Custom, Excise & Service Tax Tribunal
Anax Air Services Pvt Ltd vs Commissioner, Customs-New Delhi ... on 3 January, 2022
Author: Dilip Gupta
Bench: Dilip Gupta
1
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH
CUSTOMS APPEAL NO. 50987 OF 2021
(Arising out of Order-in-Original No. 114/MK/Policy/2021 dated 15.06.2021
passed by the Commissioner of Customs (Airport & General), New Delhi)
M/s Anax Air Services Pvt. Limited ....Appellant
RZ-1B, 1st Floor, Syndicate Enclave,
Raghyu Nagar, Dabri Road,
Palam, New Delhi - 110045
Versus
Commissioner of Customs, New Delhi ....Respondent
(Airport and General)
New Custom House,
Near IGI Airport, New Delhi-110037
APPEARANCE:
Shri Sudhir Malhotra, Advocate - for the Appellant
Shri Sunil Kumar, Authorised Representative for the Department
CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. P. V. SUBBA RAO, MEMBER (TECHNICAL)
DATE OF HEARING: 23.12.2021
DATE OF DECISION: 03.01.2022
FINAL ORDER NO. 50002/2022
P. Venkata Subba Rao:
We have heard Shri Sudhir Malhotra, learned counsel for the
appellant Shri Sunil Kumar, learned authorised representative for
the Revenue and perused the records of the case.
2. The appellant is a Customs Broker 1 whose licence was issued
by the Respondent and it was originally valid up to 12.11.2027. It
1. CB
2
is aggrieved by the order in original 2 dated 15.6.2021 passed by
the Respondent whereby its licence was revoked under of Customs
Brokers Licensing Regulations 3, 2018 and the security deposit of
Rs. 50,000 made by the appellant was forfeited and a penalty of
Rs. 50,000 was imposed on it. The operative part of the impugned
order is as follows:
"43. I have also gone through the case laws cited by the
advocate and found that the facts of these cited cases are
different from the present case. From all the facts and
circumstances narrated above, I find that the CB has
violated the Regulation 10(n) of CBLR 2018 and
hence, I pass the following order:
ORDER
(i) In exercise of powers conferred in terms of Regulation 14 & 18 read with Regulation 17(7) of CBLR, 2018) (erstwhile Regulation 18 &22 read with Regulation 20(7) of CBLR, 2013), I hereby revoke the CB License No. R-5/93 (PAN:
AAACA1708J) valid upto 12.11.2027 issued to M/s. Anax Air Services Pvt. Ltd. Office no. 104, 1st Floor, Westend Mall, District Centre, Janakpuri, New Delhi 110058;
(ii) I order for forfeiture of the amount of security deposit of Rs. 50,000/- (Rupees Fifty thousand only) furnished by them;
(iii) I impose penalty of Rs. 50,000/- on M/s Anax Air Services Pvt. Ltd.
44. This order is being issued without prejudice to any other action that may be taken against the CB or any other persons(s)/firm(s) etc. under the provisions of the Customs Act, 1962 and Rules/Regulations framed there under or any other law for the time being in force for the present or any other past violations committed by them."
3. The factual matrix which led to the issue of this order is that the Directorate General of Analytics and Risk Management 4 of the Central Board of Indirect Taxes and Customs analysed the data and
2. Impugned order
3. CBLR
4. DGARM 3 identified risky exporters involved in execution of frauds and got verification done by the jurisdictional GST officers and identified exporters who could not be found at all physically at their registered premises. DGARM also found that exports by these exporters were handled by certain Customs Brokers including the appellant herein and reported them to the respective Commissionerates including the Respondent herein. The Respondent issued a Show Cause Notice 5 dated 24.12.2020 to the appellant and appointed an Inquiry officer who submitted his Inquiry Report on 18.3.2021. The appellant submitted its reply dated 16.4.2021 to the SCN. An opportunity of personal hearing was granted on 11.6.2021 to the appellant and G Satyanarayan, Director and F Card holder of the appellant appeared before the Commissioner and reiterated the submissions made in its written reply. Thereafter, the Commissioner passed the impugned order.
4. The Commissioner, has, in the impugned order held that the appellant had violated Regulation 10(n) of the CBLR 2018 and revoked its licence, forfeited its security deposit and imposed a penalty of Rs. 50,000/- upon it. There is no other alleged violation either in the SCN or in the impugned order against the appellant.
5. Regulation 10(n) of CBLR 2018 reads as follows:
"10. Obligations of Customs Broker.--A Customs Broker shall-
...
(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. SCN 4
6. The issue in this case, therefore, falls in a narrow compass. The questions which need to be answered are:
a) Given the factual matrix of the case and the evidence available on record, was the Commissioner correct in holding that the appellant Customs Broker has violated Regulation 10(n) of CBLR, 2018?
b) If the answer to (a) above is affirmative, can the revocation of licence of the appellant customs broker be sustained?
c) If the answer to (a) above is affirmative, is the forfeiture of security deposit correct?
d) If the answer to (a) above is affirmative, is the imposition of penalty of Rs. 50,000/- upon the appellant customs broker correct?
7. Although both the SCN and the impugned order listed several suspect exporters whose exports the appellant is said to have handled, the Relied Upon Documents 6 in the SCN were only in respect of three firms as follows:
(i) M/s XIAEL Exports (P) Ltd. (07AAACX3158K1Z3)- RUD-2
(ii) M/s Fab Impex Traders (07AATP19429G2Z6)- RUD-3
(iii) M/s. Dayma International (07BKNPV0720L1ZR)- RUD-4
8. The finding recorded in paragraph 34 of the impugned order is that the appellant handled exports in respect of several exporters listed in paragraph 4 of the impugned order who are untraceable and therefore, the appellant has violated Regulation 10 (n) of CBLR
6. RUD 5 2018. In paragraph 4, a table with a large number of exporters is given who are said to be non-existent but the Show Cause Notice has included as supporting evidence, RUDs in the form of verification reports only in respect of the above three exporters. There is no document to support the allegation that the other exporters listed in paragraph 4 of the SCN also did not exist.
9. We now proceed to examine the above three cases which formed the entire basis of the SCN and the impugned order and the arguments on both sides with respect to each.
M/s XIAEL Exports (P) Ltd. (07AAACX3158K1Z3)- RUD-2
10. The remarks of the jurisdictional officer who submitted a report in the given format to the DGARM are as follows:
"DGARM Reference No. 21P Commissionerate code ZK GSTIN 07AACX3158K1Z3 Found to be existing (Yes/No)--- NO Signed by AARIF Superintendent Central Tax Non existent exporter. NOC is desired.
Signed by Rohit kumar Bahisare Deputy Commissioner Anti Evasion (Delhi- East) Non Existent Exporter Signed by Dr. Prem Verma Commissioner M/s Fab Impex traders (07AATP19429G2Z6)- RUD-3"
11. The remarks of the jurisdictional officer who submitted a report in the given format to the DGARM are as follows:
"DGARM Reference No. MSME (29.08.2019) TKD 2 July 2019 GSTIN 07AATP19429G2Z6 Found to be existing (Yes/No)--- NO 6 Signed by Naveen Kumar Inspector (AE) CGST Delhi North, New Delhi The party has been found non-existent. The party filed GSTR 3B upto January 2020. The ITC availed by M/s. Fab Impex Traders seems to be not genuine and therefore is inadmissible.
Signed by Abhishek Kumar Assistant Commissioner As above Signed by (no name indicated) Commissioner M/s. Dayma International (07BKNPV0720L1ZR)- RUD-4"
12. The remarks of the jurisdictional officer who submitted a report in the given format to the DGARM is as follows:
"DGARM Reference No. ....... (not filled) GSTIN 07BKNPV0720L1ZR Found to be existing (Yes/No)--- NO Signed by Dilbagh Singh (Insp) Ajay Kumar (Suptd) Yogesh Kumar (Suptd) Recommendations about the bonafides of the entity verified:
Physical verification: The assessee was found to be non- existent at the Principal Place of Business during physical verification.
Returns Analysis: The assessee has filed GSTR 1 and GSTR3B only for the months of February 2019 and March 2019. GSTR 2A is available only for the months of March 2019 and April 2019 Tax paid analysis ITC analysis GSTR-1 (Tax payable) Rs. 30,65,497 GSTR 2A (ITC availability) Rs. 30,78,423 GSTR 3B (Tax paid through cash) Rs. 7 GSTR 3B (ITC availed) Rs. 30,65,490 GSTR 3B (Tax paid through ITC) Rs. 30, 65, 490 GSTR 3B (Tax paid) Rs. 30, 65,497 Share of ITC in tax paid- 100% Remarks: The assessee is non-existent. The assessee is paying 100% of the liability through ITC. Has filed GSTR 1 and GSTR 3B only for the months of Feb and Mar 2019. The registration of the assessee has been cancelled by the department as the assessee was found to be non- operational. The L1 supplier of the assessee falls in the jurisdiction of Delhi East Commissionerate, hence could not be verified. The assessee seems to be doubtful. Further scrutiny is required.7
Signed by Siddiqui Assistant Commissioner Signed by Ranjan Khanna Commissioner"
13. A perusal of the three RUDs shows that the exporters were issued GST Registration by the Department. In two cases, the exporters were filing GST returns also to the department while in the other case, this aspect was not indicated either way in the report. In one case, the GST paid by the exporter was also analysed and it was found that it was almost entirely paid using the Input Tax Credit 7 under the GST. However, in all three cases, on the day the officers went for verification, the exporters were not found operating at the business premises and the ITC was, according to the reports, inadmissible. These reports could mean either these firms never existed at the premises and the GST Registrations were issued by the officers to non-existent firms and that the GST officers have also been receiving GST Returns from such non-existent firms or that the firms existed originally and later ceased to operate from the premises or there is some other explanation as to why the firms were not found operating from the addresses on the day of verification.
14. The case of the Revenue is that since these firms were found to be not functioning from the registered premises when physically verified by the Departmental officers, they never existed in the first place and it was the obligation of the appellant as a 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
7. ITC 8 declared address by using reliable, independent, authentic documents, data or information" as [Regulation 10(n)] and the appellant failed to discharge this obligation and hence it is liable for the consequences of revocation of its licence, forfeiture of the security deposit and imposition of penalty. The SCN cited CBIC Circular no. 9/2010-Customs dated 8.4.2010 giving KYC guidelines and alleged that the appellant failed to exercise due diligence and grossly violated the KYC guidelines of the said Circular dated 8.4.2010 read with CBLR, 2018 as a number of exporters have been found to be untraceable. As per the mandate of Regulation 10(n) of the CBLR, 2018 read with the Circular no. 9/2010-Customs dated 8.4.2010, it was incumbent upon the CB to verify the identity and functioning of his client at the declared address by using reliable, independent, authentic documents, data or information which apparently the CB have failed to do.
15. The appellant's submissions before the Inquiry officer, the adjudicating authority as well as before us is that it had carried out the due diligence as required under Regulation 10(n) by obtaining the documents such as:
(i) Authorisation letter from the exporter
(ii) KYC letter
(iii) GST Registration Copy
(iv) IEC Registration Copy
(v) Company PAN card of the exporter
(vi) Electricity bill copy
(vii) PAN Cards of the firms and the partners
(viii) Canceled cheques
(ix) Rent Agreement
16. The Commissioner observed in paragraph 18 of the impugned order "Whereas as per Annexure to the CBIC Circular no. 9/2010- Customs dated 8.4.2010, it appears that CB has not taken the 9 documents as prescribed in the Annexure to the said circular, however, taken certain other documents such as IEC, PAN, Aadhar, Electricity bill, Rent Agreement, AD code letter from the bank, Rent Agreement, GST Registration, KYC form, etc. Among these documents certain documents are issued by the Government, which substantiate the existence of the exporter at the relevant time.
17. In this regard, we find that paragraph 6 of the Circular requires the client 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 organisation such as company/trusts, etc. and any two of the listed documents in the annexure. Thus, it is evident that even as per the Circular, obtaining a photograph and any two of the documents listed in the Annexure to the circular is sufficient compliance of Regulation 10(n) of CBLR, 2018. 'Any officially valid document identifying the partners and the person holding the Power of Attorney and their addresses' is cited as one of the documents for Partnership firms, trusts and foundations. The most important documents in these cases are the IEC and the GSTIN- one issued by the same department and the other by the DGFT. GSTIN which was not only issued by the same department but has also been cited in the investigation reports (RUDs to the SCN). The IEC issued by the DGFT in these cases is not disputed at all without which the goods could not have been exported at all.
18. In the impugned order, learned Commissioner relied on the CESTAT's order in the case of Baraskar Brothers vs. 10 Commissioner of Customs (General), Mumbai 8 in which it was held that "there is no second opinion to the fact that the CHA is a very important component in the whole system of Customs administration, which has a major bearing on Customs revenue collection and national security. The CHAs cannot shy away from the responsibilities and obligations cast upon them by law." He came to the conclusion that the appellant had not discharged its obligation under Regulation 10(n) and therefore, revoked its licence, forfeited its security deposit and imposed a penalty of Rs. 50,000/-.
19. Learned Departmental representative reiterates the above findings of the impugned order.
20. We agree that the Customs Brokers (or CHAs as they were called earlier) play an important role in the Customs administration and have to fulfil their responsibilities and obligations under the law. The law in question in this case is Regulation 10(n) of CBLR, 2018. The allegation against the appellant is based on the reports of the jurisdictional officers in respect of the three RUDs. All of them show that the GSTIN were issued by the same department and in two of the cases, the GST Returns were also filed (the verification report is silent in the third case) and in one case even the details of the GST paid is also indicated. However, on physical verification, on the date of the verification, the exporters were not found to operate from the premises.
21. The reports also indicate that the exporters were not eligible for the input tax credit (ITC) under the GST. As far as the
8. 2009 (244) ELT 562 11 admissibility of ITC is concerned, nothing in the CBLR, 2018, even remotely suggests that it is the responsibility of the Customs Broker to ensure its admissibility or that if inadmissible ITC is taken and thereafter a refund of it is claimed, the Customs Broker is responsible. As per the CGST/IGST/SGST Act, the assessee takes ITC and the officers can verify and if necessary, take appropriate action. The Customs Broker has no locus standi or power to verify the ITC taken. The Customs Broker is not an officer with the power to verify the ITC. Therefore, for any ITC wrongly taken by any assessee, the Customs Broker is in no way responsible.
22. We now proceed to examine the scope of the obligations of the Customs Broker under Regulation 10(n). It 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. This obligation can be broken down as follows:
a) Verify the correctness of IEC number
b) Verify the correctness of GSTIN
c) Verify the identity of the client using reliable, independent, authentic documents, data or information
d) Verify the functioning of the client at the declared address using reliable, independent, authentic documents, data or information
23. Of the above, (a) and (b) require verification of the documents which are issued by the Government departments. The IEC number is issued by the Director General of Foreign Trade and the GSTIN is issued by the GST officers under the Central Board of 12 Indirect Taxes and Customs of the Government of India or under the Governments of State or Union territory. The question which arises is has the Customs Broker to satisfy himself that these documents or their copies given by the client were indeed issued by the concerned government officers or does it mean that the Customs Broker has to ensure that the officers have correctly issued these documents. In our considered view, obligations under Regulation 10(n) of CBLR cannot be read to mean the latter as it would amount to treating the Customs Broker as one who is responsible to oversee and ensure the correctness of the actions by the Government officers. It would also mean that the Regulations under the Customs Act prevail over the actions under the Foreign Trade (Development and Regulation) Act, 1992 under which the IEC is issued by DGFT and the Central Goods and Services Tax Act (or state GST Act) under which the GSTIN is issued by the GST officers which is not a correct construction of the legal provisions. Therefore, the verification of certificates part of the obligation under Regulation 10(n) on the Customs Broker is fully satisfied as long as it satisfies itself that the IEC and the GSTIN were, indeed issued by the concerned officers. This can be done through online verification, comparing with the original documents, etc. and does not require an investigation into the documents by the Customs Broker. The presumption is that a certificate or registration issued by an officer or purported to be issued by an officer is correctly issued. Section 79 of the Evidence Act, 1872 requires even Courts to presume that every certificate which is purported to be issued by the Government officer to be genuine. It reads as follows: 13
"79. Presumption as to genuineness of certified copies. The Court shall presume to be genuine every document purporting to be a certificate, certified copy or other document, which is by Law declared to be admissible as evidence of any particular fact and which purports to be duly certified by any officer of the Central Government or of a State Government, or by any officer in the State of Jammu and Kashmir who is duly authorized thereto by the Central Government.
Provided that such document is substantially in the form and purports to be executed in the manner directed by law in that behalf.
The Court shall also presume that any officer by whom any such document purports to be signed or certified, held, when he signed it, the official character which he claims in such paper."
24. The onus on the Customs Broker cannot, therefore, extend to verifying that the officers have correctly issued the certificate or registration. Of course, if the Customs Broker comes to know that its client has obtained these certificates through fraud or misrepresentation, nothing prevents it from bringing such details to the notice of Customs officers for their consideration and action as they deem fit. However, the Customs Broker cannot sit in judgment over the certificate or registration issued by a Government officer so long as it is valid. In this case, there is no doubt or evidence that the IEC and the GSTIN were issued by the officers. So, there is no violation as far as the documents are concerned.
25. The third obligation under Regulation 10(n) requires the Customs Broker to verify the identity of the client using reliable, independent, authentic documents, data or information. In other words, he should know who the client is and the client cannot be some fictitious person. This identity can be established by independent, reliable, authentic:
14
a) documents;
b) data; or
c) information
26. Any of the three methods can be employed by the Customs Broker to establish the identity of his client. It is not necessary that it has to only collect information or launch an investigation. So long as it can find some documents which are independent, reliable and authentic to establish the identity of his client, this obligation is fulfilled. If a document is issued by any other person not interested in the relationship of the client and the Customs Broker, it can be called independent. But it should also be reliable and authentic and not one issued by any Tom, Dick and Harry. Documents such as PAN card issued by the Income Tax, driving licence issued by the RTO, Election voter card issued by the Election Commission, the passport issued by the Passport Officer, etc., certainly qualify as such documents as none of these departments have any interest in the relationship between the client and the Customs Broker and these documents are presumed to be authentic and reliable having been issued by the Government officers. However, these are not the only documents the Customs Broker could obtain; documents issued by any other officer of the Government or even private parties (so long as they qualify as independent, reliable and authentic) could meet this requirement. While obtaining documents is probably the easiest way of fulfilling this obligation, the Customs broker can also, as an alternative, fulfill this obligation by obtaining data or information. In the factual matrix of this case, we are fully 15 satisfied that the appellant has fulfilled this part of the obligation under Regulation 10(n).
27. The fourth and the last obligation under Regulation 10(n) requires the Customs Broker to verify the functioning of the client at the declared address using reliable, independent, authentic documents, data or information. This responsibility, again, can be fulfilled using documents or data or information so long as it is reliable, independent and authentic. Nothing in this clause requires the Customs Broker to physically go to the premises of the client to ensure that they are functioning at the premises. Customs formations are only in a few places while exporters or importers could be from any part of the country and they hire the services of the Customs Brokers. Besides the fact that no such obligation is in Regulation 10(n), it will be extremely difficult, if not, totally impossible, for the Customs Broker to physically visit the premises of each of its clients for verification. The Regulation, in fact, gives the option of verifying using documents, data or information. If there are authentic, independent and reliable documents or data or information to show that the client is functioning at the declared address, this part of the obligation of the Customs Broker is fulfilled. If there are documents issued by the Government Officers which show that the client is functioning at the address, it would be reasonable for the Customs Broker to presume that the officer is not wrong and that the client is indeed, functioning at that address. In the factual matrix of this case, we find that the GSTIN issued by the officers of CBIC itself shows the address of the client and the authenticity of the GSTIN is not in doubt. In fact, the entire 16 verification report is based on the GSTIN. Further, IECs issued by the DGFT also show the address. There is nothing on record to show that either of these documents were fake or forged. Therefore, they are authentic and reliable and we have no reason to believe that the officers who issued them were not independent and neither has the Customs Broker any reason to believe that they were not independent. In two of the cases, the GST officers have also received some GST returns from the clients.
28. The responsibility of the Customs Broker under Regulation 10(n) does not include keeping a continuous surveillance on the client to ensure that he continues to operate from that address and has not changed his operations. Therefore, once verification of the address is complete as discussed in the above paragraph, if the client moves to a new premises and does not inform the authorities or does not get his documents amended, such act or omission of the client cannot be held against the Customs Broker. Of course, if the Customs Broker was aware that the client has moved and continues to file documents with the wrong address, it is a different matter.
29. When a Government officer issues a certificate or registration with an address to an exporter, it is not for the Customs Broker to sit in judgment over such a certificate. The Customs Broker cannot be faulted for trusting the certificates issued by a government officer. It is a different matter if documents are not authentic and are either forged by the Customs Broker or the Customs Broker has reason to believe that the documents submitted to him were forged. It has been held by the High Court of Delhi in Kunal 17 Travels 9 that "the CHA is not an inspector to weigh the genuineness of the transaction. It is a processing agent of documents with respect of clearance of goods through customs house and in that process only such authorized personnel of the CHA can enter the customs house area........ 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 i.e., KYC, etc. would have been done by the customs authorities....." (emphasis supplied)."
30. In this case, the negative reports were issued by the jurisdictional GST officers who, or whose predecessors or colleagues, must have issued the GST registration. Thereafter, if it is found that the exporter is not operating from that address at all and the GST registration was wrongly issued, the responsibility rests on the officer who issued the GST Registration and not the Customs Broker. The wisdom in hindsight of the officer that the GSTIN was wrongly issued at that address cannot be used against the Customs Broker. The appellant relied upon the GST Registration Certificates and if relying on them is an offence, issuing them when the firms didn't even exist must, logically be a much graver offence and the officers who issued them must be more serious offenders. There is nothing in the RUDs (the reports of the jurisdictional officers) to indicate as to why and how the GST registration was
9. 2017 (3) TMI 1494- Delhi High Court 18 issued when the exporters did not exist at all. We also find that there were other documents procured by the appellant issued by various other authorities which have not been alleged to be, let alone, proven to be fake or forged by the Revenue. Evidently, they also must have been issued by concerned officers like the GST Registration issued by the jurisdictional officers.
31. Unless all these officers of various organisations (including the jurisdictional GST officer who issued the registration in December 2018) either acted fraudulently or carelessly, the above could not have been issued.
32. The Customs Broker is not Omniscient and Omnipotent. The responsibility of the Customs Broker under Regulation 10(n) does not extend to ensuring that all the documents issued by various officers of various departments are issued correctly. The Customs Broker is not an overseeing authority to ensure that all these documents were correctly issued by various authorities. If they were wrongly issued, the fault does not lie at the doorstep of the Customs Broker and it is not up to the Customs Broker to doubt the documents issued by the authorities and he cannot be faulted for believing them to be correct.
33. It is possible that by efflux of time, when the GST officers went for verification, situation changed. If so, it is a ground for starting a thorough investigation by the officer and is not a ground to suspend/cancel the licence of the Customs Broker who processed the exports. We also find that there is nothing in the SCN to prove that the exporters did not exist or operate from the addresses when the Shipping Bills were filed.
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34. On a query from the bench as to how the Customs Broker can be faulted when he relied on the IEC, GST Registration and several documents issued by the Government and if the exporter did not exist at all at the premises how these documents were issued by several Government officers, learned Departmental Representative submitted that officers issue these documents as per their mandate which does not include physical verification of the business premises. He further clarified that in almost all these cases, the Registrations are issued by the officers based on online applications. They are not mandated to ensure that the exporter(s) exist and are functioning from these premises but the Customs Broker is so mandated by Regulation 10(n) of the CBLR, 2018 which obligation does not get obliterated or diluted by the fact that officers of various departments have issued the documents.
35. He further submits that the case of Kunal Travels 10 cannot come to the aid of the appellant as that was issued in the context of the erstwhile Custom House Agents Licensing Regulations,2004 which, as it stood during the relevant time, did not have an obligation on the Custom House Agent similar to the one in Regulation 10(n) of CBLR 2018. A provision similar to Regulation 10(n) of CBLR, 2018 was later introduced as Regulation 13(o) of CHA Licensing Regulations, 2004 which was considered in the case of Millenium Express Cargo 11by this Tribunal which decision was upheld by the High Court of Delhi. The ratio of this order should apply to this case.
10. 2017 (3) TMI 1494- Delhi High Court
11. 2017 (346) ELT 471 (Tri- Del) 20
36. We have examined the order in the case of Millenium Express Cargo, and find that in that was a case where the cigarettes were smuggled concealed in a consignment of induction cookers and the Bill of Entry was filed by the CHA whose licence was then revoked for violation of Regulations 13(e) and 13(o) of CHA licensing Regulations, 2004. Of these 13(o) is pari materia with CBLR 10(n) under consideration in this case. In the case of Millenium express cargo, the CHA has not even ever claimed that it had verified the existence of the importer at the given address. Paragraph 5 of this order is reproduced below:
"5. We have considered the contentions of both sides. It is an admitted fact that the appellant had dealt with the importer M/s. Nikhaar Associates. It is also a fact that the importer was found to be non-existent. CHA Regulation 13(e) state that "a CHA shall 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".
In the present case, there was no question of the appellant being in a position to impart any information to the client as the same was found non-existent. Also the weight of the container for which it filed bill of entry was in excess by 7.280 tonnes over the declared weight (5.051 tonnes) which should have come to the appellant's notice had due diligence been exercised. Thus the allegation of violation of Regulation 13(e) is sustainable. Further Regulation 13(o) ibid states as under :
"A Custom House Agent shall verify antecedent, correctness of Importer Exporter Code (IEC) Number, identity of his client and functioning of his client at the declared address by using reliable, independent, authentic documents, data or information."
C.B.E. & C. vide Customs Circular No. 9/2008, dated 8-2-2010 in order to avoid any ambiguity inter alia laid down the following requirements of verification and documents for the "individual" category to which the importer belonged being a proprietorship concern as claimed.
21
S. Form of Features to be Documents to be
No. organisation verified obtained
1. Individual (i) Legal name (i) Passport
and
any other (ii) PAN card
names
used (iii) Voter's identity
card
(ii) Present and (iv) Driving licence
Per-
manent (v) Bank account
address, statement
in full, (vi) Ration card
complete
and correct Note : Any two of
the documents
listed above, which
provides client/
customer
information to the
satisfaction of the
CHA will suffice.
Thus the appellant was required to inter alia verify present and permanent address in full, complete and correct which the appellant did not do. Merely because the appellant obtained documents as per Column 4 of the above table does not tantamount to fulfilment of requirement of Column 3 relating to features to be verified because if that was so, then there was no need to have Column 3. As seen from Regulation 13(o) quoted above, the Customs House Agent is obligated to inter alia verify antecedent, correctness of Importer Exporter Code, identity of the importer and functioning of his client at the declared address by using reliable, independent, authentic documents, data or information. The appellant has not even claimed that it had ever verified the existence of the importer at the given address. Obviously, the appellant failed to fulfil the requirement of Regulation 13(o) ibid.
37. Millenium express Cargo does not support the case of the Revenue since there is nothing on record to show that the exporter did not exist at the premises at the time of export or that the appellant was aware about the non-existence of the exporter when it filed the Shipping Bills. In fact, there is not even an assertion by the Revenue that on the day the Shipping Bills were filed the exporters did not exist at the premises.
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38. As far as the documents issued by various Government officers are concerned the submission of the learned departmental representative is interesting and needs a deeper examination. It is his submission that the documents were neither issued fraudulently nor issued carelessly but were issued within the mandate of the officers who issued them and this mandate does not include physical verification. In other words, the submission is that the system designed by the Government for issue of these certificates itself is such that they can be issued even to persons who do not exist at all at the declared premises. We proceed to examine this proposition.
39. It is common knowledge that in designing schemes for issuing registrations, certificates or providing incentives, two conflicting objectives of due diligence and facilitation are balanced. Too many checks can make life difficult for the exporter or the citizen and too much facilitation can open the doors for frauds. Determining the golden mean and where to draw the line is a matter of public policy. The extent of liberalization or tightening may also vary greatly from one system to another and that is also a matter of public policy. If one wants to obtain a passport, for example, which gives one nothing more than the right to leave the country and to return to it, the passport is issued either after or subject to police verification so that the passports are not issued incorrectly or misused. Similarly, if a poor hut-dweller wants a Ration Card which entitles him and his family to subsidized or free food from the State worth a few thousand rupees, such a card is issued only after verifying his address, the number of his family 23 members, etc. so that the scheme may not be misused by those who are not entitled to the benefits.
40. On the other hand, anybody, even the very hut-dweller living below the poverty line wants to export goods and claim export incentives, neither his means nor his capability can be either checked or held against him. The Shipping Bills are processed by the Customs solely based on the fact that an IEC is issued to the exporter by the DGFT. Nothing in the Customs Act empowers the Customs officers to stop an export or import based on who the importer or exporter is or what his antecedents are. Even if the person is convicted of a criminal offence under the Customs Act itself, the Act does not enable the officers to stop his imports or exports. Means of the person cannot be questioned either. The same hut-dweller, who gets his ration card after due verifications can get an IEC from DGFT based solely on an online application and after submitting his documents and can file a shipping bill for export of goods worth several crores of rupees and his lack of means does not mean that the officers can stop such an export. All that is required is that the exporter or importer should have an IEC issued by the DGFT. The IEC is issued by the DGFT on an online application in Form ANF2 and some supporting documents. For instance, in case of individuals, the documents that are required are:
i. Digital Photograph (3x3cms) of the Proprietor. ii. Copy of PAN card of the Proprietor. iii. Copy of Passport (first & last page)/Voter's I-Card/ Driving Licence/UID (Aadhar card) (any one of these). iv. Sale deed in case business premise is self-owned; or Rental/Lease Agreement, in case office is rented/ leased; or latest electricity /telephone bill. v. Bank Certificate as per ANF 2A(I)/ Cancelled Cheque bearing pre-printed name of applicant and A/C No 24
41. All that are required are a photograph, one's Aadhar card, PAN card and electricity bill or rent agreement and a cancelled cheque. Most Indians have an Aadhar card and PAN card can be obtained from Income tax based on the Aadhar card. Once an IEC is issued by the DGFT, one can start exports and imports. By producing the above documents, anyone can easily get an IEC which forms the foundation on which the entire edifice of regulatory structure over imports and exports is built. This includes not only the right to export or import but also the entitlement to and receipt of incentives such as drawback, GST refund and various export incentive schemes formulated by the DGFT. Thus, this is a very liberal, business-friendly, open, system which also makes it vulnerable to misuse.
42. While the DGFT issues the IEC, actual exports take place through the Customs which forms the second point of check over imports and exports which is also quite liberal. There are two levels of checks in Customs - assessment of the documents by the officer and physical examination of the goods being exported both of which are done only in selected cases and other cases are 'facilitated' i.e., the export is allowed without any officer either assessing the shipping bill or examining what was actually being exported to ensure that it matches with the shipping Bill. The customs Risk Management System (RMS) decides which shipping bill should be assessed and/or which export consignment must be subjected to physical 25 examination. The National Time Release Study 12 by the CBIC reports as follows:
"7. Exports - procedure, methodology and scope 7.1 Export procedure requires filing of electronic self- declaration (shipping bill) by exporter before the goods move from exporter's premises. The RMS allows the lowest risk category to be cleared as facilitated without subjecting the cargo to assessment or examination. In this study, facilitation level for shipping bills at seaports/ICDs was seen to be 80%, and at air cargo complexes at 95%.
Thus, there is a 80 to 95% probability of a fraudulent export not being detected by the Customs. Even if an exporter is caught and is being investigated for such an export, the Customs officers cannot legally stop his future exports."
43. The third level of check is through the banks when the remittances pertaining to the exports are received. The export data is transmitted by the Customs to the Reserve Bank of India online where it is matched with the remittance data obtained from the banks. Remittances have to be received within one year and so there is no immediate check at the time of export. It is a sort of post-mortem exercise for possible remedial action.
44. As far as the export incentives such as drawback are concerned, they are received on the basis of the shipping bills cleared by the Customs and the corresponding Export General Manifest (EGM) filed by the Master of the Vessel or his agent confirming that the container is loaded on to the ship. Regardless of whether the remittance is received (for which a time of one year is
12. https://www.cbic.gov.in/resources//htdocs-cbec/implmntin- trade-facilitation/National%20Time%20Release%20Study%202021.pdf para 7.1 26 available) or not, the exporter gets drawback into his account immediately from the Government.
45. To sum up, the entire system of exports is based heavily on trust and facilitation and very less emphasis on due diligence which enhances trade facilitation but also makes it vulnerable to misuse by fraudsters. The IEC is issued by DGFT based only on an online application and a few easy to obtain documents. So, one cannot rule out the possibility of an IEC being issued without the person even operating its business from the address. The IEC forms the foundation for the entire system of controls and, in turn, is the basis for issue of various licences and scrips by the DGFT and is also the basis for Customs allowing exports. In view of the customs RMS letting 80% to 95% of the exports without either assessing the documents or examining the records, there is a very high probability of any fraudster successfully exporting the goods (or even empty containers) and claiming the export incentives and profiting from it. The export promotion schemes are not treated as expenditure but are classified as 'Revenue Foregone' in the budget. The annual impact of these export promotion schemes is about Rs. 70,000 crores as can be seen from the table in the budget reproduced below:
Table IV: Revenue Impact on account of Export Promotion Schemes (Rs.
Crore) 13
Sl. Name of the Scheme Revenue Revenue
No. Impact Impact (2019-
(2018-19) 20)
(Estimated)
1 Advanced License Scheme 15,075 14,896
2 EOU/EHTP/STP/SEZ 5,734 6,022
3 EPCG 3,220 3,306
4 Duty Free Import Authorization 673 616
Scheme
5 Duty Free Entitlement Credit 140 78
Certificate
6 Service Export Incentive Scheme 3,756 7,008
13. https://www.indiabudget.gov.in/budget2020-
21/doc/rec/annex7.pdf accessed on 24 December 2021 27 7 Focus Market/Product Scheme 507 200 8 Merchandise Exports from India 36,615 40,934 Scheme 9 Total 65,720 73,060 10 Revenue impact on export linked 41,018 48,220 incentive schemes maintained at S. No. 5 to 8 11 Revenue impact on account of 24,702 24,840 input tax neutralization or exemption schemes
46. Thus, both the financial gain to an individual and the aggregate financial impact on the budget are large but the policy and schemes are not designed mainly to facilitate the good guys and genuine exporters and not to keep the crooks out. This balance is a matter of policy. Learned departmental representative was correct in stating that the officers work within their mandate which may not include physical verification of the premises of the exporters. Nevertheless, the burden of this very liberal, open, scheme and its potential misuse cannot be put at the doorstep of a Customs Broker. Just as the officer's responsibility ends with doing his part of the job (which may be issuing a registration without physical verification or allowing exports without assessing the documents or examining the goods), the Customs Broker's responsibility ends with fulfilling his responsibilities under Regulation 10 of the CBLR, 2018. In dispute in this case is CBLR 10(n) which, as we have discussed above, does not require any physical verification of the address of the exporter/importer and the appellant has fully met his obligations under Regulation 10(n).
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47. To sum up, the only allegation against the appellant in the impugned order is that it violated Regulation 10 (n) which we find is not true.
48. In view of the above, we proceed to answer the questions framed by us in paragraph 4 above. The answer to question (a) is that in the factual matrix of the case and evidence available on record, the Commissioner was not correct in holding that the appellant Customs Broker has violated Regulation 10(n) of CBLR, 2018. Consequently, the answer to questions (b), (c) and (d) are negative.
49. The impugned order cannot be sustained and is set aside and the appeal is allowed with consequential relief, if any.
(Pronounced in Court on 03.01.2022) (Justice Dilip Gupta) President (P. Venkata Subba Rao) Member (Technical)