of Shipping Bills over phone or mail, let alone undertaking physical verification as claimed by the CB before handling the impugned consignments. Since all of the subject 15 exporters have been found to be untraceable eventually, the claim of the CB regarding their verification prior to handling of consignments cannot be accepted or refuted conclusively.

e. In view of above, I find that although the CB is in possession of the requisite KYC documents and Authorization letters of the subject 15 exporters, as mandated under CBLR, 2018, read with CBIC Circulars No. 02/2018-Cus dated 12.01.2018 & Circular No. 09/2010-Cus dated 08.04.2010, the CB has not been able to provide any evidence regarding the verification, viz. Identity of their client and functioning of their client at the declared address, done by them before handling the impugned export consignments. The Customs Broker is created as link between Customs authorities and the exporters/importers with an object of facilitating the clearances at Customs. Therefore, they are supposed to safeguard the interests of both the Customs as well as the importers/exporters. Had the CB been diligent in their actions, which is expected out of them, the department would not have suffered the loss of revenue which it did.

f. I also find that quantum of punishment has to be proportionate with the gravity of the proved acts of misconduct or infraction. In the instant matter, licence of the CB is suspended from 30.07.2021 till date. I also find that the CB has not been able to produce any evidence about causing physical verification of the premises of the 15 exporters. Also, the CB has not submitted copy of old emails whereby he had received the KYC documents from the 15 exporters. The CB has not been able to persuade the exporters to refund back the IGST to the Department. Neither did the CB inform the Department about vanishing/un-traceability of exporters at any stage nor report the whereabouts of these 15 exporters. Government has lost Rs. 8.04 crore through fraudulent IGST Refund. Also, in their defence, the CB has not been able to obtain the BRC in respect of 121 Shipping Bills to prove that the 15 exporters had got the forex remittance into the country, albeit they were found to be untraceable. All these factors lead me to infer that the CB has played a pivotal role in defrauding of Government revenue by sanction of Rs. 8.04 Crore as IGST refunds in respect of 121 Shipping Bills. It is simply not possible that an exporter can cheat/hoodwink Customs without active involvement/consultancy provided by the Customs Broker.”

18. Thus, the Ld. Adjudicating Authority arrived at a finding that there is no reason to disagree with the Inquiry Report received on 28.12. 2021 and therefore ordered, the revocation of the Customs Brokers License. In support of his proposition, the learned Adjudicating Authority also cites the decision of the Hon’ble Supreme Court in the case of Commissioner of Customs vs. KM Ganatra( CA No. 2940 of 2008), to state as indicated in discussions supra.

19. We are deeply anguished by the impugned order passed by the Ld. Adjudicating Authority merely on surmises and conjectures. While the issue is no more res integra and has been dwelt extensively by this Tribunal in the case of (i) Perfect Cargo and Logistics vs. Commissioner of Customs, New Delhi (Final Order No. 50347/2022. (ii) Mauli Worldwide Logistics v. Commissioner, Customs (Airport & General), New Delhi, Final Order No.50561/2022, the fact remains that the Ld. Commissioner has observed at more than one place in the impugned order that the Customs Broker had in his possession, the requisite KYC documents and also tendered the same to the authorities at the time of hearing of the case and during the course of enquiry.

20. As far as revenue loss on account of IGST, is concerned, nothing in the CBLR, even remotely suggests that it is the responsibility of the Customs Broker to ensure its realisation. The Customs Broker has no real role to play in availment or payment of IGST. To pass on this burden as a responsibility on the Customs Broker is simply hypothetical wishful and beyond the parameters of law.

21. Regulation 10(n) merely requires the Customs Broker to verify the correctness of Importer Exporter Code, (IEC) number, Goods and Service Tax Identification number at the declared address by using reliable independent authentic documents, data or information. Obviously, this responsibility does not extend to physically going to verify the premises of each of the exporters to ensure that they are functioning at the premises. When a Government Officer issues the certificate bearing registration number with an address, it is not for the Customs Broker to sit in judgement over such a certificate. The Customs Broker cannot be faulted for trusting the certificates issued by the various government bodies/department. It is a different matter, if the documents are not authentic and are forged by the Customs Broker or the Customs Broker had reason to believe that the said documents were not truthful and their veracity was in doubt. The Customs Broker is only a processing agent of documents with respect to a document submitted to him. The Hon’ble Delhi High Court in the case of Kunal Travels (Cargo) Vs. CC (I&G), IGI Airport, New Delhi 2017 (354) ELT447 Del. has held that

“The CHA is not an inspector to weigh the genuineness of the transaction. It is a processing agent of documents with respect of clearance of goods through Customs House and that process only such authorised personnel of the CHA can enter the Custom House area.—— It would be far too onerous to expect the CHS to enquire into and verify the genuineness of the ID code given to it by client for each import export transaction. When such code is mentioned, there is a presumption that an appropriate background check in this regard that is the KYC would have been done by the customs authority.”

22. The appellant has relied upon the registration certificate issued by the appropriate authority, it is an error of the authority issuing registration, if and when the firm does not exist. There is nothing on record to indicate the role of the Customs Brokers in getting the various certificates issued. It is particularly noteworthy that all the documents referred for substantiation of the KYC are all issued by government organisations. Unless, all the officers of various organisations who issued the registration and the necessary documents, either acted fraudulently or carelessly in connivance with the Customs Broker, the letter cannot be faulted upon. The Customs Broker is neither omniscient nor omnipotent. The Customs broker is not concerned with to ensure that the documents issued by the various organisations were issued correctly. If they were issued wrongly, the fault lies with the authorities issuing such certificate, and registrations, and not with the Custom Broker. It is not for the Custom Broker to needlessly doubt the government issued IDs and registration numbers. The broker cannot be faulted for believing in them.

23. The Customer Broker in terms of regulation 10(n) of the CBLR, is obligated to verify the correctness of the IEC 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 merely cannot be pleaded that the IEC code which is issued by the DGFT, the GST number, the PAN which is issued by the Department of Revenue, CBIC & CBDT respectively, have all been done with collusion and for enabling the exports. The fault for any wrong doing revenue loss thus does not befall upon the Customs Broker.

24. In the case of Mauli Worldwide, Logistics vs. Commissioner, Customs New Delhi (Airport & General), No. 50561/2022 dated 04.07.2022 in the Tribunal held as under :

“17 It is undisputed that the GSTIN, PAN, IEC, and other documents obtained by the appellant as a part of the KYC were genuine documents and were issued by the officers concerned. In our considered view, if the GSTIN is issued by te officers to persons who did not exist at the time of verification it could mean that the officers have issued GSTIN to non-existent firms or that they had subsequently either stopped operating from that address or that they had moved from that place and have not changed the address. In any of these scenarios, if the GSTIN was issued by the departmental officers to such a large number of non-existent persons, it shows either the lack of any due diligence on the part of the officers or an inherently flawed system of issuing GSTIN. The appellant cannot be faluted for trusting the GSTIN issued by the department.

18. Similarly, if the importer-exporter code⁶ issued by the Director General of Foreign Trade⁷ is wrongly issued to non-existent businesses and entities, the appellant connot be blamed for trusting the IEC issued by the DGFT. Similar is the case with respect to other documents such as PAN card (issued by the Income Tax Department). When a document is issued by a Government authority, it is reasonable to presume it to be valid. It is not open to the appellant to question the issue of these documents and as a Customs Broker to sit in judgement over the decisions of these officers. If the verification reports are true and none of the exporters existed at their premises, the irresistible conclusion is that all these officers of various departments have been either extremely careless or were operating under flawed system which allowed documents to be issued to non-existing business.

19. It would have been a different matter if the documents produced by the appellant were fake or forged and were not issued by the officers. Such is not the case. In fact, the entire investigation by DGARM was initiated based on the GSTIN issued to various assesses as available in its system. Therefore, there is no possibility of the GSTIN being not issued by the department because it was extracted from its own system. Similarly, the Importer-Exporter Code (IEC) is an essential field for filing any Shipping Bill in the Customs EDI system and we find it unbelievable that an IEC not issued by the DGFT would be accepted by the Customs EDI system. Since the GSTIN is PAN based, the PAN must have also been issued by the Income Tax Department. It is a different matter if the Customs Broker files export documents in the name of ‘A’ when the goods are actually being exported by ‘B’ or produces forged documents. Such is not the such as GSTIN, IEC, PAN card, etc. were issued by the concerned authorities which were obtained by the appellant as a part of KYC.

20. Despite the appellant obtaining and producing various documents issued by various Government authorities as a part of KYC and producing additional documents before the Commissioner during the proceedings, since a large number of exporters were found to be non-existent at the addresses, the Commissioner inferred and held that the appellant had not fulfilled its obligations under Regulation 10(n) of CBLR, 2018.”

25. It may also be likely, that all the authorities who issued the above documents had issued them correctly and thereafter, by the time of verification, situation may have changed. If so, it may be a ground for starting a fresh investigation but certainly not a ground to suspend/cancel the licence of the Customs Broker who processed the exports. It is not the responsibility of the Customs Broker to physically visit each exporter and verify the existence of each exporter at all locations, let alone, keeping a track of the exporter in case they move address. To a query from the Bench as to how the appellant Customs Broker can be faulted when they relied on the IEC, GST Registration and other documents, all issued by the Government and if the exporters did not exist at all of the premises how were the said documents issued by several Government officers, there were no clear answers emanating. If the officers are not mandated to ensure that the exporter(s) exist and are functioning from the known premises the Customs Broker cannot be so mandated, in the least. The scope of the obligations of the Customs Broker under Regulation 10(n), requires them to verify the correctness of Importer Exporter Code (IEC) number, Goods 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.

26. Thus, in terms of Regulation 10(n), any of the three methods viz. document, data or information can be employed by the Customs Broker to establish the identity of their client. It is not necessary that the Customs Broker are required to collect information or launch an investigation. So long as there are documents which are independent, reliable and authentic to establish the identity of the client, this obligation is fulfilled. Documents such as GSTIN, IEC and PAN card are all such documents as prescribed.

27. 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.

28. Under the circumstances that none of the documents entertained by the Customs Broker obtained for KYC, have been indicated to be fictitious and not genuine, we find that the Customer Broker has not violated Regulation 10(n) of CBLR with regard to the said fifteen exporters.

29. We, therefore, hold 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.

30. In view of our discussion above, we are of the view that the Ld. Commissioner’s Order cannot be sustained and is required to be set aside.

31. We, therefore, dismiss the order of the lower authority and allow the appeal with consequential relief/benefits, as per law.

(Pronounced in open court on…21.08.2023….)

Notes

1. The Regulations

2. The Act