H2O Logistics Vs Principal Commissioner of Customs (CESTAT Mumbai)
CESTAT Mumbai held that revocation of Customs Broker license unjustified as punishment suffered by being out of Customs broker business for about two years is enough to mitigate case of violations or contraventions of CBLR, 2018.
Facts- The appellant is a Customs Broker (CB). In an investigation initiated by Special Intelligence and Investigation Branch (SIIB) of Air Cargo Complex (ACC), Mumbai, a case was registered against one importer M/s M.S. Trading Company, Delhi, who had imported ‘hearing aids’ by over valuation of imported goods for the purpose of money laundering. In connection with such imports, SIIB investigation noted that the appellants CB had filed Bill of Entry and thus were involved with certain violations of CBLR, 2018.
On the basis of such offence report, jurisdictional Principal Commissioner of Customs (General), Mumbai-I had concluded that there is a prima facie case against the appellant for having contravened Regulations 10(d), 10(e) and 10(n) of CBLR, 2018. Accordingly, the said Principal Commissioner of Customs, had suspended CB license of the appellants under Regulation 16(1) of CBLR, 2018, with immediate effect. Further, after giving a post-decisional opportunity of personal hearing to the appellants, the said Pr. Commissioner of Customs continued the suspension order pending inquiry proceedings to ascertain full extent of the role of CB.
A show cause notice was issued to the appellants for initiating inquiry proceedings under Regulations 17 of CBLR, 2018, against violations of CBLR, 2018 due to failure of the appellants to comply with Regulations 10(d), 10(e) and 10(n) of CBLR, 2018 and to appear before the Inquiry Authority. Further, the Principal Commissioner of Customs (General), Mumbai-I, being the licensing authority under Regulations 14 ibid had passed the impugned order for revoking CB License of the appellants and, at the same time, forfeited the entire amount of security deposit and imposition of penalty of Rs.50,000/-, while ordering for surrender of original license as well as all the “F”, “G” & “H” cards issued therein to the appellants. Feeling aggrieved with the impugned order, the appellants have preferred this appeal before the Tribunal.
Conclusion- Held that the Customs broker has already suffered a lot, as they were out of his normal business for almost 2 years. It is also noted that the livelihood of Customs broker and the employees is dependent upon the functioning of Customs brokers business. The punishment suffered by being out of Customs broker business for about two years is enough to mitigate case of violations or contraventions of CBLR, 2018.
It is factually incorrect to state that the appellants had for their acts of omission and commission in dealing with importer in overvaluation of imported goods have failed to adhere to the responsibilities expected in terms of Regulations 10(d), (e) and (n) of CBLR, 2018. Thus, we find that the conclusions arrived at by the Principal Commissioner in the impugned order is contrary to the factual position and thus it is not legally sustainable.
FULL TEXT OF THE CESTAT MUMBAI ORDER
This appeal has been filed by M/s H2O Logistics (herein after, referred to as ‘the appellants’), holders of Customs Broker License No.11/1789 – AAAPT5352NCH001 assailing Order-in-Original CAO No. 71/CAC/PCC(G)/PS/ CBS(Adj.) dated 12.02.2021 (herein after, referred to as ‘the impugned order’) passed by the learned Principal Commissioner of Customs (General), New Custom House, Ballard Estate, Mumbai-1.
2.1. Briefly stated, the facts of the case are that the appellant herein is a Customs Broker (CB) holding a regular CB license issued by the Mumbai Customs under Regulation 7(2) of Customs Brokers Licensing Regulations (CBLR), 2018. In an investigation initiated by Special Intelligence and Investigation Branch (SIIB) of Air Cargo Complex (ACC), Mumbai, a case was registered against one importer M/s M.S. Trading Company, Delhi, who had imported ‘hearing aids’ by over valuation of imported goods for the purpose of money laundering. In connection with such imports, SIIB investigation noted that the appellants CB had filed Bill of Entry (B/E) No. 5001004 dated 30.01.2018, and thus were involved with certain violations of CBLR, 2018 and the same was informed to the jurisdictional Principal Commissioner of Customs (General), New Custom House, Mumbai-I by sending an offence report/letter in F. No. SIIB(I)/Gen-100/2017-18 ACC(I) dated 22.02.2019 along with Show Cause Notice (SCN) dated 19.02.2019.
2.2. On the basis of such offence report received from SIIB, ACC, Mumbai, jurisdictional Principal Commissioner of Customs (General), Mumbai-I had concluded that there is a prima facie case against the appellant for having contravened Regulations 10(d), 10(e) and 10(n) of CBLR, 2018. Accordingly, the said Principal Commissioner of Customs, had suspended CB license of the appellants under Regulation 16(1) of CBLR, 2018, with immediate effect vide Order No. 90/2018-19 dated 22.03.2019. Further, after giving a post-decisional opportunity of personal hearing to the appellants on 05.04.2019, the said Pr. Commissioner of Customs continued the suspension order pending inquiry proceedings to ascertain full extent of the role of CB by issue of an Order No.11/2019-20 dated 10.05.2019.
2.3. It is found that consequent to the above, a show cause notice No.10/2019 dated 10.05.2019 was issued to the appellants for initiating inquiry proceedings under Regulations 17 of CBLR, 2018, against violations of CBLR, 2018 due to failure of the appellants to comply with Regulations 10(d), 10(e) and 10(n) of CBLR, 2018 and to appear before the Inquiry Authority. Further, it is also found that upon completion of the inquiry, a report was submitted on 28.07.2020, and the Principal Commissioner of Customs (General), Mumbai-I, being the licensing authority under Regulations 14 ibid had passed the impugned order dated 12.02.2021 for revoking CB License of the appellants and, at the same time, forfeited the entire amount of security deposit and imposition of penalty of Rs.50,000/-, while ordering for surrender of original license as well as all the “F”, “G” & “H” cards issued therein to the appellants. Feeling aggrieved with the impugned order, the appellants have preferred this appeal before the Tribunal.
3.1. Learned Counsel for appellants contends that the impugned order has not taken into account the inquiry report wherein all charges against the appellants have been dropped by Inquiry Officer. However, a Disagreement Memo issued by the Pr. Commissioner of Customs claimed that the appellants have failed to advise the importer about the requirement of valuation as per Section 14, failed to declare the goods as ‘unbranded’, have taken no effort to ascertain the value of goods and without verifying whether the imported goods are branded/unbranded have simply filed the bills of entry. Further, it also alleged that the appellants have not verified the KYC norms and they did not meet the importer. He further submits that each of the above allegations of violation of Regulation 10(d), 10(e) and 10(n) ibid, have been countered by them. In respect of Regulation 10(d), they state that the appellants CB have always advised his clients to comply with the provisions of Customs law; they were not aware of the overvaluation of the imported goods. The request for first check assessment was made by the appellants CB and it is only during such examination, the department itself came to know about overvaluation of goods. Hence, the intention of CB is bonafide and there is no false declaration of value; as there is no specific brand name and there is no requirement to declare unbranded nature, and thus he claimed that the appellants are not at fault and it cannot be said that they have violated Regulations 10(e). They also submitted that the appellants CB had verified the antecedents of the importer to the best of their capability by obtaining KYC documents such as IEC, PAN, Bank certified letter for registered address of importer, account held with Indian bank and verification of signature of the proprietor. Hence they claimed that there is no relevancy of the fact that the Customs broker did not physically verify the presence of importer/IEC, and the same had caused the violations under CBLR, 2018.
3.2. In support of their grounds the appellants cited the following decisions:
(i) Anax Air Services Pvt. Limited Vs. Commissioner of Customs (Airport & General), New Delhi – Final Order No.50002/2022 dated 03.01.2022
(ii) Commissioner of Customs (Airport & General), New Delhi Vs. CRM Logistics Private Limited – Final Order No.52053-52054/2021 dated 03.12.2021.
In view of the above, they requested that impugned order be set aside and consequential relief be granted to them.
4. Learned Authorised Representative (AR) reiterated the findings made by the Principal Commissioner of Customs (General) in the impugned order and submitted that each of the violation under sub-regulations (d), (e) and (n) of Regulation 10 of CBLR, 2018 has been examined in detail by the Principal Commissioner. Thus he justified the action of the Principal Commissioner of Customs (General) in revocation of the appellant’s CB license, imposition of penalty and forfeiture of security deposit in the impugned order and stated that the same is sustainable in law. He had also submitted the following case laws in support of their stand:
(i) AB Consultants Vs. Commissioner of Customs (Gen.) – 2015 (330) E.L.T. 273 (Tri. – Mumbai)
(ii) Commissioner of Customs Vs. K.M. Ganatra & Co. – 2016 (332) E.L.T. 15 (S.C.)
(iii) Principal Commissioner of Customs (General), Mumbai Vs. Unison Clearing P Ltd., – 2018 (361) E.L.T. 321 (Bom.)
5. Heard both sides and perused the case records.
5.1. The issue involved herein is to decide whether the appellant Customs Broker has fulfilled all his obligations as required under sub-regulations of CBLR, 2018 or not. The specific Regulations which were violated by the appellants as mentioned in the impugned order are Regulations 10(d), 10(e) and 10(n) of CBLR, 2018, and hence there are three distinct charges framed against the appellant. Though in the initial Inquiry Report dated 28.07.2020 all the charges are concluded as liable to dropped by the Inquiry Officer, after issue of Disagreement Memo dated 16.10.2020 and upon determination of these charges as proved, the impugned order has been issued.
5.2 We find that the Regulation 10 of CBLR 2018, provide for the obligations that a Customs Broker is expected to be fulfilled during their transaction with Customs in connection with import and export of goods. These are as follows:
“Regulation 10. Obligations of Customs Broker: –
A Customs Broker shall –
…….
(d) advise his client to comply with the provisions of the Act, other allied Acts and the rules and regulations thereof, and in case of 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;
(e) exercise due diligence to ascertain the correctness of any information which he imparts to a client with reference to any work related to clearance of cargo or baggage;
….
(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;”
5.3. We also find that the Principal Commissioner of Customs on the basis of the conclusion arrived in the impugned order, that as the appellant Customs broker did not have any interaction with their clients and thus there was no possibility of the CB to advise the clients to comply with the provisions of the Customs Act; as the appellants CB declared B/E of high value of imported goods without verifying the valuation aspect and without insisting on the declaration of brand, has held that the CB had violated the provision of Regulation 10(d) ibid. Similarly, on the account of the appellants CB had limited knowledge regarding valuation of imported goods; and that they did not take any effort to ascertain the genuineness of the importer through authentic and reliable means as per CBLR, 2018, had held that the appellants CB had violated Regulations 10(e) and 10(n) of CBLR, 2018.
6.1. We find from the factual matrix of the case, that the Bill of Entry No. 5001004 dated 30.01.2018 for imported goods was declared by the appellant customs broker on the basis of commercial invoice for import goods No.AF/015 dated 18.01.2018 that was given by the importer, wherein the description of the goods were mentioned as “Hearing Aid (High Quality Grade AAA+) HS Code: 90214090” with the unit price being declared as “USD $3650”. Accordingly the appellants CB had declared the description of the imported goods and value in the bill of entry exactly matching with the details as given in the invoice supplied by the importer. It is a fact on record in the impugned order that the imported consignment was examined by concerned Customs Appraising Group–5 ‘B’ on first check basis as requested by the appellants CB and after perusing representative sealed samples. In terms of standard procedures laid down under the Customs, the examination of imported goods may be carried out either under ‘First Check Appraisement’ basis wherein the goods are firstly examined before its assessment and returned back to the Appraising Group for assessment and payment of duty by the importer; or under ‘Second Check Appraisement’ basis where the goods are examined subsequent to assessment and payment of duty. The relevant paragraphs dealing with the above examination procedure as per Customs Manual, 2018, is extracted below:
“4. Examination of goods:
4.1 The imported goods, which are interdicted for examination by the RMS, are required to be examined for verification of correctness of description/ declaration given in the Bill of Entry and related documents. The imported goods may also be examined prior to assessment in cases where the importer does not have complete information with him at the time of import and requests for examination of the goods before assessing the duty liability or, where the proper officer, on reasonable belief feels that the goods should be examined before assessment, giving reasons for the same. Wherever required, samples are drawn in the examination area for chemical analysis, verification or any other purposes.
4.2 After assessment by the appraising group or for cases where examination is carried out before assessment, bill of entry needs to be presented for registration for examination of imported goods in the import shed. The proper officer of customs examines the goods along with requisite documents. The shipments, found in order are given clearance order by the proper officer of customs in the Import Shed.”
Further, the appellants CB were not aware of the brand of the imported goods as there was no such mention in the invoice. Precisely, for this reason the appellants CB had sought for examination of the goods on First Check basis by submitting the request to the Customs Appraising Group.
6.2. It is also a fact that the Customs Appraising Group–5 ‘B’ upon perusal of the samples had come to a reasonable belief that the imported goods are of inferior quality and the value declared is not commensurate with the goods. Thus, a detailed inquiry was initiated on the above basis by SIIB (Import), ACC. We find that this particular fact itself brings out clearly that the examination of the imported goods for proper assessment of its value, based on brand, quality, other features of hearing aid was made at the request of the appellants CB. Further, the alleged mis-declaration of the imported goods in terms of its ‘brand name’ and ‘value’ could only be established if the declaration in the Bill of entry is different from the commercial invoice or other supporting documents. It is noticed from the factual details of the case, that the declaration made in the Bill of Entry is the same as that is provided in the Commercial invoice, and in the absence of any document to prove the claim of mis-declaration, it is difficult to fasten such liability on the appellants CB.
6.3. From the above, we find that appellants have duly filed the bill of entry as per the documents given by the importer and they were not aware of the mis-declaration of value of the goods. As there is no specific brand name of the imported goods, nothing was mentioned and it could not be said that ‘unbranded’ needs to be mentioned. In the instant case the mis-declaration was found by the department after physical examination and market inquiry of the goods, and hence the appellants CB cannot be found fault that he did not advise his client to comply with the provisions of the Act. Further, as such mis-declaration was not known to the appellants CB, and when they had specifically sought for examination of the goods under First Check basis, the non-compliance by the importer of declaring the correct value of the goods, could not have been brought to the notice of the Deputy Commissioner of Customs or Assistant Commissioner of Customs by the appellants, as the Appraising group itself got a reasonable belief of incorrect value only after examination of goods and perusal of samples. Thus, we are of the considered view that the violation of Regulation 10(d) ibid, as concluded in the impugned order is not sustainable.
6.4. Learned Principal Commissioner of Customs (General) had come to the conclusion that the CB had violated the provision of Regulation 10(e) ibid, as they filed bill of entry for high value of imported goods without verifying the valuation aspect and without insisting on the declaration of brand name by the importer. In this regard, we find that the two particulars which are discussed in the impugned order which have not been verified for its correctness by the appellants are the ‘brand name’ and ‘value of goods’. It is nowhere mentioned in the impugned order that there is any legal requirement of mentioning of ‘brand name’ for the purpose of assessment of goods under the Customs Act, 1962 or any other law and there was a failure on the part of the appellants in this regard. We find that the definition of the term ‘assessment’ under the Customs Act, 1962 during the relevant time of imports did not mention any such requirement; even the amended definition under Section 2(2) ibid, which came into force on 29.03.2018, which is subsequent to the event of imports in the present case, only mentions about quantity, weight, volume, measurement or other specific factor which affects the duty as the reference details in respect of imported goods to be considered for assessment of imported goods. If the imported goods are prescribed with certain specified rate of duty or exemption has been granted to imported goods, depending upon whether they carry a ‘brand name’ or ‘unbranded’, then there may be a need to determine this aspect. It is also a fact that in the present case, the imported goods did not carry any brand and the customs duty is not determined based on whether it is ‘branded’ or ‘unbranded’. Hence, we find that there is no question of declaring ‘unbranded’ as one of the requirement for the purpose of customs assessment and there is no failure on the part of appellants in this regard in not mentioning the detail that the imported goods are ‘unbranded’ in the bill of entry.
6.5. Further, in order to examine on the aspect of valuation of imported goods, and whether the appellants had failed to exercise any due diligence or not, the legal requirement as per the Customs Act, 1962 and the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 made thereunder could be examined. The extract of the above legal provisions are as follows:
“Section 14. Valuation of goods. –
(1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be
specified in the rules made in this behalf:”
“Rule 11. Declaration by the importer . –
(1) The importer or his agent shall furnish –
(a) a declaration disclosing full and accurate details relating to the value of imported goods; and
(b) any other statement, information or document including an invoice of the manufacturer or producer of the imported goods where the goods are imported from or through a person other than the manufacturer or producer, as considered necessary by the proper officer for determination of the value of imported goods under these rules.
(2) Nothing contained in these rules shall be construed as restricting or calling into question the right of the proper officer of customs to satisfy himself as to the truth or accuracy of any statement, information, document or declaration presented for valuation purposes.
(3) The provisions of the Customs Act, 1962 (52 of 1962) relating to confiscation, penalty and prosecution shall apply to cases where wrong declaration, information, statement or documents are furnished under these rules.
Rule 3. Determination of the method of valuation . –
(1) Subject to rule 12, the value of imported goods shall be the transaction value adjusted in accordance with provisions of rule 10;
(2) Value of imported goods under sub-rule (1) shall be accepted:
Provided that –
(a) there are no restrictions as to the disposition or use of the goods by the buyer other than restrictions which –
(i) are imposed or required by law or by the public authorities in India; or
(ii) limit the geographical area in which the goods may be resold; or
(iii) do not substantially affect the value of the goods;
(b) the sale or price is not subject to some condition or consideration for which a value cannot be determined in respect of the goods being valued;
(c) no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made in accordance with the provisions of rule 10 of these rules; and
(d) the buyer and seller are not related, or where the buyer and seller are related, that transaction value is acceptable for customs purposes under the provisions of sub-rule (3) below.
(3) (a) Where the buyer and seller are related, the transaction value shall be accepted provided that the examination of the circumstances of the sale of the imported goods indicate that the relationship did not influence the price.
(b) In a sale between related persons, the transaction value shall be accepted, whenever the importer demonstrates that the declared value of the goods being valued, closely approximates to one of the following values ascertained at or about the same time.
(i) the transaction value of identical goods, or of similar goods, in sales to unrelated buyers in India;
(ii) the deductive value for identical goods or similar goods;
(iii) the computed value for identical goods or similar goods:
Provided that in applying the values used for comparison, due account shall be taken of demonstrated difference in commercial levels, quantity levels, adjustments in accordance with the provisions of rule 10 and cost incurred by the seller in sales in which he and the buyer are not related;
(c) substitute values shall not be established under the provisions of clause (b) of this sub-rule.
(4) if the value cannot be determined under the provisions of sub-rule (1), the value shall be determined by proceeding sequentially through rule 4 to 9.”
From the above, we find that the appellants CB has declared the value of imported goods as given in the commercial invoice, which is the transaction value. Further, submitting the declaration form (GATT valuation declaration) in terms of Rule 11 above, is primarily the responsibility of the importer and in case of proper authorization being given by them, then by the agent of that importer. In the present case, it is not in dispute that there was any such mis-declaration in the declaration form or in the value particulars declared in the bill of entry as compared to the commercial invoice. Further, any exercise in re-determination of value other than the transaction value has to be adopted step-by-step on the basis Rule 3 ibid, and after rejection of transaction value as per Rule 12 ibid. We do not find any such evidence or fact indicating that there was a mis-declaration of value and the value was re-determined as per the above legal provisions. There is only a mention that the market inquiry was conducted by the department and it revealed that the actual value of the consignment is Rs.15,000/- as against declared value of Rs.59,79,521/-. We find that such an allegation at the show cause notice stage and later at the findings stage in the impugned order requires factual details or evidence to state that there was mis-declaration and the same is attributable to the appellants CB, in order to invoke the violation of due-diligence having not been undertaken by the appellants. We find no such evidence and on the contrary the declaration made in the bill of entry corresponds to the value declared in the commercial invoice. Thus, we find that the conclusion arrived by the Principal Commissioner of Customs (General) in the impugned order that the appellants have violated Regulation 10(e) ibid is not sustainable.
6.6. We find from the records, that the appellants have verified the existence of the importer through the certificate of Importer-Exporter Code issued by the Ministry of Commerce, DGFT indicating the name of the importer along with address, name of the proprietor; letter of Indian bank certifying the Signature nature of the proprietor of the importer firm, the maintaining of current account held by importer with their bank, bank statements and Permanent Account Number (PAN) card of the proprietor.
6.7. We find that CBIC had issued instructions in implementing the KYC norms for verification of identity, existence of the importer/exporter by Customs Broker in Circular No. 9/2010-Customs dated 08.04.2010, the extract of the relevant paragraph is as given below:
“(iv) Know Your Customs (KYC) norms for identification of clients by CHAs:
6. In the context of increasing number of offences involving various modus-operandi such as misuse of export promotion schemes, fraudulent availment of export incentives and duty evasion by bogus IEC holders etc., it has been decided by the Board to put in place the “Know Your Customer (KYC)” guidelines for CHAs so that they are not used intentionally or unintentionally by importers/exporters who indulge in fraudulent activities. Accordingly, Regulation 13 of CHALR, 2004, has been suitably amended to provide that certain obligations on the CHAs to verify the antecedent, correctness of Import Export Code (IEC) Number, identity of his client and the functioning of his client in the declared address by using reliable, independent, authentic documents, data or information. In this regard, a detailed guideline on the list of documents to be verified and obtained from the client/customer is enclosed in the Annexure. It would also be obligatory for the client/customer to furnish to the CHA, a photograph of himself/herself in the case of an individual and those of the authorised signatory in respect of other forms of organizations such as company/trusts etc., and any two of the listed documents in the annexure.
