Custom, Excise & Service Tax Tribunal
Sunglory Agency vs -Kolkata(Admn Airport) on 31 March, 2023
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
KOLKATA
REGIONAL BENCH - COURT NO.2
Customs Appeal No. 75665 of 2022
(Arising out of Order-in-Original No. KOL/CUS/AIRPORT/ADMN/023/2022 dated
08.08.2022 passed by Commissioner of Customs (Airport & ACC), Kolkata.
M/s Sunglory Agency,
303, Ashok Road, Ganguly Bagan, Kolkata-700084.)
..Appellant
VERSUS
Commissioner of Customs (Admn. & Airport), Kolkata.
15/1, Strand Road, Customs House, Kolkata-700001.
.. ...Respondent
APPERANCE :
Shri Arijit Chakraborty, Advocate for the Appellant Shri M. P. Toppo, Authorized Representative for the Respondent CORAM:
HON'BLE MR. P. K. CHOUDHURY, MEMBER (JUDICIAL) HON'BLE MR. K. ANPAZHAKAN MEMBER (TECHNICAL) FINAL ORDER No...75193/2023 DATE OF HEARING : 25.03.2023 DATE OF PRONOUNCEMENT: 31st March, 2023 PER K. ANPAZHAKAN :
1. The facts of the case are that the appellants were issued with a Show Cause Notice No.05/2020 dated 16.10.2020, under Regulation 17(1) of CBLR, 2018 by the Ld. Principal Commissioner of Customs (Airport & ACC), Customs House, Kolkata alleging, inter alia, that the appellants have violated Regulation 10(n) of CBLR, 2018. Accordingly, they were asked to show cause as to why their CB Licence should not be revoked and their security deposit should not be forfeited under Regulation 14 of CBLR, 2018. The Show Cause Notice was issued on the basis of an alleged offence Report dated 17.08.2020 issued by the Joint Director, Directorate General of Analytics and Risk Management (in short 'DGARM') wherein it was alleged that on analysing data for 2710 adversely reported cases, DGARM has identified 2005 risky-exporters involved in IGST refund fraud and it was revealed that total 62 Customs Brokers (CBs in short) had handled the consignments of such risky-2
Cus.Appeal No./75665 of 2022 exporters. It was also alleged therein that such 62 CBs have violated KYC guidelines under CBLR, 2018 read with Board's Circular No. 09/2010-Cus dated 08.04.2010 and accordingly, a request was made to initiate an inquiry for violation of KYC guidelines under CBLR, 2018. A list consisting details of 10 exporters where the present appellants acted as CB was enclosed to the said alleged offence Report of DGARM.
2. An Assistant Commissioner of Customs, Airport & ACC Commissionerate was appointed as Inquiry Officer in the said SCN. The appellants under their letter dated 15.12.2020 before the Ld. Inquiry Officer submitted reply to the said SCN and contended, inter alia, that they were having in their possession all the KYC documents for all the exporters and accordingly, they prayed for dropping of the proceeding.
3. Under letter dated 12.04.2021, the Ld. Assistant Commissioner of Customs, CB Section, Customs House, Kolkata forwarded a copy of the Inquiry Report dated 18.03.2021 of the Ld. Inquiry Officer wherein the Ld. Inquiry Officer has recorded the details of KYC documents submitted by the appellants for all exporters and ultimately held that there was no violation of Regulation 10(n) of CBLR, 2018 on the part of the appellants. Accordingly, he dropped the charges. Vide order No. KOL/CUS/Airport/ADMN/023/2022 dated 08.08.2022, passed by the Ld. Principal Commissioner of Customs (Airport & ACC), Customs House, Kolkata, the CB Licence of the appellants have been ordered to be revoked with forfeiture of the full amount of security deposit under Regulation 14 read with Regulation 17 of CBLR, 2018 for violation of Regulation 10(n) of CBLR, 2018. Further, penalty of Rs.50,000/- has been also been imposed upon the appellants under Regulation 18 of CBLR, 2018.
4. Being aggrieved by and dissatisfied with the impugned order dated 08.08.2022, the appellants preferred the present appeal before this Tribunal under Regulation 19 of CBLR, 2018 read with Section 129A of the Customs Act, 1962. To comply with the provisions of Section 129E of the Customs Act, 1962, the appellants have also pre-deposited an amount of Rs.5,000/- being 10% of the imposed penalty vide TR-6 3 Cus.Appeal No./75665 of 2022 challan dated 18.08.2022 under Customs receipt no. 50 dated 18.08.2022.
5. The Appellant contented that the Ld Principal Commissioner has arrived at the above decision on the basis of the premise that the CB has not done any physical verification of the premises of the 10 exporters; they had not persuaded the exporters to refund back the IGST to the department; and, they had not informed the department about the vanishing/ un-traceability of the exporters at any stage. On the basis of such findings, he had inferred that the CB has played a pivotal role in defrauding the Government Revenue.
6. The Appellant further contented that the Ld. Principal Commissioner of Customs has arrived at an adverse conclusion against the CB/appellants upon disagreement with the Inquiry Report in complete defiance of the requirements of law provided under Regulation 10(n) of CBLR, 2018. Regulation 10(n) of CBLR, 2018 requires a CB to verify correctness of IEC, GSTIN, Identity & Functioning of his client at the declared address by using reliable, independent authentic documents, data or information. However, in the present case, the appellants CB had verified IEC, GSTIN, PAN, Aadhar etc. of all the exporters under question from the respective official websites of the respective Governmental Authorities and had also verified the identity & functioning of each exporter from respective acknowledgment letters of Nationalized Banks confirming the signature and functioning of the respective exporter and hence, there cannot be any violation of Regulation 10(n) of CBLR, 2018 on the part of the appellants.
7. The Appellant further contented that the Ld. Pr. Commissioner has failed to appreciate that if the Government or Banks with all their men and machinery while issuing IEC/GSTIN/PAN/Aadhar etc. to any person did not question the existence of the said person/ exporter, the CB cannot be held responsible for subsequent non-existence of such person/ exporter.
8. The Appellant also contented that in terms of Regulation 17(7) of CBLR, 2018, the Principal Commissioner of Customs was under the obligation to pass his Final Order within ninety days from the date of 4 Cus.Appeal No./75665 of 2022 submission of such Report by the Inquiry Officer which expired on 16.06.2021, in this case. He also argued that no order was passed by the Ld. Principal Commissioner for rejection or disagreement to the said Inquiry Report. The appellant's contention is that in terms of Regulation 17(6) of CBLR, 2018, the Ld. Principal Commissioner or Commissioner of Customs is only required to furnish a copy of Inquiry Report of the Inquiry Officer to the CB requiring his representation, if any, against the said Report. There is no scope of any disagreement to the findings of the Inquiry Officer under CBLR, 2018 . Accordingly, he argued that the impugned order dated 08.08.2022 passed by the Ld. Principal Commissioner in disagreement of the Inquiry Report dated 18.03.2021 in the present case is bad in law and liable to be quashed.
9. The Appellants cited various Circulars issued by the Central Board of Excise and Customs and argued that they have fulfilled all the Instructions issued by the Board and complied with all the verifications required and precautions required to be taken , as stipulated in the said circulars. For the purpose of easy reference, the Circular No. 9/2010- as dated 8.4.2010 is reproduced below:
Government of India Ministry of Finance (Department of Revenue) Central Board of Excise & Customs, New Delhi Circular 9/2010-Cus, dated 8.4.2010 Subjec: Issue of Customs House Agent Licence -- Reference from field formations - Regarding.
It has been brought to the notice of the Board by certain field formations that they are facing difficulties in issuance of Custom House Agents (CHA) License for eligible persons and in implementation of the Custom House Agents Licensing Regulations (CHALR), 2004.
2. These issues were examined by the Board in consultation with customs field formations and in the Board meeting. Further, a meeting was also held with the Chief Commissioners of Customs having jurisdiction over major Custom Houses. Accordingly the following decisions have been taken on the issues listed below :-
(i) Minimum number of CHAs required in a Customs station :5
Cus.Appeal No./75665 of 2022
3. Regulation 4 of the CHALR, 2004 provides the process of issue of CHA licences whereby the Commissioner of Customs may invite applications for the grant of such number of licences as assessed by him, to act as Customs House Agents in a customs station. The CHALR, 2004 do not provide for any restrictions on the number of CHAs. Board is of the view that, ideally, no restriction should be placed on the number of CHAs operating in the Custom Houses and the market forces should govern the number of proficient and qualified persons required to carry out the job of CHA commensurate with the volume of import/export cargo. The Board also did not find any justification in prescribing a turnover based criteria for ascertainment of the number of CHA licenses required to be issued at a particular Custom House/Station, inasmuch as the practice of undertaking CHA services on the basis of Form 'C' intimation was already in vogue and would render such exercise meaningless. The Board, therefore, has decided against fixing a numeric criterion governing the number of CHA licenses being issued. Board has also decided that the examination under Regulation 8 shall be conducted on an annual basis instead of twice a year, by suitably amending the sub-regulation (1) to Regulation 8.
(ii) Employment of person by a CHA :
4. In the present scheme of CHALR, 2004 under regulation 19(1), the Custom House Agent may employ any person who shall have a minimum educational qualification of 10+2 School education. However, appointment of such person shall be made only after obtaining approval of the Deputy Commissioner/Assistant Commissioner (DC/AC) designated by the Commissioner of Customs, who shall take into consideration the antecedents and character of the person as provided in regulation 19(2) of CHALR, 2004. In this regard, Board has decided that the DC/AC concerned, may ensure that individuals involved in any fraudulent activity (i.e., individuals suspended or blacklisted or denied permission to work in any section of the Custom House) shall not be allowed to be employed by a CHA for transacting business with Customs. Necessary undertaking in this regard may also be taken from the CHA at the time of submission of application giving details of the person who are proposed to be employed by them.
4.2 CHALR, 2004 do not provide for any restriction on the number of persons a CHA can employ as it would depend upon the workload and requirements of a CHA. However, under the regulation 19(3), any person employed by CHA is required to appear through an examination conducted by DC/AC designated or a Committee of officers to ascertain the adequacy of the knowledge of such persons about the provisions of the Customs Act, 1962 before they are granted 'G' Card. Hence, it is reiterated that it is only those persons who have qualified themselves in the examination conducted under regulation 19(3) and who have been authorized by CHA in terms of regulation 19(5) alone are allowed to sign the declarations filed before Customs for transacting the work at any Custom station. Those persons who 6 Cus.Appeal No./75665 of 2022 have not qualified in the examination but who are still in employment with CHA are being given 'H' card for assisting the CHA in his work. However, the Commissioner of Customs in a Custom House/Station shall undertake an annual review of such 'H' Cardholders with each CHA to ensure that discredited individuals are not being allowed to work as 'H' Cardholders. The examination under Regulation 19(3) shall also be conducted by Commissionerate of Customs on annual basis.
(iii) Suspension or revocation against CHAs operating on 'C' form intimation basis :
5.1 CHALR, 2004 provide a facility for the CHAs who have been issued a license from a particular customs station to operate under Form 'C' intimation at another customs station. In case of such CHAs, who are found to have violated any provision of the CHALR, 2004 at any customs station, it is clarified that the suspension action against CHA's operations may be taken by the Commissioner of Customs at the station who issued the CHA license and such action would either be limited to a particular customs station where a violation has been noticed or action against the CHA in general, applicable at all customs stations where the CHA operates, depending upon the gravity and seriousness of the violation. Where the CHA licence is suspended, all 'G' and 'H' cards issued in respect of that licence would become non-operational.
5.2 Further, it is also clarified that the Commissioner of Customs at a customs station who had authorised a CHA to operate on 'C' form intimation, should inform the details of violations to the Commissioner of Customs at the customs station from where the CHA licence was issued for such CHA, so that necessary action for suspension or revocation of CHA licence, could be initiated by him. This would avoid duplication and ensure uniformity in adjudication of a case against a CHA in suspension or revocation proceedings by the Customs field formations. However, the Commissioner of Customs, who had authorised a CHA to operate on 'C' form intimation at a customs station, may take action in deserving cases under regulation 21 of CHALR, 2004 for prohibiting the working of such defaulting CHA in any section of the Custom House/Customs Station.
(iv) Know Your Customs (KYC) norms for identification of clients by CHAs :
6. In the context of increasing number of offences involving various modus-operandi such as misuse of export promotion schemes, fraudulent availment of export incentives and duty evasion by bogus IEC holders etc., it has been decided by the Board to put in place the "Know Your Customer (KYC)" guidelines for CHAs so that they are not used intentionally or unintentionally by importers/exporters who indulge in fraudulent activities.
Accordingly, Regulation 13 of CHALR, 2004, has been suitably amended to provide that certain obligations on the CHAs to verify the antecedent, correctness of Import Export Code (IEC) Number, 7 Cus.Appeal No./75665 of 2022 identity of his client and the functioning of his client in the declared address by using reliable, independent, authentic documents, data or information. In this regard, a detailed guideline on the list of documents to be verified and obtained from the client/customer is enclosed in the Annexure. It would also be obligatory for the client/customer to furnish to the CHA, a photograph of himself/herself in the case of an individual and those of the authorised signatory in respect of other forms of organizations such as company/trusts etc., and any two of the listed documents in the annexure.
(v) Time limit for completion of suspension proceedings against CHA licensee under regulation 22 :
7.1 The present procedure prescribed for completion of regular suspension proceedings takes a long time since it involves inquiry proceedings, and there is no time limit prescribed for completion of such proceedings. Hence, it has been decided by the Board to prescribe an overall time limit of nine months from the date of receipt of offence report, by prescribing time limits at various stages of issue of Show Cause Notice, submission of inquiry report by the Deputy Commissioner of Customs or Assistant Commissioner of Customs recording his findings on the issue of suspension of CHA license, and for passing of an order by the Commissioner of Customs. Suitable changes have been made in the present time limit of forty five days for reply by CHA to the notice of suspension, sixty days' time for representation against the report of AC/DC on the grounds not accepted by CHA, by reducing the time to thirty days in both the cases under the Regulations.
7.2 In cases where immediate suspension action against a CHA is required to be taken by a Commissioner of Customs under regulation 20(2), there is no need for following the procedure prescribed under Regulation 22 since such an action is taken immediately and only in justified cases depending upon the seriousness or gravity of offence. However, it has been decided by the Board that a 'post-decisional hearing' should be given in all such cases so that errors apparent, if any, can be corrected and an opportunity for personal hearing is given to the aggrieved party. Further, Board has also prescribed certain time limits in cases warranting immediate suspension under Regulation 20(2).
Accordingly, the investigating authority shall furnish its report to the Commissioner of Customs who had issued the CHA license (Licensing authority), within thirty days of the detection of an offence. The Licensing authority shall take necessary immediate suspension action within fifteen days of the receipt of the report of the investigating authority. A post-decisional hearing shall be granted to the party within fifteen days from the date of his suspension. The Commissioner of Customs concerned shall issue an Adjudication Order, where it is possible to do so, within fifteen days from the date of personal hearing so granted by him.
(vi) CHA licenses in respect of individuals who had passed the examination under CHALR, 1984 :
8Cus.Appeal No./75665 of 2022 8.1 The issue of granting CHA license in respect of persons who had already passed the written and oral examinations held under Regulation 9 examination of Customs House Agents Licensing Regulations (CHALR), 1984 and are yet to be considered for issue of CHA license, was examined by the Board. On this issue, the Board in its earlier meeting had held that with the introduction of CHALR, 2004, there was no generalized case for grant of CHA licence to such applicants having passed Regulation 9 examination under CHALR, 1984 as the requirements of educational qualification and also examination curriculum were different in the two regulations. Considering the hardships experienced by such persons and in order to remedy the situation by providing one time opportunity to qualify them for grant of CHA license, It has been decided by the Board to conduct written examination for these persons on the following additional subjects : (a) The Patents Act, 1970 and Indian Copy Right Act, 1957 (b) Central Excise Act, 1944 (c) export promotion schemes (d) Procedure on appeal and revision petition (e) Prevention of Corruption Act, 1988 and (f) online filing of electronic Customs declarations, (g) Narcotic Drugs and Psychotropic Substances Act, 1985 and (h) Foreign Exchange Management Act, 1999. The aforesaid examination would be conducted by the Directorate General of Inspection after giving due notice to these candidates.
Accordingly, persons who qualify in the aforesaid examination shall be deemed to have passed under the Regulation 8 of Customs House Agents Licensing Regulations, 2004, and would be considered for grant of CHA license in terms of Regulations 9 of CHALR, 2004 by the concerned Commissionerate from where they had earlier passed the CHA examination held under CHALR, 1984.
8.2 Board also took note of the fact that these candidates had passed the CHA examination held under CHALR, 1984 based on the qualification prevailing at that relevant point of time, and that a precedent existed wherein a dispensation was prescribed vide Board's Circular No. 48/2000-Customs, dated 22-5-2000 [2000 (118) E.L.T. (T65)] (for a specific period. Accordingly it was also decided by the Board that in case of Regulation 9 examination passed candidates under the CHALR, 1984, the relaxation provided in respect of educational qualifications vide Board's Circular No. 48/2000-Customs shall be extended on similar basis.
9. The aforesaid decisions of the Board involving change in the CHALR, 2004, has been implemented by issue of Notification No. 30/2010-Customs (N.T.), dated 8-4-2010.
10. These instructions may be brought to the notice of the trade by issuing suitable Trade/Public Notices. Suitable Standing orders/instructions may be issued for the guidance of the field officers.
11. Difficulties faced, if any, in implementation of this Circular, changes made in the CHALR, 2004 may be brought to the notice of the Board immediately.
9Cus.Appeal No./75665 of 2022 Annexure Client/Customer Identification Procedure Features to be verified and documents to be obtained from clients/customers S. Form of Features to Documents to be No organisation be verified obtained 1 Individual (i) Legal (i) Passport name and any other (ii) PAN card names used
(ii) Present (iii) Voter's and Identity card Permanent address, in (iv) Driving licence full, complete (v) Bank account and correct. statement
(vi) Ration card Note : Any two of the documents listed above, which provides client/customer information to the satisfaction of the CHA will suffice.
2 Company (i) Name of (i) Certificate of
the company incorporation
(ii) principal (ii) Memorandum
place of of Association (iii)
Articles of
business Association
(iii) mailing (iv) Power of
address of Attorney granted to
the company its managers,
officers or
(iv) employees to
telephone, transact business
fax number, on its behalf
e-mail
address. (v) Copy of PAN
allotment letter (vi)
Copy of telephone
bill
3 Partnership (i) Legal (i) Registration
firm name certificate, if
registered
(ii)
10
Cus.Appeal No./75665 of 2022
Permanent (ii) Partnership
address, in deed
full,
complete (iii) Power of
and correct. Attorney granted to
a partner or an
(iii) Name of employee of the
all partners firm to transact
and their business on its
addresses, in behalf
full complete
and correct. (iv) Any officially
valid document
(iv) identifying the
telephone, partners and the
fax number, person holding the
e-mail Power of Attorney
address of and their addresses
the firm and
partners. (v) Telephone bill
in the name of
firm/partners
4 Trusts, (i) Name of (i) Certificate of
Foundations trustees, Registration, if
registered
settlers,
beneficiaries (ii) Power of
and Attorney granted to
signatories transact business
on its behalf (iii)
(ii) Name Any officially valid
and address document to
of the identify the
founder, the trustees, settlers,
managers, beneficiaries and
Directors those holding the
and the Power of Attorney,
beneficiaries, founders/managers/
in full, directors and their
complete addresses
and correct.
(iv) Resolution of
(iii) the managing body
Telephone of the foundation/
and fax association
number, e-
mail address (v) Telephone bill
of the trust,
founder and
trustees.
11
Cus.Appeal No./75665 of 2022
10. The Appellants contended that as per the Annexure to the above circular No. 9/2010 dt. 8.4.2010, they have obtained all the documents and hence they have not violated any of the provisions of Regulation 10(n) of the CBLR, 2018.
11. 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 Service Tax Identification Number GSTIN), identity of his client and functioning of his client at the declared address by using reliable, independent, authentic documents, data or information" as provided in Regulation 10(n) of the CBLR 2018.The Departmental Representative argued that as the appellant failed to discharge this obligation they are liable for the consequences of revocation of their licence, forfeiture of the security deposit and imposition of penalty. The Departmental Representative cited the CBIC Circular No. 9/2010-Customs dated 8.4.2010 giving KYC guidelines and argued 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 number of exporters facilitated by the CB 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 the CB have failed to do. Accordingly, they argued that the order passed by the Ld Principal Commissioner of Customs is sustainable.
12. Heard both the appellants and the Departmental Representative. We observe that the issue in this case falls in a narrow compass. The questions which need to be answered are:
12Cus.Appeal No./75665 of 2022
a) Given the factual matrix of the case and the evidence available on record, whether the Ld Principal Commissioner was 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?
13. The appellant's submissions before the Inquiry Officer, the adjudicating authority as well as before us is that they had carried out the due diligence as required under Regulation 10(n) by obtaining the documents such as;
(i) Authorization 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 Card of the firms and the partners
(viii) Cancelled Cheques
(ix) Rent Agreement However, in the impugned order, the Ld Principal Commissioner has concluded that the CB has not verified the above said documents as prescribed in the Annexure to the said circular. We find that the CB has taken the documents such as IEC, PAN, Aadhar, Electricity Bill, Rent Agreement, AD Code letter from the Bank, Rent Agreement, GST Registration KYC form, etc. Many of these documents were issued by various Government Agencies, which substantiate the existence of the exporters at the relevant time of issue of these documents.
14. We find that paragraph 6 of the Circular 9/2010-Cus dated 8.4.2010 requires the client to furnish to the CHA, a photograph of himself / herself, in the case of an individual and those of the authorized signatory in respect of other forms of organization such as 13 Cus.Appeal No./75665 of 2022 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.
15. The Customs Brokers play an important role in the Customs administration and have to fulfill 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 attached to the DGARM Report. All of them show that the GSTIN were issued by the same department and in most of the cases, the GST Returns were also filed and even the detail 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. The reports also indicate that the exporters were not eligible for the input tax credit (ITC) under the GST. As far as 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.
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16. Regulation 10(n) of CBLR 2018 assigns certain responsibilities to the CB. For the sake of easy reference, the said Regulation reproduced below:
"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.,"
We have to examine whether the CB has complied with the provisions of the above said regulation. We find that the Tribunal has examined the scope of these obligations in the case of M/S Anax Air Services Pvt Limited Vs Commissioner of Customs, (Airport and General), New Delhi. The facts of the present case are squarely covered by the aforesaid decision of the Tribunal. The relevant portion of the order is reproduced below:
"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 15 Cus.Appeal No./75665 of 2022 GST officers under the Central Board of 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 who issued these documents. It would also mean that the Regulations under the Customs Act will 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:
"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 16 Cus.Appeal No./75665 of 2022 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:
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 17 Cus.Appeal No./75665 of 2022 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 satisfied that the appellant has fulfilled this part of the obligation under Regulation 10(n).
27. The fourth 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 18 Cus.Appeal No./75665 of 2022 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 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 19 Cus.Appeal No./75665 of 2022 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 Travels 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 20 Cus.Appeal No./75665 of 2022 who issued them must be more serious offenders. There is nothing in the reports of the jurisdictional officers to indicate as to why and how the GST registration was 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 organizations (including the jurisdictional GST officer who issued the registration) 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 license 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.
34. On a query from the bench as to how the Custom Broker can be fouled 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 21 Cus.Appeal No./75665 of 2022 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 these documents."
17. From the above discussion, we find that physical verification of the business premises is not an obligation cast upon the CB, under Rule 10(n) of CBLR, 2018.
18. The Tribunal in the above said Order further examined the reliability of these documents issued by various Government agencies and analyzed the scope of the Custom Broker in relying on these documents to fulfill their obligations under CBLR 2018.
"38. As far as these documents issued by various Government officers are concerned, the submission of the Departmental Representative is interesting and needs a deeper examination. It is his submission 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 22 Cus.Appeal No./75665 of 2022 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 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 23 Cus.Appeal No./75665 of 2022
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 Study12 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 24 Cus.Appeal No./75665 of 2022 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 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."
19. On the basis of the above observations, the Tribunal, in the case of Anax Air Services Pvt Ltd concluded as under:-
"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 25 Cus.Appeal No./75665 of 2022 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).
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."
20. We find that the ratio of the above said order of the Tribunal is squarely applicable in this case. In the present case also, the original Offence report was based on the DGARM Report, as in the case of Anax Air Services Pvt. Ltd., cited above. In the present case also, as per DGARM Report, the 10 exporters facilitated by the appellant were later found to be non-existent during subsequent verification by the department. The appellant has verified all the documents such as IEC, GSTIN, Aadhar, PAN etc. submitted by the exporters before processing their shipping bills. Later if they were not found to be existing in the said addresses, the appellant cannot be held responsible for that as held by the principal bench in the case of Anax Air Services, under similar facts and circumstances.
21. 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.
22. In view of the above, we proceed to answer the questions framed by us in paragraph 12 above. The answer to question (a) is that in the 26 Cus.Appeal No./75665 of 2022 factual matrix of the case and evidence available on record, the Ld. Principal 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.
23. Therefore, the impugned order cannot be sustained and is set aside and the appeal is allowed with consequential relief, if any.
(Pronounced in the open court on.31st March, 2023.........) Sd/-
(P. K. Choudhury) Member (Judicial) Sd/-
(K. Anpazhakan) Member (Technical) Tushar