Custom, Excise & Service Tax Tribunal
Kotak Multilink Logistix vs Commissioner Of Customs-Mumbai - ... on 26 October, 2022
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
REGIONAL BENCH
Customs Appeal No. 85328 of 2022
(Arising out of Order-in-Original No. 121/CAC/PCC(G)/SJ/CBS(Adj) dated
10.01.2022 passed by the Principal Commissioner of Customs (General),
Mumbai)
M/s. Kotak Multilink Logistix Appellant
715, B-Wing, Damji Shamji Corporate Square,
Behind Everest Gardens, Opp. Kanara
Business Centre, Laxmi Nagar,
Ghatkopar (E), Mumbai 400 077.
Vs.
Commissioner of Customs (G), Mumbai Respondent
New Custom House, Ballard Estate, Mumbai 400 001.
Appearance:
Shri Hans Raj Garg, Consultant, for the Appellant Shri Ram Kumar Kumar, Assistant Commissioner, Authorised Representative for the Respondent CORAM:
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) HON'BLE DR. SUVENDU KUMAR PATI, MEMBER (JUDICIAL) Date of Hearing: 26.10.2022 Date of Decision: 26.10.2022 FINAL ORDER NO. A/85272/2022 PER: SANJIV SRIVASTAVA This appeal is directed against order in original No 121/CAC/PCC (G)/SJ/CBS (ADJ) dated 10.01.2022 of the Principal Commissioner of Customs (General), Mumbai. By the impugned order following has been held:
"ORDER I, Principal Commissioner of Customs (General), in exercise of the power conferred upon me under Regulation 20(7), of the CBLR, 2013 [Now Regulation 17(7) of the CBLR, 2018], pass the following order:
a. I hereby impose penalty of Rs. 50,000/- (Rupees Fifty Thousand only) on CB, M/s. Kotak Multilink Logistix (CB License No. 11/1688; PAN- APDPK3682A), under
2 C/85328/2022 Regulation 22 of the CBLR, 2013 (now Regulation 18 of the CBLR, 2018).
b. I hereby order for forfeiture of entire amount of security deposit furnished by the CB, under Regulation 18 of the CBLR, 2013 (now Regulation 14 of the CBLR, 2018). c. The CB License No.11/1688 is ordered to be revoked under Regulation 18 of the CBLR, 2013 (now Regulation 14 of CBLR, 2018).
d. The CB directed to surrender the original License as well as all the 'F', 'G' & 'H'
2. This order is passed without prejudice to any other action which may be taken. against the Customs Broker and their employees under the Customs Act, 1962, or any other act for the time being in force in the Union of India."
2.1 The appellant is a Customs Broker firm holding license No. 11/1688 (PAN- APDPK3682A) issued by Mumbai Customs under Regulation 7(1) of Customs Broker Licensing Regulations (CBLR), 2013 (now Regulation 7(2) of CBLR, 2018).
2.2 An Investigation was undertaken by Serious Fraud Investigation Office (SFIO), Ministry of Corporate Affairs, New Delhi in the matter of M/s. ABC Cotspin Pvt. Ltd. (ABCCPL), wherein the investigation was conducted under section 212(1)(c) of the Companies Act, 2013. The investigation was ordered based on the report of fraud in FMR 1 to RBI by State Bank of India , Bank of Baroda and Axis Bank Limited. These banks reported that ABCCPL committed fraud by availing export finance in lieu of submission of export bills without actually exporting any goods.
2.3 ABCCPL is a Private Limited Company owned (in majority) and controlled by Ashish Jobanputra (AJ). ABCCPL was exporting cotton since the year 2009 and mainly exporting to China under Letters of Credit (LC) and AJ looked after the export sales. AJ, with a view to avail trade credit from banks against the export documents easily, had arrangements with Customs House Agents (CHAs) to get the Checklists (Shipping Bills prior to customs formalities) and the House Bills of Lading (BLS)/Multimodal Transport Documents (MTDs) through them before completion of exports.
3 C/85328/2022 2.4 Investigation Report, pointed that the Appellant and RSS Shipping Pvt. Ltd., operating the CHA License in the name of M/s. Harin Transport and M/s. Ramesh Transport, and, issued checklists and uploaded the data on the "ICEGATE" portal of Customs Department without ensuring the receipt of merchandise at the Port. They also facilitated issuance of House Bills of Ladings (BLs) from the freight forwarding companies, namely, M/s. Seamax Logistics Limited and M/s. United Container Lines Pvt. Ltd.
2.5. The investigation revealed that ABCCPL and AJ used to submit the export documents under LCs for negotiation and discount to SBI and BOB with the checklists and the House BLs/ MTDs and before completion of underlying export shipments (i.e.) shipping bills without LEO date and Customs Department signature (which in other words is called checklist) at the time of discount. The shipping bill with the LEO date and Customs signature would be handed over to the banks at a later date on completion of shipment.
2.6. The CHAS were obtaining the House BLS/MTDs from freight forwarders before or without receipt of merchandise/handing- over merchandise and completion of Customs/export formalities (i.e. before clearance of cargo by Customs for export) and handing these documents along with Checklists (without LEO date) to ABCCPL and AJ to enable them to get the export bills discounted with the banks.
2.7 SBI and BOB accepted the export bills submitted along with the checklist for negotiation/discount without insisting for submission of shipping bill duly certified by the Customs Department and granted advances on the documents submitted at the time of granting advance i.e. negotiation/discount of the export bill. In other words, the advance against the export bills was released by the banks even before the merchandise was accepted for shipment without ensuring availability of security i.e. documents to the title of goods. Therefore, the advances were unsecured in nature till the date of completion of exports by ABCCPL.
2.8 The investigation further revealed that AJ and ABCCPL always insisted to have Checklist from CHA along with the House 4 C/85328/2022 BLS/MTDs issued by the freight forwarder with an intent to avail bank credit (which ABCCPL and its directors were not entitled to). These incomplete set of export documents were submitted to banks for negotiation/discount. The actual shipment of merchandise mostly took place at a later date and on getting the cargo cleared by the Customs Department for export, ABCCPL used to hand over the EDI copy with LEO date (Shipping Bill) duly signed by the Customs Department to the banks afterwards.
2.9 Both the CHAs and the freight forwarders knew very well the purpose of giving the Checklist along with the House BLS/MTDs to ABCCPL and AJ. They knew that AJ was using the checklist and House BL to get the export bills discounted/ negotiated with the banks.
2.10 The CHAS and the freight forwarders knowingly assisted ABCCPL and its directors, by providing false, fabricated BLS/MTDs in violation of norms, legal requirements, the rules and regulations governing the Customs formalities for exports and the relevant Acts (Customs Act and rules, Multimodal Transport Act and shipping rules).
2.11 AJ started submitting false and fabricated export documents (Invoices, House BLS/MTDs and the accompanied Checklists) for negotiation/discount from December 2013 onwards and got the export documents discounted utilizing his established practice of discounting with banks by submitting export bills with Checklists and House BLs/ MTDs. ABCCPL and AJ delayed the shipments to be made as the procurements of merchandise (Cotton) was delayed as evidenced by negative stocks in "Tally" continuously with high volumes.
2.12 The exports were not completed based on the Checklist (on completion of exports and certification by Customs, the checklist is named as Shipping Bill) used for discounting with the banks and the exports were completed at a later date through another Checklist/Shipping Bill.
2.13 This clearly established ABCCPL, AJ and other directors availed the bank funds on submitting the false/fabricated export documents at the time of discount in respect of export bills 5 C/85328/2022 wherever the shipping bill numbers were different in Customs Department's records with the shipping bill numbers given to the banks. ABCCPL and its directors were not entitled to the receipt of credit at the time of discount as the exports were not completed and the documents to title to goods (Bills of Lading) were defective (Goods were not shipped on the vessel mentioned in the House BL).
2.14 The freight forwarders and the CHAs indulged in illegal practice of issuance of House BL/MTD without receipt of merchandise. They were fully aware that these documents evidenced receipt of merchandise by them and were very well aware of the use of the same for discounting the export bills with the banks by M/s. ABCCPL. Despite knowing this fact, they neither took any corrective measures nor exercised any restraint on issuance of Checklist and the related House BL/MTD after noticing the frequent delays in shipments during the later part of 2012-13 and throughout the financial year in 2013-14. Their active involvement is established by the fact that this was not a onetime act but done frequently from later part of 2012-13 onwards.
2.15 Investigations showed that though the arrival of merchandise at the designated port of shipment slowed very much, the CHAS continued to hand over the Checklists with House BLS/MTDs to ABCCPL based on the requirement. The CHAs did not stop issuing fresh Checklists to ABCCPL, despite having lot of pending shipments for already issued Checklists.
2.16 SFIO in its investigation report, recommended the CBIC and Ministry of Shipping:
i. To study the modus operandi adopted by the company, the CHAS and freight forwarders and amend existing rules/guidelines, to prevent recurrence of such fraud through trade-based money laundering;
ii. To cancel the license of CHAS, namely, M/s. Harin Transport, M/s. Ramesh Transport and M/s. Kotak Multilink Logistix on account of involvement of fraud;
2.17 In view of the above facts, the Competent Authority found that the Appellant, indulged in the practice of issuing 6 C/85328/2022 checklist/BL without receipt of the merchandise (cotton) despite knowing the actual export never happened. They continued this practice despite knowing the fact of non-completion of exports for previously issued House BLs/MTD, they continued to issue checklists and House BLs for fresh /further invoices. The CHA never sought return of House BL/MTD from ABCCPL to prevent the misuse by them. The role of CHA is highly sceptical as they colluded with and aided ABCCPL to misrepresent before the banks for obtaining credit facilities. Therefore, the Competent Authority found that the CHA, M/s. Kotak Multilink. Logistix, have violated the obligations under Regulations 10(a), 10(b), 10(d), 10(e) 10 (m) and 10 (n), of the Customs Broker Licensing Regulations, 2018 which amounts to breach of trust and faith reposed on the CB by the Customs and appeared liable for penal action for the above mentioned acts of omission and commission.
2.18. Accordingly, Order No.37/2019-20 dated 27.08.2019 was passed by the Competent Authority wherein Customs Broker Licence No. 11/1688 (PAN No APDPK3682A) of the appellant was suspended with immediate effect. However, a personal hearing on 09.09.2019 was granted to the CHA for making any representation on their behalf on the instant matter.
2.19 Based on the above mentioned oral and written submissions made by the CHA on personal hearing dated 09.09.2019, the Pr. Commissioner of Customs (Gen), NCH, Mumbai Customs-1 has provided interim relief, pending inquiry, to the CHA, M/s. Kotak Multilink Logistix, by revoking the suspension of their license vide Order No.67/2019-20 dated 25.11.2019.
2.20 A Show Cause Notice dated 19.12.2019 has been issued to the appellant, alleging that .
i. The appellant, indulged in the practice of issuing checklist/BL without receipt of the merchandise (cotton) despite knowing the actual export never happened. They continued this practice despite knowing the fact of non-completion of exports for previously issued House BLS/MTD, they continued to issue checklists and House BLS for fresh /further invoices. The CHA never sought 7 C/85328/2022 return of House BL/MTD from ABCCPL to prevent the misuse by them. The role of CHA is highly sceptical as they colluded with and aided ABCCPL to misrepresent before the banks for obtaining credit facilities. ii. Appellant used to get the invoice from the ABCCPL by e-
mail. Accordingly, they used to prepare the checklist and make the entry of this checklist on the "ICEGATE" portal of Customs Department to get the shipping bill number. Then, ABCCPL used to contact him for getting the Bill of Lading for the checklist handed over to them. KML used to prepare the BL (first print) and check with ABCCPL that all were fine, then this was forwarded to United Containers Lines (UCL) for preparation of House BL /MTD. Mr. Hardik used to change the name of the consignee and issue fresh checklist against the same invoice.
iii. The CHA, KML, has violated the obligations under Reg.
10(d), 10(e) and 10(m), of the CBLR, 2018.
2.21 After completion of the enquiry proceedings wherein the enquiry officer exonerated the appellant of all the charges framed against him, the competent authority issued a disagreement memo to the appellant and undertook to adjudicate the show cause notice. The competent authority adjudicated the show cause notice as per the impugned order referred in para 1 above. Aggrieved appellant have filed this appeal.
3.1 We have heard Shri Hans Raj Gupta, Consultant for the Appellant and Shri Ram Kumar, Assistant Commissioner, Authorized Representative for the revenue.
3.2 Arguing for the appellant learned consultant submits:
on record order No. 02/AT/Commr/Cus/2020 dated 25.11.2020 passed by the Commissioner of Customs, Nagpur in case of Customs Broker, M/s. Harin Transport, wherein in respect of the same investigation, the said appellant has been acquitted.
On record the tribunal decision in the case of Ramesh Transport Company [2022 (5) TMI 877 - CESTAT Mumbai] wherein second person who has been indicted by the SFIO 8 C/85328/2022 in same investigation for the same charges has been acquitted.
Since the entire proceedings against the appellant have arisen out of the same investigation and for the same offence, there should be no discrimination in the treatment of the two as has been held by the Tribunal in the case of Niraj Prasad reported at 2019 (11) TMI 436 and of Hon'ble Supreme Court in the case of Damodar J. Malpani reported at [2002 (9) TMI 114 (SC)].
Damodar J. Malpani case has also been relied upon by the tribunal in the case of Ramesh Transport Company Accordingly he prays that the order of the Commissioner, Nagpur be made applicable in their case also.
3.3 Arguing for the revenue learned authorized representative while reiterating the findings recorded in the impugned order submits that:
It is settled law that time limits contained in the CBLR are directory only as held in the following cases:
o Unison Clearing P Ltd [2018 (361) ELT 321 (Bom)] o Rizvi Shipping Agency [2019 (368) ELT 850 (Bom)] o Srinivas Clearing and Shipping [2022 (380) ELT 60 (Bom)] Not allowing the cross examination of Hardik Shah will not be fatal to the proceedings;
o Kanungo & Co [1983 (13) ELT 1486 (SC)] o Fortune Impex [2001 (138) ELT 556 (T-Kolkata)] 4.1 We have considered the impugned order along with the submissions made in the appeal and during the course of argument.
4.2 Impugned order records as following for holding against the appellant:
"46. I find that the investigation conducted by SFIO, inter-alia, revealed that i. M/s. ABCCPL (the exporting firm) connived with CHA, M/s. Kotak Multilink Logistix (11/1688), and other CHAS and freight forwarding companies to conceal the facts that the exports of merchandise did not take place at 9 C/85328/2022 the time of negotiation/availment of bank finance on export bills and presented the documents as if the exports had taken place. By doing so, M/s. ABCCPL induced the banks to grant advance against the export bills by negotiation/discount (crediting of funds. into the account) and committed the act of "Cheating".
ii. As per statements of Shri Hardik Shah, the CHA, and authorised signatory of M/s. Kotak Multilink Logistix, dated 11.07.2016 and 27.07.2018, it is clear that M/s. KML used to get the invoice from the ABCCPL by e-mail. Accordingly, they used to prepare the checklist and make the entry of this checklist on the "ICEGATE" portal of Customs Department to get the shipping bill number. Then, ABCCPL used to contact him for getting the Bill of Lading for the checklist handed over to them. KML used to prepare the BL (first print) and check with ABCCPL that all were fine, then this was forwarded to United Containers Lines (UCL) for preparation of House BL /MTD. Mr. Hardik used to change the name of the consignee and issue fresh checklist against the same invoice. It is also accepted by Mr. Hardik Kotak that the checklist was handed over to ABCCPL before making the entry in Customs Portal. It is also accepted that the House BLs were issued by United Containers Lines (UCL) containing the words "cargo received for shipment" without actually receiving the cargo. The data of shipping bill numbers given at the time of discount of export bills to the banks and the data of shipping bill numbers obtained from Customs in respect of many export consignments / invoices were completely different and this proved that the exports were not taking place as per the documents given to banks (Bill of lading giving the details of shipping bill numbers and date of shipment).
iii. In his statements, Mr. Hardik, the CHA and authorised signatory of M/s. Kotak Multilink Logistix also stated that Mr. AJ told him that on submission of House BLs and checklists given by them, AJ would get money from the bank. Therefore, the CHA had full knowledge that 10 C/85328/2022 AJ/ABCCPL was availing bank finance through negotiation of export bills against the submission of the Checklists and House BLs/MTDs arranged by them. Despite having this full knowledge of wrongful availment of bank finance/credit, they continued issuing checklists based on the fresh invoices of ABCCPL. They even continued, blatantly, issuing fresh checklists when in November/December, 2014 the shipments for which Checklists/BLs were issued as far back as May/June 2014 were still pending (not completed even after expiry of six months).
47. The CB had placed reliance on a list of judgements, however, the ratio of those judgements are not relevant in the instant case. In the instant case, it is evident from above facts that the CHA/CB was very much aware of the false/fabricated nature of the documents viz. Checklists, House BLS/MTDs provided by/through them to the Exporter and the wrongful availment of credit by the Exporter (AJ/ABCCPL) from the banks using the Checklists, House BLS/MTDs provided by/through them. Therefore, it is a case of deliberate failure and in-fact connivance of the CB with the Exporter. Hence judgements cited by the CHA/CB in their support are not applicable in the instant case in spirit and in rem.
48. The CHA vide its submissions stated that the SCN issued on 19.12.2019 was time barred as it was not issued within a period of 90 days from the issuance of the SFIO Investigation Report. In this matter, the ratio of the Hon'ble High Court of Judicature at Bombay in the case of Principal Commissioner of Customs (General), Mumbai Vs. Unison Clearing Pvt. Ltd. reported in 2018 (361) E.L.T. 321 (Bom.) is fairly applicable. It which stipulates that:
...15. In view of the aforesaid discussion, the time limit contained in Regulation 20 cannot be construed to be mandatory and is held to be directory.
I rely on the above cited judgement and hold that the timelines stipulated under the CBLR, 2018 are directory rather than mandatory in the instant case and therefore, the SCN dated 11 C/85328/2022 19.12.2019 and the charges alleged in the said SCN are tenable in-terms of the time limits.
49. I now examine the charges alleged in the above mentioned SCN sequentially:
i. I find that the CHA, M/s Kotak Multilink Logistix, failed to advise his client for filing of Shipping Bill for the checklists they have generated and complete their export obligations. They, instead, continued to issue checklists and House Bill of Ladings for fresh/further invoices despite knowing the fact that exports for previously issued House BLs/MTD was still pending. Further, the BLS for exports provided to the Exporter by the CHA were stamped as "Shipped on Board" even though corresponding the exports did not happen. The CHA again failed to advice its client on this non-compliance/ wrongful act and did not bring the matter to the department I rely on the case law, M/s Eagle Transport Services Vs Commissioner of Customs Mumbai reported in 1997 (096) ELT 0469 (T-Bom),as under;
"A Custom House Agent has a significant role to play in the clearance of goods through Customs and Port Trust. Such clearance involves application of either specialised laws and detailed procedures often conduct complexed. It is not possible for every layman to have the requisite knowledge and the time to personally undertake such clearances. It is for this reason that Custom House Agents have been licensed. The Regulations of 1984 provide for stringent conditions to be fulfilled before a person is appointed as licensee. The applicant must be financially sound. He must have experience of clearance through Customs. Before he is granted permanent licence he has to qualify an examination in which his knowledge of relevant procedures is vested. Regulation 14 places various obligations on a Custom House Agent. The object of these to ensure that the Custom House Agent acts honestly and efficiently in the conduct of his business. It is not difficult to foresee the consequences that would aim the Custom House Agent does not co-act in such a manner. The Custom House Agent makes various representations before the Custom 12 C/85328/2022 House on behalf of the importer and exporter relating to the nature of the goods conditions under which they were imported their value etc. The statements that he makes and the information that he provide are crucial for assessing the goods to duty and deciding whether the import is prohibited or not. The Custom House Agent thus can the status of a professionally qualified person akin to an advocate, Chartered Accountant or number of other professions which requires a minimum standards of knowledge for minimum standards of conduct. If the Custom House Agent acts negligently or dishonestly, the Custom House can be defrauded money due to the Government, and in good faith permit import or export of prohibited goods. The damage done to innocent importers by misleading their documents for such purposes by Custom House Agent would be enormous".[ Para 7] In view of the aforesaid case law, it is clear that the clearance of goods involves application of specialized laws and detailed procedures; that for this reason that Custom Broker have been licensed. Therefore, having the full knowledge of false/fabricated documents provided by them to the Exporter and wrongful availment of export credits/discounting from Banks by the Exporter (AJ/ABCCPL), the CB cannot delink or distance himself from the obligations under Regulations to advice his client to work within the purview of the law and to bring the matter to the notice of Dy./Asst. Commissioner of Customs of such wrongful act committed by its client. On the basis of above facts, I find that the CB has failed to advise his client thereby failing to fulfill the obligation of regulation 10(d) of CBLR, 2018.
ii. I note that it is a recorded fact that, the CHA failed to verify the credentials of his client; that the CHA neither restricted the Freight Forwarder or the exporter for wrong doing nor informed the department about the misuse of checklists, House BLS/MTDS. Further, it is observed that the Customs Broker instead of exercising due diligence colluded with and aided M/s ABCCPL to misrepresent before banks for obtaining credit facilities. The CHA clearly, knowingly aided and abetted the offence and facilitated the same through deliberate layering of intermediaries as he was part of the gang of fraudsters. It is 13 C/85328/2022 clearly evident that the CHA deliberately processed the checklist without exercising due diligence to ascertain correctness of the information and impart the same to the exporter. Despite knowing this fact, they neither took any corrective measures nor exercised any restraint on issuance of Checklist and the related House BL/MTD after noticing the frequent delays in shipments during the later part of 2012-13 and throughout the financial year in 2013-14. Their active involvement is established by the fact that this was not a onetime act but done frequently from later part of 2012-13 onwards. Thus, it is clear that the CB has deliberately not carried out obligation cast on him so as to feign innocence later. Hence, he concluded that the CB has intentionally violated the provisions of Regulation 10(e) of CBLR, 2018.
iii. I observe that the CHA contended in their submissions that they were not aware that a Checklist would be used for discounting of export bills with banks as they had neither such advance knowledge of modus operandi of ABCCPL nor they had been. accused of the same. The CHA further contended that their role was limited to generating checklists and examination of cargo if arrived at the port of shipment. The submissions of the CHA does not appear to be sustainable. The Freight Forwarders and CB indulged in illegal practice of issuance of House BLs/MTDs without receipt of merchandise. As per the statements of Mr. Hardik (CHA and the Authorised Signatory of the CHA), they were fully aware of the use of the documents generated by them for discounting of the export bills with the banks by AJ/ABCCPL. Further, they were also aware that the checklist generated on the basis. of invoice and packing list gets purged in system after 15 days, as per the prevailing guidelines, if the exports are not made by the exporters and on expiry of such shipping bill number a fresh shipping bill number has to be filed. The CHA, M/s. Kotak Multilink Logistix, indulged in practice of issuing checklists and continued this practice despite knowing the fact that actual exports were not happening. They never verified the non-completion of exports for previously issued House BLs/MTDs, rather, they continued to issue checklists for fresh invoices. The CHA never sought return of House BLs/MTDs from ABCCPL to prevent misuse by them. The BLs for exports 14 C/85328/2022 which never happened were wrongly stamped as "Shipped on Board". Further, it is observed that, had the CHA asked for return of BLS/MTDs issued on the basis of checklists generated by them, further misuse of checklists and wrongly stamped BLS could be stopped. Therefore, this act on the part of CHA proved to be far from being efficient as the CHA failed to use requisite knowledge and skill in the instant case to be a reliable CHA under the Regulations. Therefore, I find that the CB has failed to fulfill its obligation under Regulation 10(m) of CBLR. 2018.
50. Ratio of the Hon'ble Tribunal judgement in the case of Rubal Logistics Pvt. Ltd. Vs. Commr. Of Cus. (General), New Delhi reported in 2019 (368) E.L.T. 1006 [Tri. - Del.] is fairly applicable in the present issue. The relevant para 6.1 of the said judgement are as under:
" 6.1 These provisions require the Customs Broker to exercise due diligence to ascertain the correctness of any information and to advice the client accordingly. Though the CHA was accepted as having no mens rea of the noticed misdeclaration/under- valuation or mis-quantification but from his own statement acknowledging the negligence on his part to properly ensure the same, we are of the opinion that CH definitely has committed violation of the above mentioned Regulations. These Regulations caused a mandatory duty upon the CHA, who is an important link between the Customs Authorities and the importer/exporter. Any dereliction/lack of due diligence since has caused the Exchequer loss in terms of evasion of Customs Duty, the original adjudicating authority has rightly imposed the penalty upon the appellant herein.".
Further, the Hon'ble Supreme Court in the case of Commissioner of Customs V/s. K. M. Ganatra and Co. in civil appeal no. 2940 of 2008 approved the observation of Hon'ble CESTAT Mumbai in M/s. Noble Agency V/s. Commissioner of Customs, Mumbai that:
"A Custom Broker occupies a very important position in the customs House and was supposed to safeguard the interests of both the importers and the Customs department. A lot of trust is kept in CB by the Government Agencies and to ensure made under CBLR, 2013 and therefore rendered themselves liable for penal action under CBLR, 2013 (now CBLR, 2018)"
15 C/85328/2022 I rely on the above cited judgements and hold that in the instant case, CHA/CB, M/s. Kotak Multilink Logistix (CB No. 11/1688) has advertently violated the trust and obligations required to be carried by them in terms of the Regulations made under CBLR, 2018 and therefore rendered themselves liable for penal action under CBLR, 2018."
4.3 We also note that in para 37 of the impugned order, report of enquiry officer exonerating the appellant of all the charges has been reproduced. The same is reproduced below:
"37. The Inquiry Officer, Mr. Ashok Kumar, submitted fresh Inquiry Report dated 18.05.2021, wherein, in respect of the alleged violation/charges it was particularly reported that
1. Article of Charge-I: Regulation 10 (d) of the CBLR, 2018 states that "A Customs Broker shall 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;
(i) It is not mentioned in the SCN as to what advice the CB was supposed to offer to ABCCPL and AJ. ABCCPL and AJ were old clients of the CB and prior to the fraud committed by them on the Banks were genuine exporters of cotton to China. They were well versed and experienced in the Customs procedure.
(ii) It is also not forthcoming from the SCN as to whether the CB had given any wrong advice to ABCCPL and/or AJ.
(iii) Also no evidence of knowledge of collusion of the CB about the mis- representation by ABCCPL or AJ before the Banks for discounting of the false so- called export documents.
(iv) Further, no violation of the provisions of the Customs Act, 1962 or any allied Acts. by ABCCPL and/or AJ is alleged.
Therefore, the charge of violation of Regulation 10 (d) of the CBLR, 2018, not proved.
16 C/85328/2022
2. Article of Charge-II: Regulation 10(e) of the CBLR, 2018 states that "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;
(i) The Inquiry Officer in his report submitted that, he did not find anything in the SCN which gives evidence that the CB has failed on this count.
(ii) The CB prepared the Check Lists on the basis of documents received from ABCCPL/AJ and after preparing, the CB shared the Check Lists with ABCCPL for verification as per normal practice in this regard.
(iii) Further, in this matter, the CB has issued only Check Lists and no cargo has been handled by them. Therefore, the question of non-exercise of due diligence to ascertain the correctness of any information imparted with reference to any work related to clearance of any cargo does not arise.
(iv) "Furnishing of wrong or incorrect information cannot be attributed to the CB if it was innocently filed in the belief and faith that its client has furnished correct information and verifiable documents. The mis-declaration would be attributable to the client if wrong information were deliberately supplied to the CB. Hence there could be no guilt, wrong, fault or penalty on the appellant apropos the contents of the shipping bills," as held by Hon'ble Delhi High Court Order in the case of M/s Kunal Travels (Cargo) Vs Commissioner of Customs (Import & General) New Customs House, IGI Airport, New Delhi reported in 2017 (3) TMI 1494 - DELHI HIGH COURT.
Therefore, the charge of violation of Regulation 10(e) of the CBLR, 2018, not proved.
3. Article of Charge-III: Regulation 10(m) of the CBLR, 2018 states that "-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 sees by using reliable independent, authentic documents, data or information;
(i) The Inquiry Officer in his report submitted that there is no evidence marshalled in the SCN to support this 17 C/85328/2022 charge. There was no complaint from any client of the CB, much less from ABCCPL or AJ to this effect.
Therefore, the charge of violation of Regulation 10(m) of the CBLR, 2018, not proved.
Hence, the Inquiry Officer in his report dated 18.05.2021 held that all of the three charges alleged in the SCN are "Not Proved"."
4.4 Impugned order also records the details of the disagreement memo issued by the Competent authority disagreeing with the inquiry report. Same is reproduced below:
"38. A Disagreement Memo dated 03.09.2021, wherein, the Competent Authority opined that the Inquiry Report dated 18.05.2021 has failed to bring out the facts of non- completion of export for previously issued House BLS/MTDs. Also it is clear that, the CHA, KML, knew the fact that exports have not been taken place for already issued House BLs/MTDs and the exporter was continuously asking for fresh checklist. Strangely it did not raise suspicion in the mind of an experienced Customs House Agent (now Customs Broker).
39. The Competent Authority disagreed with the findings of Inquiry Report dated 18.05.2021 on the following grounds:
i. From the investigation report it is observed that M/s.
ABCCPL (the exporting firm) connived with CHA, M/s. Kotak Multilink Logistix (11/1688), and other CHAs and freight forwarding companies to conceal the facts that the exports of merchandise did not take place at the time of negotiation/availment of bank finance on export bills and presented the documents as if the exports had taken place. By doing so, M/s. ABCCPL induced the banks to grant advance against the export bills by negotiation/discount (crediting of funds into the account) and committed the act of "Cheating". I also find that, as per statements of Shri Hardik Shah, the CHA, and authorised signatory of M/s. Kotak Multilink Logistix, dated 11.07.2016 and 27.07.2018, it is clear that M/s. KML used to get the invoice from the ABCCPL by e- mail. Accordingly, they used to prepare the checklist and make the entry of this checklist on the 18 C/85328/2022 "ICEGATE" portal of Customs Department to get the shipping bill number. Then, ABCCPL used to contact him for getting the Bill of Lading for the checklist handed over to them. KML used to prepare the BL (first print) and check with ABCCPL that all were fine, then this was forwarded to United Containers Lines (UCL) for preparation of House BL /MTD. Mr. Hardik used to change the name of the consignee and issue fresh checklist against the same invoice.
ii. It is also accepted by Mr. Hardik Kotak that the checklist was handed over to ABCCPL before making the entry in Customs Portal. It is also accepted that the House BLs were issued by United Containers Lines (UCL) containing the words "cargo received for shipment" without actually receiving the cargo. The data of shipping bill numbers given at the time of discount of export bills to the banks and the data of shipping bill numbers obtained from Customs in respect of many export consignments/ invoices were completely different and this proved that the exports were not taking place as per the documents given to banks (Bill of lading giving the details of shipping bill numbers and date of shipment).
iii. It has been mentioned in the Inquiry report that, it is not forthcoming from the SCN as to whether the CHA, KML, had given any wrong advice to ABCCPL and/or Mr. Ashish Jobanputra and also as to what advice the CHA, KML, was supposed to offer to ABCCPL and AJ. It is also mentioned in the Inquiry report that, ABCCPL and Mr. Ashish Jobanputra were old clients of the CHA, KML, and prior to the fraud committed by them on the Banks were genuine exporters of cotton to China.
40. The Competent Authority dis-agreed with the finding of the inquiry report that the CHA has fulfilled the obligation of regulation 10(d) of CBLR, 2018. He found that, the CHA, M/s Kotak Multilink Logistix, failed to advise his client for filing of Shipping Bill for the checklists they have generated despite knowing the fact that of non- completion of exports for previously issued House BLS/MTD, they continued to issue checklists and House Bill of Ladings for fresh /further invoices.
19 C/85328/2022 The CB cannot delink distance himself from this attempted undue availment of export credits/discounting of export bills from the obligations cast upon him under the Regulations under which he is required to function. On the basis of above facts, I find that the CB neither advised his client nor the matter was brought to the notice of Dy./Assistant Commissioner of Customs and thus have failed to advise his client(ABCCPL) thereby failing to fulfill the obligation of regulation 10(d) of CBLR, 2018.
41. He noted that it is a recorded fact that, the CHA failed to verify the credentials of his client; that the CHA neither restricted the Freight Forwarder or the exporter for wrong doing nor informed the department about the misuse of checklists, House BL/MTDS. Further it is observed that the Customs Broker instead of exercising due diligence, colluded with and aided M/s. ABCCPL to misrepresent before banks for obtaining credit facilities. The CHA clearly, knowingly aided and abetted the offence and facilitated the same through deliberate layering of intermediaries as he was part of the gang of the fraudsters. It is clearly evident that the CHA deliberately processed the Checklist without exercising due diligence to ascertain the correctness of the information and impart the same to the exporter. Despite knowing this fact, they neither took any corrective measures nor exercised any restraint on issuance of Checklist and the related House BL/MTD after noticing the frequent delays in shipments during the later part of 2012-13 and throughout the financial year in 2013-14. Their active involvement is established by the fact that this was not a onetime act but done frequently from later part of 2012-13 onwards. Thus, it is clear that the CB has deliberately not carried out obligation cast on him so as to feign innocence later. Hence, he concluded that the CB has intentionally violated the provisions of Regulation 10(e) of CBLR, 2018.
42. To respect of violation of Regulation 10 (m) of the CBLR, 2018, he observed that, the CHA contended that they were not aware that a checklist would be used for discounting of export bills with banks as they had neither such advance knowledge of modus operandi of M/s ABCCPL nor they had been accused of the same. The CHA further contended that their role was limited 20 C/85328/2022 to generating checklist and examination of cargo if arrived at the port of shipment. The submissions of the CHA does not appear to be sustainable. The Freight Forwarders and CB indulged in illegal practice of issuance of House BLS/MTDs without receipt of merchandise. They were fully aware of the use of the documents generated by them for discounting of the export bills with the banks by ABCCPL and that the checklist generated on the basis of invoice and packing list gets purged in system after 15 days as per the prevailing guidelines, if the exports are not made by the exporters and on expiry of such. shipping bill number a fresh shipping bill number has to be filed. The CHA, M/s. Kotak Multilink Logistix (CB License No.11/1688), indulged in practice of issuing checklists and continued this practice despite knowing the fact that actual exports were not happening. They never verified the non-completion of exports for previously issued House BLs/MTDs, rather, they continued to issue checklists for fresh invoices. The CHA never sought return of House BLs/MTDs from ABCCPL to prevent misuse by them. The BLS for exports which never happened were wrongly stamped as "Shipped on Board". Further, it is observed that, had the CHA asked for return of BLs/MTDs issued on the basis of checklists generated by them, further misuse of checklists and wrongly stamped BLs could be stopped. Therefore, this act on the part of CHA proved to be far from being efficient as the CHA failed to use requisite knowledge and skill in the instant case to be a reliable CHA under the Regulations. Thus, the Competent Authority, disagreed with the findings in the Inquiry Report dated 18.05.2021 that the CHA has fulfilled the obligation of regulation 10(m) of CBLR, 2018.
43. From the foregoing discussion, the Competent Authority concluded that that there appears to be failure on the part of CHA in discharging the obligations cast upon them under Regulation 10(d), 10 (e), and 10(m) of CBLR, 2018."
4.5 Adjudicating authority has in para 49 of the order recorded his findings on the charges leveled against the appellant in respect of the contravention of the provisions of the 10 (d), 10
(e) and 10 (m) of the CBLR 2018.
21 C/85328/2022 4.6 Kolkata Bench has in the case of M K Saha & Co [2021 (376) E.L.T. 534 (Tri. - Kolkata)] has held as follows:
Regulation 10(d)
13. This regulation requires the Customs Broker to advise his client to comply with the provisions of the Act, other allied acts and rules and regulations thereof, and in case of non-
compliance, bring it to the notice of the Assistant Commissioner or Deputy Commissioner of Customs. The case of the Revenue is that the appellant did not advise its client (exporter) to comply with the provisions and has actively assisted the exporter in fraudulent activities and tried to cover up their misdeeds by wrong interpretation. It has also been alleged that the container was stuffed by the exporter in the presence of the Customs Broker. We do not find anything on record to establish what the appellant has or has not advised its clients. Even if the goods were stuffed in the presence of the Customs Broker, the goods were examined and samples were also drawn by the Customs officers who, thereafter, allowed provisional export of the goods. Evidently, after whatever, enquiries, tests, etc. which may be necessary are conducted, the assessments will have to be finalized. After the provisional assessment was done which appears to have not been appealed against and hence still valid, DRI intervened and examined the same goods again and came to a different conclusion that the goods were heavily overvalued with a fraudulent intent to claim ineligible drawback. Simply because DRI came to a different conclusion in an export which was already provisionally assessed, it does not mean that the exporter had committed a fraud and that the appellant Customs Broker has colluded with the exporter in such a fraud. At any rate, valuation of the goods is to be done by the exporter (self assessment) or proper officer (re-assessment). We do not find anything remotely in the Customs Act, Rules and Regulations which gives the Customs Broker any power with respect to valuation of imported or export goods. We, therefore, find that there is no evidence to establish that appellant has violated Regulation 10(d).
22 C/85328/2022 Regulation 10(e)
14. This regulation requires the Customs broker to exercise due diligence to ascertain the correctness of any information which he imparts to a client with reference to any work related to clearances of cargo or baggage. In the impugned order, learned Principal Commissioner held that 'on scrutiny of the offence report, documents recovered and statements of Shri Babul Dey, Shri M K Saha and Shri Sumit Saha, it appears that the Government revenue would not have suffered, if the Customs broker had exercised due diligence to exhaustively scrutinize the documents of the exporters, which they failed to do. Thus, prima facie, indicated that the CB has not exercised due diligence to impart necessary and correct information". He further observed "it is apparent that the CB was aware of the poor quality of the goods and also its low value, being their authorised person, Shri Somnath Das visited the godown of M/s. Skivvies textile at Salt Lake..." We find that the learned Principal Commissioner has misread the provision of this clause. It only requires the Customs Broker to exercise due diligence to ascertain the correctness of information which he imparts to his client. In this case, the client is the exporter and we do not find anything in the allegation, let alone any evidence that the appellant has provided any incorrect information to the exporter. There is no evidence or even an allegation that the appellant customs broker had provided to the exporter any wrong information regarding any laws, procedures, instructions or anything else. The entire case of the DRI was the exporter has overvalued the goods. We, therefore, find that the appellant has not violated Regulation 10(e) of CBLR, 2018.
15. This regulation requires the Customs broker 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. The case of the Revenue is that in his statement to the officers of DRI under section 108, Shri M. K. Saha, proprietor of the appellant Customs Broker said that Shri Sumit Saha, Proprietor of M/s Skivves Textiles came to his office and submitted the KYC 23 C/85328/2022 and export documents. On the other hand, Shri Sumit Saha, stated that other persons arranged the Customs Broker. Thus, it appears that the appellant Customs Broker has not verified the KYC and export documents and has violated Regulation 10(n). We find that the identity and functioning of the exporter was not in doubt and in fact, the officers have recorded the statement of the exporter. It has also been alleged in the SCN and the impugned order that the Customs Broker was present at the time of stuffing of the container at the exporter's godown. The only allegation is that there is a discrepancy between the statement of the appellant Customs Broker (who said that the KYC and export documents were given to him by the exporter at his office) and the statement of the exporter (who said that the Customs Broker, i.e., the appellant, was arranged through some other persons). We do not find anything in Regulation 10(n) that mandates how the documents should be handed over by the exporter/importer to the client. All that is required is that the KYC documents must be received and verified to ensure the identity of the client which is not in doubt even according to the SCN itself. Therefore, the charge of violation of Regulation 10(n) against the appellant Customs Broker cannot sustain.
In our view the findings recorded by the Inquiry officer in the inquiry report submitted by him are in line with the findings recorded by the Kolkata Bench in this order. Hence we are not inclined to hold any of the charges in respect of the contravention of Regulation 10 (d), 10 (e) and 10 (m) of the CBLR 2018.
4.7 Further we also take note of the fact that three CHA's were indicted by the SFIO in their investigation report made against ABCCPL, namely Harin Transport, Ramesh Transport Company and the Appellant for the same offence of issuance of checklist for export of cargo without the receipt of cargo. The proceedings initiated against M/s Harin Transport were dropped by the Commissioner Nagpur vide his Order No 02/AT/Commr/Cus/2020 dated 25.11.2020 and that order has been accepted by the department. The proceedings against M/s Ramesh Transport Company [2022 (5) TMI 877 - CESTAT 24 C/85328/2022 Mumbai] were dropped by the coordinate bench, holding as follows:
4.3 It is an admitted fact that the appellant has issued the checklists to the exporters. Even investigation report recorded that ABCCPL owned and controlled by Shri Ashish Jobanputra was exporting cotton since the year 2009 mainly to China under Letter of Credit. Since ABCCPL was a regular exporter exporting goods since 2009, they did not find any difficulty in getting the export documents for availing the fraudulent export credits from the Banks. These documents have been issued by M/s. RSS Shipping Pvt. Ltd. who was operating the CHA licence in the name of M/s. Ramesh Transport Co. (the appellant herein) and M/s. Harin Transport.
4.4 Proceedings were initiated against the appellant and also Custom Broker, M/s. Harin Transport. After considering the same set of evidence and investigation, the Commissioner at Nagpur has dropped the entire proceedings against M/s. Harin Transport.
In para 7.8 of his order, the Commissioner has observed as follows:
"7.8. I find that the SCN relies upon the statement of Shri Sanjeev Verma, Director of M/s. RSS Shipping Pvt. Ltd. recorded by SFIO under the provisions of the Companies Act, 2013. I find the only witness is not consistent in his statement as at one point he stated that the CB authorized him orally to use his CB Licence and afterwards he stated that CB firm is not aware of the fraudulent action took place with Bankers with help of Checklists. In this regard, the Charged CB vehemently denied that they never authorize Shri Verma to use their CB licence and submitted that their authorized employees were looking after the clearance work at Mundra Part To substantiate their stand, the CB firm provided details of the employees posted at Mundra Port and provided copies of their I-Cards issued by Customs Authorities As far as knowledge of fraud, the Charged CB submitted that they perform their duties under the framework of CBLR, 2018 and the Customs Act, 1962 and it is not in their control to monitor what the exporter is
25 C/85328/2022 doing with the Checklists forwarded to them through E- Mails."
4.5 In para 11 of the impugned order, reproduced above, the only ground on which the Commissioner proceeded against the appellant is that Shri Ramesh Mange had not met or contacted ABCCPL while filing the checklists for export in their name and has thus allowed his CB licence to be used by M/s. RSS Shipping Pvt. Ltd. which was involved in uploading the shipping bill data prepared by them on ICEGATE portal. On the basis of above, the Commissioner concluded that the evidence on record clearly indicated that the Customs Broker was working in a manner to facilitate fraud and had violated the obligation casted upon them under the CBLR,2018.
4.6 On the same set of evidences, two different findings have been recorded by the Commissioners at Nagpur and Mumbai. In our view, such a discrimination which leads to revocation of licence of one Customs Broker and permits them to operate without any hindrance is nothing but discrimination contrary to Article 14 of the Constitution.
4.7 In the decision referred to by the appellant in the case of Damodar J. Malpani [2002 (9) TMI 114-SC], the following have been held:-
"3. It appears from the records that several letters were written by the appellants to the Excise Authorities requesting that a sample of the appellants' product may be chemically analysed at the appellants' cost for the purpose of determining whether the appellants' product or process in any way differed from the product and process of M/s. Chandulal K. Patel and Company. However, the Excise Authorities decided against the appellants without heeding such request. On 4-8-88 a decision was taken by the Assistant Collector to classify the appellants' product under Tariff Heading 24.04. On 11-8-88 a sample of the appellants' product was taken by the respondents but returned within one week without testing on the ground that the issue was being finalised by the Assistant Collector. In the appeal preferred to the Collector, the appellants again raised the issue specifically that the 26 C/85328/2022 process followed by and the product of the appellants were identical with that of M/s. Chandulal K.P. Patel and Company and that the appellants product should be similarly classified under Heading 24.01. While upholding the decision of the Assistant Collector, the Collector did not consider this aspect of the matter at all. The point was again taken specifically in the appellants' appeal before the Customs, Excise and Gold (Control) Appellate Tribunal. The Tribunal however dismissed the appeal and said : "The appellants have stated that some of the manufacturers who were producing similar goods, were not paying any excise duty on their production. These matters are not before us and it is neither possible nor desirable for us to deal with these matters. Suffice it to say that each and every case has to be examined in the light of our above observations, and it is for the competent Central Excise Officers to come to correct decisions in consonance with the principles of uniformity, equity and justice".
4. It is difficult to understand the reasoning of the Tribunal. The least that the Tribunal could have done in the interest of 'uniformity' was to call upon the Revenue Authorities to explain why they were making a distinction between the appellants product and that of M/s. Chandulal K. Patel without subjecting the appellants' product to any chemical analysis.
5. In their appeal from the decision of the Tribunal before us the appellants have again raised the issue that the Tribunal should have considered the fact that the appellants and Chandulal K. Patel & Co's products were identical and were the outcome of an identical process, and that since the latter had been exempted from paying any central excise duty on the ground that their product was classifiable under Tariff Heading 24.04, the appellants should get the same benefit.
6. At the hearing today we sought an explanation from the learned Counsel appearing on behalf of the Revenue Authorities as to why different stands had been taken in the cases of M/s. Chandulal K. Patel & Company and the 27 C/85328/2022 appellant. Since the matter had not been squarely dealt with on facts at any stage by any of the authorities below, it was not possible for learned Counsel to give us the reasons for drawing this distinction between the two manufacturers and differently classify what were alleged to be materially the same product.
7. In the circumstances we deem it appropriate to set aside the order of the Tribunal and remand the matter back to the Tribunal for considering whether the product and process followed by M/s. Chandulal K. Patel & Co. is the same as that of the appellants. For the said purpose, the Tribunal will send a sample of the appellants' product for the chemical analysis if not already done. The Tribunal will thereafter consider the question of classification of the appellants' product having regard to the classification of 'Karta Chhap Zarda' the chemical analysis report and any other material that may be placed before it by the respective parties."
4.8 Further the procedure for export starts with filing of checklists on ICEGATE portal. If the same is not backed by the proper shipping bill within 15 days, the checklist gets purged. It is not understood how the issuance of checklist by the Customs Broker was a fraud under the Customs Act. Even if the same was an offence under some other Acts, the appellant needs to be tried in terms of those Acts and should not have been inflicted with the punishment sought to be inflicted in terms of CBLR, 2018."
4.8 It is also interesting to note that in all the three case of Harin Transport, Ramesh Transport Company and the Appellant were exonerated by the inquiry officer of the charges of the contravention of Regulation 10 (d), 10 (e) and 10 (m). Competent authority in Nagpur had agreed with the inquiry report whereas in the case in Mumbai competent authority disagreed and proceeded to adjudicate and revoke the licence issued under CBLR, 2018. In our view Competent Authority should be more objective and judicious while exercising their jurisdiction in such matters as it affects livelihoods not of one person but of many.
28 C/85328/2022 5.1 Appeal is allowed.
(Order pronounced in the open court) (Sanjiv Srivastava) Member (Technical) (Dr. Suvendu Kumar Pati) Member (Judicial) tvu