Delhi High Court - Orders
Hlpl Global Logistics Pvt. Ltd vs The Commissioner Of Customs (Acc ... on 22 November, 2023
Author: Yashwant Varma
Bench: Yashwant Varma
$~35 & 36
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CUSAA 327/2018 , CM APPLs. 55275-76/2023
HLPL GLOBAL LOGISTICS PVT. LTD. ..... Appellant
Through: Mr. Faraz Anees, Advocate.
Versus
THE COMMISSIONER OF CUSTOMS (ACC IMPORT)
NEW CUSTOMS HOUSE, NEW DELHI. ..... Respondent
Through: Mr. Harpreet Singh, Senior
Standing Counsel with Mr.
Jatin Kumar Gaur and Mr.
Gurpreet Singh Gulati,
Advocates.
36
+ CUSAA 328/2018
ASHOK SHARMA ..... Appellant
Through: Mr. Faraz Anees, Advocate.
Versus
THE COMMISSIONER OF CUSTOMS (ACC IMPORT)
NEW CUSTOMS HOUSE, NEW DELHI. ..... Respondent
Through: Mr. Harpreet Singh, Senior
Standing Counsel with Mr.
Jatin Kumar Gaur and Mr.
Gurpreet Singh Gulati,
Advocates.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MS. JUSTICE SHALINDER KAUR
CUSAA 327/2018 & 328/2018 Page 1 of 11
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ORDER
% 22.11.2023
1. These two appeals preferred by the Custom House Agent ["CHA"] and a Director of the said entity, have been filed against the order dated 08 November 2018 passed by the Customs, Excise and Service Tax Appellate Tribunal ["CESTAT"] upholding the levy of penalties upon the appellants. The appeals came to be laid before the CESTAT pursuant to the levy of penalty of Rs. 10 lakhs and Rs. 5 lakhs respectively on the appellants in terms of the Order-in-Original dated 27 October 2017 passed by the Principal Commissioner of Customs, Air cargo complex (Import), New Customs House, New Delhi ["Commissioner"].
2. The proceedings against the appellants were commenced based upon a Show Cause Notice ["SCN"] dated 29 January 2015. The said proceedings were founded on a report submitted by the Directorate of Revenue Intelligence ["DRI"] with respect to an investigation conducted in respect of import of rough diamonds by M/s Neotex Exim Pvt. Ltd. The Order-in-Original had ultimately come to hold that the declared value as submitted by the importer had been over- valued with an intent to remit foreign exchange in excess of what would have otherwise been permissible. The Bills of Entry ["BOE'] relating to import had been handled by the appellants. Proceedings against the appellants appear to have been drawn in consequence to the respondent finding that that the importer was not carrying on business as per the details submitted in the course of KYC verification and wrong particulars having been submitted for the purposes of Importer Exporter Code ["IEC"] registration.
3. It was the case of the respondents that the appellants had failed CUSAA 327/2018 & 328/2018 Page 2 of 11 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/11/2023 at 21:29:51 to discharge their obligations under the Customs House Agents Licensing Regulations, 2004 ["CHALR, 2004"] and more particularly those set forth in Regulation 13. This conclusion was based on a purported failure of the appellants to have undertaken a physical verification of the the address particulars declared by the importers and appearing in their IEC registration.
4. The Order-in-Original returns the following findings against the appellants:
"27.20 The CHA, i.e. M/s. HLPL and its Director Ashok Sharma (Noticees 4 & 5) have claimed that the allegations levelled against them in the SCN were false. They submitted that they had obtained KYC alongwith documents and verified the same as per CBLR 2013 read with CBEC circular. Physical verification of premises of personal meeting with importer is not legally required. Thereafter, in the very next Para they submit that the firm existed at the declared address. Both the statements are conflicting in themselves. How were they sure that the firm existed at the very same address declared by them when they had not done any Physical Verification. Even in statement dated 21.01.2015 of Sh. Vivek Sharma, employee of HLPL, it had been stated that when he went to collect the documents, Sh. Uday Bhagat asked him to come in a street at Fatehpuri, where he was standing before a building which did not have any sign board or bear a number. I find that the enquiries conducted on 13.01.2015 at the declared residential premises of Sh. Uday Bhagat and Sh. Sunder Prakash Sharma, Directors of M/s Neotex Exim Pvt. Ltd. revealed that they were not residing at the declared addresses. I further find that the enquiry conducted on 14.01.2015 at the office premises declared in the IEC of the importer revealed that no firm/business enterprises in the name and style of M/s Neotex Exim Pvt. Ltd. existed at the given address and the enquiries conducted at the declared residential premises of Sh. Sunder Prakash Sharma, revealed that the said address was either incomplete/fictitious. I find that the CHA had failed to verify the functioning of his client at the declared address by using reliable, independent, authentic documents, data or information. I find it to be a grave mistake on the part of CHA. Keeping in view this, it emerges that M/s. HLPL Global Logistic has failed to verify the KYC norms and its employee meeting with the Director of the importer in a street in front of a building having no sign board establishes the connivance of M/s HLPL Global Logistics Pvt. Ltd. Accordingly, I hold that the CHA was involved in the whole act of fraud and colluded with the importer. This act of CUSAA 327/2018 & 328/2018 Page 3 of 11 This is a digitally signed order.
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On a due consideration of the above, the appellants came to be imposed with penalties of Rs. 10 lakhs and Rs. 5 lakhs respectively. Insofar as M/s HLPL Global Logistics Pvt. Ltd. ["M/s HLPL"] is concerned, the penalty came to be imposed with the invocation of Section 114AA of the Customs Act, 1962 ["Act"].
5. Aggrieved by the aforesaid, the appellants approached the CESTAT which has in terms of the order impugned upheld the view taken by the Commissioner. While negating the challenge as raised by the appellants the CESTAT has observed as follows:
"8. Regarding the following of the KYC norms by the appellant, we find that the statement of Shri Vivek Sharma letter dated 21.1.2025, the employee of M/s HLPL, has stated that when he went to collect the documents, Shri Uday Bhagat asked him to come in a street at Fatehpuri, wherein he was standing before a building which did not have any sign board or bear a number. It is seen from the adjudication order that the declared residential premises of Shri Uday Bhagat and Shri Sunder Prakash Sharma, the Directors of M/s Neotex Exim Pvt. Ltd. that they were not residing at the declared premises. The adjudicating authority also found that the IEC of the importer revealed that no firm/business enterprises in the name of M/s Neotex Exim Pvt. Ltd. existed at the given address and the enquiries conducted at the declared residential premises revealed that the said address was incomplete or fictitious. Under the circumstances, we are in agreement with the finding of the ld. Adjudicating authority that CHA helps not properly verified the functioning of the client from at the declared address by using reliable independent and authenticate documents. This was a serious lapse on part of the CHA in verifying the KYC before taking up the Custom clearance of consignment of rough diamonds imported by M/s Neotex Exim Pvt. Ltd. The appellants, considering the nature of the imported goods i.e. rough diamond, would have exercised more vigilant approach before taking up the consignment for Customs clearance after verification of KYC norms of the importer, which has not been done in this case. It is stated by the ld. Advocate that the order of the adjudicating authority has failed to discuss the various case law and their relevance in the case at hand. We find that the adjudicating authority has dealt with each and every case law cited CUSAA 327/2018 & 328/2018 Page 4 of 11 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/11/2023 at 21:29:52 by them at length and concluded that those are not relevant in the fact and circumstances of the present case."
6. Learned counsel for the appellants has questioned the correctness of the view as expressed in terms of the impugned order asserting that no obligation stands placed upon a CHA to independently or physically verify the correctness of the address particulars of a specific importer. It was contended that once the IEC particulars as furnished are verified from the system maintained by the respondents, there is no requirement statutorily placed upon the CHA to undertake an independent exercise in order to verify the details as furnished by the importer. Reliance in this respect was placed upon the following observations as rendered by a Division Bench of this Court in Kunal Travels (Cargo) vs Commissioner of Customs (Import & General) New Customs House, IGI Airport, New Delhi [2017 SCC OnLine Del 7683]:-
"12. Clause (e) of the aforesaid Regulation requires exercise of due diligence by the CHA regarding such information which he may give to his client with reference to any work related to clearance of cargo. Clause (l) requires that all documents submitted, such as bills of entry and shipping bills delivered etc. reflect the name of the importer/exporter and the name of the CHA prominently at the top of such documents. The aforesaid clauses do not obligate the CHA to look into such information which may be made available to it from the exporter/importer. The CHA is not an inspector to weigh the genuineness of the transaction. It is a processing agent of documents with respect to clearance of goods through customs house and in that process only such authorized personnel of the CHA can enter the customs house area. What is noteworthy is that the IE Code of the exporter M/s. H.M. Impex was mentioned in the shipping bills, this itself reflects that before the grant of said IE Code, the background check of the said importer/exporter had been undertaken by the customs authorities, therefore, there was no doubt about the identity of the said exporter. It would be far too onerous to expect the CHA to inquire into and verify the genuineness of the IE Code given to it by a client for each import/export transaction. When such code is mentioned, there is a presumption that an appropriate background check in this regard CUSAA 327/2018 & 328/2018 Page 5 of 11 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/11/2023 at 21:29:52 i.e. KYC etc. would have been done by the customs authorities. There is nothing on record to show that the appellant had knowledge that the goods mentioned in the shipping bills did not reflect the truth of the consignment sought to be exported. In the absence of such knowledge, there cannot be any mens rea attributed to the appellant or its proprietor. Whatever may be the value of the goods, in the present case, simply because upon inspection of the goods they did not corroborate with what was declared in the shipping bills, cannot be deemed as mis-declaration by the CHA because the said document was filed on the basis of information provided to it by M/s. H.M. Impex, which had already been granted an IE Code by the DGFT. The grant of the IE Code presupposes a verification of facts etc. made in such application with respect to the concern or entity. If the grant of such IE Code to a non-existent entity at the address WZ-156, Madipur, New Delhi - 63 is in doubt, then for such erroneous grant of the IE Code, the appellant cannot be faulted. The IE Code is the proof of locus standi of the exporter. The CHA is not expected to do a background check of the exporter/client who approaches it for facilitation services in export and imports. Regulation 13(e) of the CHALR 2004 requires the CHA to:"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"
(emphasis supplied). The CHAs due diligence is for information that he may give to its client and not necessarily to do a background check of either the client or of the consignment. Documents prepared or filed by a CHA are on the basis of instructions/documents received from its client/importer/exporter. Furnishing of wrong or incorrect information cannot be attributed to the CHA if it was innocently filed in the belief and faith that its client has furnished correct information and veritable documents. The mis-declaration would be attributable to the client if wrong information were deliberately supplied to the CHA. Hence there could be no guilt, wrong, fault or penalty on the appellant apropos the contents of the shipping bills. Apropos any doubt about the issuance of the IE Code to M/s. H.S. Impex, it was for the respondents to take appropriate action. Furthermore, the inquiry report revealed that there was no delay in processing the documents by the appellant under Regulation 13(n).
13. This Court in Ashiana Cargo Services v. Commissioner of Customs (I & G) 2014 (302) E.L.T. 161 (Del) has inter alia held:
"..... 10. Beginning with the facts, there is virtually no dispute. There is a concurrent finding of fact by the Commissioner and the CESTAT that the appellant did not have knowledge that the illegal exports were effected using the G cards given to VK's employees. There was no active or passive facilitation by the appellant in that sense.CUSAA 327/2018 & 328/2018 Page 6 of 11
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/11/2023 at 21:29:52 Undoubtedly, the provision of the G cards to non-employees itself violated the CHA Regulations. This is an admitted fact, but it is not the Revenue's argument (nor is it the reasoning adopted by the Commissioner or the CESTAT) that this violation in itself is sufficiently grave so as to justify the extreme measure of revocation. Not any and every infraction of the CHA Regulations, either under Regulation 13 ("Obligations of CHA") or elsewhere, leads to the revocation of license; rather, in line with a proportionality analysis, only grave and serious violations justify revocation. In other cases, suspension for an adequate period of time (resulting in loss of business and income) suffices, both as a punishment for the infraction and as a deterrent to future violations. For the punishment to be proportional to the violation, revocation of the license under Rule 20(1) can only be justified in the presence of aggravating factors that allow the infraction to be labeled grave. It would be inadvisable, even if possible, to provide an exhaustive list of such aggravating factors, but a review of case law throws some light on this aspect. In cases where revocation of license has been upheld (i.e. the cases relied upon by the Revenue), there has been an element of active facilitation of the infraction, i.e. a finding of mens rea, or a gross and flagrant violation of the CHA Regulations. In Sri. Kamakshi Agency (supra), the licensee stopped working the license, but rather, for remuneration, permitted his Power of Attorney to work the license, thus in effect transferring the license for money. As the CESTAT noted, "9.................. [a]pplicant instead of discharging his functions as a Custom House Agent in accordance with the Regulations, in flagrant violation of those Regulations went to the extent of encashing the facilities made available to him as a CHA by selling it for a price". Moreover, the Power of Attorney was - as a matter of fact - "actively involved in the fraudulent act in connivance with the importers and others and that as per the Power of Attorney Bond executed by Sri. K. Natarajan, all acts, deeds and things done by Sri. D. Sukumaran were to be construed as if they were done by himself. Therefore virtually all the fraudulent activities carried out by the Power of Attorney of Thiru Natarajan were to be treated as having been carried out by Thiru K. Natarajan himself", i.e. the licensee. In OTA Kandla, too, mens rea (i.e. knowledge) of the licensee was established. By a statement of the petitioner under Section 108, Customs Act, followed by the inquiry, it was clear that the licensee was aware that the consignment contained gypseous alabaster, a prohibited substance, but nonetheless, participated in its release from the Kandla CUSAA 327/2018 & 328/2018 Page 7 of 11 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/11/2023 at 21:29:52 Port. In CUS.A.A.24/2012 Page 10 Santon Shipping (supra), the adjudicating authority came "to the conclusion that the fraud in this case has been committed in so many consignments over a long period of time and the same could not have happened without the connivance of the CHA". The revocation of the license was again informed by the fact of connivance (i.e. mens rea as to the infraction) of the CHA. In Eagle Transport (supra), the CHA transferred the license altogether. As the CESTAT noted, "... the activities of the appellant firm were controlled day to day, not by Shrimankar but by employees of Amol Shipping Agency. We do not see how this does not amount to transfer of the licence in all but name. Hence, we must hold that the first and second articles of charge have been rightly held as proved." Moreover, more than 100 blank shipping bill forms were sent to a third-party. Following these aggravating factors, the penalty of revocation was justified by the CESTAT. Similarly, in HB Cargo (supra), relied upon by the majority of the CESTAT, the case did not concern any ordinary infraction of the CHA Regulations, but "an act of corruption", where blank shipping bills were issued by the partner and authorized representative of the CHA for a consideration of Rs. 150 per shipping bill.
11. Viewing these cases, in the background of the proportionality doctrine, it becomes clear that the presence of an aggravating factor is important to justify the penalty of revocation. While matters of discipline lie with the Commissioner, whose best judgment should not second- guessed, any administrative order must demonstrate an CUS.A.A.24/2012 Page 11 ordering of priorities, or an appreciation of the aggravating (or mitigating) circumstances. In this case, the Commissioner and the CESTAT (majority) hold that "there is no finding nor any allegation to the effect that the appellant was aware of the misuse if the said G cards", but do not give adequate, if any weight, to this crucial factor. There is no finding of any mala fide on the part of the appellant, such that the trust operating between a CHA and the Customs Authorities (as a matter of law, and of fact) can be said to have been violated, or be irretrievably lost for the future operation of the license. In effect, thus, the proportionality doctrine has escaped the analysis.
12. Learned Senior Standing Counsel for the Customs has stressed that the infraction in this case is not a routine matter, but rather, illegal smuggling of narcotics by the G card users. However, given the factual finding that the CHA was not aware of the misuse of the G cards (and thus, also CUSAA 327/2018 & 328/2018 Page 8 of 11 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/11/2023 at 21:29:52 unaware of the contents being smuggled), no additional blame can be heaped upon the CHA on that count alone. Rather, the only proved infraction on record is of the issuance of G cards to non-employees, as opposed to the active facilitation of any infraction, or any other violation of the CHA Regulations, whether gross or otherwise. Neither have any such allegations been raised as to the past conduct of the appellant, from the time the license was granted in January, 1996. Equally, it is important to note that the appellant has - as of today - been unable to work the license for 8 years, and thus been penalized in this manner. This is not to say that CUS.A.A.24/2012 Page 12 the trust operating between the Customs Authorities and the CHA is to be taken lightly, or that violations of the CHA Regulations should not be dealt with sternly. A penalty must be imposed. At the same time, the penalty must - as in any ordered system - be proportional to the violation. Just as the law abhors impunity for infractions, it cautions against a disproportionate penalty. Neither extreme is to be encouraged. In this case, in view of the absence of any mens rea, the violation concerns the provision of G cards to two individuals and that alone. A penalty of revocation of license for this contravention of the CHA Regulations unjustly restricts the appellant's ability to engage in the business of the CHA for his entire lifetime. As importantly, it skews the proportionality doctrine, substantially lowering the bar for revocation as a permissible penalty, especially given the dire civil consequences that follow. On the other hand, the minority Opinion of the CESTAT, delivered by the Judicial Member, correctly appreciates the balance of relevant factors, i.e. knowledge/mens rea, gravity of the infraction, the stringency of the penalty of revocation, the fact that the appellant has already been unable to work his license for a period of 6 years (now 8 years), and accordingly sets aside the order of the Commissioner dated 24.01.2005..."
7. As is evident from the legal position as enunciated in Kunal Travels, the CHA is entitled to proceed on the basis that the IEC has come to be generated in favour of the importer after an appropriate background check having been conducted by the Customs authorities. The further details that may stand captured and form part of the IEC registration of an importer are aspects which have to be verified by the CUSAA 327/2018 & 328/2018 Page 9 of 11 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/11/2023 at 21:29:52 Customs authorities themselves. It was in the aforesaid backdrop that the Court in Kunal Travels held that the obligation of the CHA under Regulation 13(e) of the CHALR, 2004 cannot be stretched to it being obliged to undertake a further background check of the client.
8. In our considered opinion both the Commissioner as well as the CESTAT have thus committed a manifest illegality in holding the appellants liable to be penalized. Ultimately, if the particulars as proffered by the importer had not been duly verified by the Customs authorities before generation of the IEC registration that cannot possibly constitute a ground for the appellants being penalized.
9. We further note that insofar as M/s HLPL is concerned, the Commissioner had chosen to impose penalties in terms of Section 114AA of the Act. The said provision reads as under:
"114-AA. Penalty for use of false and incorrect material.--If a person knowingly or intentionally makes, signs or uses, or causes to be made, signed or used, any declaration, statement or document which is false or incorrect in any material particular, in the transaction of any business for the purposes of this Act, shall be liable to a penalty not exceeding five times the value of goods."
10. We fail to find any justification in the invocation of the said provision insofar as the first appellant is concerned. A penalty under Section 114AA of the Act would be leviable upon a person who "knowingly" or "intentionally" makes a false or incorrect declaration in the course of a transaction of business covered by the Act. Neither the Commissioner nor the CESTAT have rested their conclusions against the first appellant on any declaration, statement or document executed by the appellants and which may have been found to be false or incorrect in any material particular. We, consequently, find ourselves unable to sustain the order impugned.
CUSAA 327/2018 & 328/2018 Page 10 of 11This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/11/2023 at 21:29:52
11. The appeals shall stand allowed. The impugned order dated 27 October 2017 insofar as it levies penalties upon the appellants shall stand quashed and set aside. For reasons aforenoted we also set aside the order of the CESTAT dated 08 November 2018.
YASHWANT VARMA, J.
SHALINDER KAUR, J.
NOVEMBER 22, 2023/kk CUSAA 327/2018 & 328/2018 Page 11 of 11 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/11/2023 at 21:29:52