Customs Broker Not Handling Export Consignment Not in Violation of Regulations 10(d) & 10(n)

Star India Logistics Vs Principal Commissioner of Customs (General) (CESTAT Mumbai)

CESTAT Mumbai held that appellants Customs Broker (CB) was not handling the export consignment hence it cannot be said that they had violated Regulation 10(d) and 10(n). Thus, revocation of license unjustified.

Facts- The appellant is a Customs Broker (CB) holding a regular CB license issued by the Mumbai Customs under Regulation 7(2) of Customs Brokers Licensing Regulations (CBLR), 2018. On the basis of specific intelligence, it was found that “Red Sanders” (Pterocarpus Santalinus), an endangered species and covered under Appendix-II of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) is being attempted to be exported in one export consignment.

On the basis of an adjudication order/offence report dated 04.11.2015 received from customs investigation authorities, the jurisdictional Principal Commissioner of Customs (General), Mumbai-I had concluded that there is a prima facie case against the appellants for having contravened Regulations 10(d) and 10(n) of CBLR, 2018. Accordingly, they had initiated show cause proceedings by issue of notice No.19/2023-24 dated 08.06.2023 for initiating inquiry proceedings under Regulation 17 ibid, against violations of CBLR as above.

Upon completion of the inquiry, a report dated 31.10.2023 was submitted by the Inquiry Authority concluding that both the charges framed against the appellants for violation of Regulations 10(d) and 10(n) of CBLR, 2018 have been ‘proved’. Accordingly, the Principal Commissioner of Customs (General), Mumbai, being the licensing authority had passed the impugned order dated 12.03.2024 under Regulations 17(7), 18 and 14 ibid, for revocation of CB License of the appellants and for forfeiture of entire amount of security deposit, besides imposition of penalty on the appellants. Being aggrieved, the present appeal is filed.

Conclusion- In the instant case, mis-declaration of the description of the goods in the S/B as ‘Kraft paper’, for smuggling out of the country the prohibited ‘Red Sanders’, was submitted by the CB M/s Exim Management Services, by filing the same online from their office, as it is evident from the face of the shipping Bill. Thus, there is no possibility for the appellants CB to either know the actual content of the export goods and to bring to the notice of the Deputy Commissioner of Customs (DC) or Assistant Commissioner of Customs (AC) about the mis-declaration of export goods or about the delay in transportation of such export goods. Thus, we are of the considered view that the violation of Regulation 10(d) ibid, as concluded in the impugned order is not sustainable.

Held that the appellants CB was not handling the export consignment, it cannot be said that they had violated Regulation 10(n) ibid. It is an undisputed fact that the appellants CB had no role to play in the export transaction and it is only M/s. Exim Management Services, Pune holding CB license No. CHA.PNR – 54 is the CB in the case. Thus, we find that the impugned order holding violation of Regulation 10(d) and 10(n) ibid on the appellants CB is not legally sustainable.

FULL TEXT OF THE CESTAT MUMBAI ORDER

This appeal has been filed by M/s Star India Logistics (herein after, referred to as ‘the appellants’), holders of Customs Broker License No. 11/976 assailing Order-in-Original CAO No.82/CAC/PCC(G)/SJ/CBS-Adj dated 12.03.2024 (herein after, referred to as ‘the impugned order’) passed by the learned Principal Commissioner of Customs (General), New Custom House, Ballard Estate, Mumbai-I.

1.2 Since the main appeal is being taken up for hearing and final disposal, and inasmuch as there is no legal provision in Customs statute for grant of stay by the Tribunal, the miscellaneous application No. 85209 of 2024 is dismissed as being infructuous.

2.1. Briefly stated, the facts of the case are that the appellants herein is a Customs Broker (CB) holding a regular CB license issued by the Mumbai Customs under Regulation 7(2) of Customs Brokers Licensing Regulations (CBLR), 2018. On the basis of specific intelligence developed by Customs officers of Special Intelligence & Investigation Branch-Exports [SIIB(X)], Jawaharlal Nehru Customs House (JNCH), it was found that “Red Sanders” (Pterocarpus Santalinus), an endangered species and covered under Appendix-II of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) is being attempted to be exported in one export consignment.

2.2 Further investigation conducted by SIIB-X revealed that Red Sanders, a prohibited item for export were smuggled in the guise of export of some other goods, viz., Craft Paper (Packing) in Container No. PMLU-9008054 from JNCH, Nhava Sheva Port to Jebel Ali Port, UAE against Shipping Bill (S/B) No. 8692568 dated 29.11.2013 filed by an exporter M/s. Kinjal Enterprises, Pune through the Customs Broker M/s. Exim Management Services (CHA.PNR – 54), Kothrud, Pune. Therefore, SIIB(X) conducted physical examination of the said container under Panchnama proceedings, which revealed that said container was fully loaded with Red Sanders wood of net weight of 24.770 MTs estimated to be valuedat Rs. 2,47,70,000/-. Further, investigation conducted by SIIB(X), thereafter, revealed that the said container was procured from M/s Perma Shipping Line (India) Pvt. Limited, Mumbai who handled it over to M/s. Skanda Navia Logistics Pvt. Ltd., a container forwarder, who in turn handed over it further to appellants CB. However, the S/B No. 8692568 dated 29.11.2013 for the impugned export was filed online by M/s. Exim Management Services (CHA No. PNR – 545) who appeared to be transacting entire business of M/s. Star India Logistics, Mumbai at Pune.

2.3 During the investigation conducted by SIIB(X), voluntary statement of Shri A.V Parapanje, Proprietor, M/s Exim Management Services, Pune, a CB was taken on 14.02.2014 under section 108 of the Customs Act, 1962; in the said statement he stated that the shipping bill was handled at the behest of the appellants CB and they have filed the S/B for the impugned export online from his office. Further, statement of Shri Mahadev Pandurang Khot, Export Manger of appellants CB M/s Star India Logistics was also recorded by SIIB(X), wherein, he inter-alia stated that the business relating to the impugned consignment was obtained by their erstwhile Business Development Manager, Shri Gopinath Patil who had left the job in the appellants CB company some time ago. They received copy of invoices and packing list by e-mail from Shri Durgesh P Chavan, Proprietor of exporter firm M/s. Kinjal Enterprises, Pune and they had also received KYC documents in respect of M/s. Durga Transport. The container No. PMLU-9008054 (40”) was passed out from ICD, Dighi, Pune on 02.12.2013 and reached at the JNPT, Nhava Sheva on 04.12.2013 at 10.00 AM. As the normal time required to reach the JNPT, Nhava Sheva from Pune is 4 to 5hours; and there was unexplained delay, the driver carrying the container on Vehicle No. MH-06 AC-9142 having mobile no. 9664321502 was contacted who in turn informed that it was getting delayed owing to breakdown of the vehicle and that he would reach JNPT by 04.12.2013 in the morning. The transportation of the container from ICD Dighi to Port was arranged by Shri Durgesh P. Chavan, proprietor of the exporter firm, after the cargo was stuffed into the container, by arranging the transport and the driver for the export consignment. Thus, it is the exporter who managed to take over the original shipment from ICD Dighi and on the way to the JNCH, Nhava Sheva Port, the said declared cargo was replaced with Red Sanders, which is prohibited for export. Therefore, Shri Durgesh P. Chavan appeared to be the mastermind who had devised the modus operandi ingeniously to succeed in the export of prohibited goods.

2.4 On completion of investigation conducted by SIIB(X), for the offences committed under the Customs Act, 1962, in respect of export shipment filed under S/B No. 8692568 dated 29.11.2013, the departmental authorities had initiated separate proceedings by issue of Show Cause Notice (SCN) dated 07.05.2014, which was adjudicated by the Additional Commissioner of Customs, JNCH in order dated 04.11.2015, by confiscating the prohibited ‘red sanders’ goods attempted for illegal export. However, he refrained in imposing penalties on the exporter and other co-noticees including the appellants CB, on the ground that the on-going investigation on the role of various persons has not been completed, reserving the department’s right to take action on the basis of further investigation.

2.5 On the basis of an adjudication order/offence report dated 04.11.2015 received from customs investigation authorities, the jurisdictional Principal Commissioner of Customs (General), Mumbai-I had concluded that there is a prima facie case against the appellants for having contravened Regulations 10(d) and 10(n) of CBLR, 2018. Accordingly, they had initiated show cause proceedings by issue of notice No.19/2023-24 dated 08.06.2023 for initiating inquiry proceedings under Regulation 17 ibid, against violations of CBLR as above.

2.6 Upon completion of the inquiry, a report dated 31.10.2023 was submitted by the Inquiry Authority concluding that both the charges framed against the appellants for violation of Regulations 10(d) and 10(n) of CBLR, 2018 have been ‘proved’. Accordingly, the Principal Commissioner of Customs (General), Mumbai, being the licensing authority had passed the impugned order dated 12.03.2024 under Regulations 17(7), 18 and 14 ibid, for revocation of CB License of the appellants and for forfeiture of entire amount of security deposit, besides imposition of penalty on the appellants. Feeling aggrieved with the impugned order, the appellants have preferred this appeal before the Tribunal.

3.1. Learned Advocate appearing for the appellants contends that both the allegations of violation of Regulations 10(d) and 10(n) of CBLR, 2018 have been countered by them. The main argument advanced by the learned Advocate against the impugned order dated 12.03.2024, is that the appellants was not involved in the customs clearance work related to the export transaction of M/s. Kinjal Enterprise, Pune. The appellants CB had duly transferred the KYC documents and other export documents such as invoice and packing list to a Pune based CB viz., M/s. Exim Management Services. It is only such CB who had filed the S/B in the present case is responsible for handling all aspects of Customs brokerage, including online filing of Shipping Bill, supervising the stuffing and other export clearance procedures, as they are a separate entity from the appellants CB. The role of the appellants was very minimal i.e., to procure the empty container from a forwarder and to hand it over to the exporter. Initially, when the order for export clearance was given, it was told by the exporter that it was to be exported from Mumbai; however, subsequently, the exporter informed that they intend to export the consignment from Inland Container Depot (ICD), Dighi, Pune. As the appellants did not have a clearance facility or office in Pune, the customs broking business for such export was given to the other CB, M/s Exim Management Services. Since, the appellants CB did not act as the customs broker for the export done by the said exporter, they claimed that they were not obligated to advise or report any non-compliance to the Customs authorities. Therefore, he claimed that the appellants did not contravene Regulation 10(d) and 10 (n) of CBLR, 2018.

3.2 Learned Advocate also stated that the appellants made sincere efforts to verify the credentials of the exporter and denies the allegation that they failed to follow the mandated Regulation 10 (n) ibid as they obtained certified copies of essential documents, including the Importer Exporter Code (IEC), PAN Card, Aadhar Card, VAT Registration Certificate, Bank Verification Letter, Notarized copy of Warehouse Rent Agreement, AD code Registration document, though not obliged under the Regulation. The physical verification of credentials is not explicitly mandated under the Regulations and they fulfilled their obligations by relying on the documents provided by the exporter. Thus he claimed that the appellants did not contravene these Regulations ibid.

3.3 Further, learned Advocate stated that the appellants CB was not aware of any illicit activities perpetrated by the exporter and could not have reasonably detected any fraudulent intent on the part of the exporter. They were not privy to the exporter’s actions and had no reason to suspect any wrongdoing, as they were not directly involved in the operational aspects of the export process for complicity.

3.4 In support of their stand, the learned Advocate had relied upon the following decisions of the Tribunal and the judgement of the Hon’ble High Court of Madras, in the respective cases mentioned below:

(i) KTR Logistics Solutions Pvt. Ltd. vs Commissioner of Customs – 2019 (12) TMI 22 – Madras HC

(ii) Leo Cargo Services Versus Commr. Of Cus., Airport & General, New Delhi– 2022 (382) E.L.T. 30 (Del.)

(iii) Bhagwandas s. Tolani Vs. B. C. Agarwal and Ors. – 1983 (12) ELT 44 (Bom)

(iv) Sheik Parith Vs. Commissioner of Customs, Chennai – 2020 (9) TMI 311- Madras HC

4. Learned Authorised Representative (AR) reiterated the findings made by the Principal Commissioner of Customs (General) in the impugned order and submitted that both the violations under sub-regulations (d) and (n) of Regulation 10 ibid, has been examined in detail by the Principal Commissioner. The appellants CB got all the documents for export from their previous employee/business development manager Shri. Gopinath Patil. Further, the appellants CB firstly received the e-mail copies of invoice, packing list etc. from Proprietor of exporter firm M/s Kinjal Enterprises. When the export container was delayed for reaching to JNCH, Customs, from Dighi, Pune, the export manager Shri Madhav Pandurang Khot, of the appellants CB contacted the truck driver, however they did not inform about the abnormal delay to JNCH Customs. Thus, learned AR justified the action of Principal Commissioner of Customs (General) in revocation of the appellant’s CB license, imposition of penalty and forfeiture of security deposit in the impugned order and stated that the same is sustainable in law.

5. We have heard both sides and perused the case records.

6.1. The issue involved herein is to decide whether the appellant Customs Broker has fulfilled all his obligations as required under CBLR, 2018 or not. The specific sub-regulations which were alleged to have been violated by the appellants are Regulations 10(d) and 10(n) ibid, and hence there are two distinct charges framed against the appellants. We find that the Regulation 10 of CBLR, 2018, provide for the obligations that a Customs Broker is expected to be fulfilled during their transaction with Customs in connection with import and export of goods. These are as follows:

“Regulation 10. Obligations of Customs Broker: –

A Customs Broker shall –

…

(d)advise his client to comply with the provisions of the Act and in case of non-compliance, shall bring the matter to the notice of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be;

…

(n) verify correctness of Importer Exporter Code (IEC)number, Good 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;”

6.2. We find that the Principal Commissioner of Customs had come to the conclusion that the appellants CB had violated the above stated sub-regulations (d) and (n) of Regulation 10 ibid as they had initially received the export documents through their erstwhile Business Development Manager, Shri Gopinath Patil before transferring it to the Pune based CB, and they failed to inform the customs authorities about the inordinate delay of the export consignment from Pune to JNCH. Further, he had also observed that the appellants did not produce any evidence that they received the documents directly from the exporter or had met the exporter. Thus, the adjudicating authority had passed the impugned order confirming all the allegations of violation of above Regulations of CBLR, 2018.

7. We would now take up for examination each of the alleged violations of CBLR, 2018, one by one, as follows. In respect of Regulation 10(d) ibid the adjudicating authority had found that the appellants CB did not personally meet the exporter firm M/s Kinjal Enterprises and obtained the documents from one of their previous employee/business development manager Shri. Gopinath Patil, and thus he concluded that the appellants CB neither in contact with the exporter nor informed the inordinate delay in export consignment from Pune to JNCH, Nhava Sheva. Hence he concluded that the appellants CB have violated Regulation 10(d) ibid.

8.1 From the facts of the case and the voluntary statements given by various persons during investigation of the case, it is seen that M/s. Exim Management Services, Pune (CHA No. PNR – 545) were the customs broker, who were actually transacting business with Customs authorities in respect of export consignment from ICD, Dighi, Pune by filing the S/B No. 8692568 dated 29.11.2013 on behalf of the exporter M/s. Kinjal Enterprises, Pune. The export documents have been filed by the CB M/s. Exim Management Services from their office before the Customs authorities of IDC, Dighi, Pune. Further, the appellants CB did not deal with any business transactions with Customs authorities at ICD, Dighi, Pune or at JNCH, Nhava Sheva. The CB M/s. Exim Management Services holding the CB license No. CHA.PNR – 54 are having separate and distinct identity. Hence for the omission and commission, if any, on the part of the CB M/s. Exim Management Services, who was handling the export consignment, the appellants CB cannot be held responsible. The reasoning given in the impugned order that initially the documents were received by the appellants CB is not relevant, since the actual export transaction had taken place through other CB at Pune, and the appellants CB have no role to play in such export transaction. For the same reason, the appellants CB are not required under CBLR to report about some other exports which is not being dealt by them at some other Customs station, as they do not have any locus standi in such matters.

8.2 In the instant case, mis-declaration of the description of the goods in the S/B as ‘Kraft paper’, for smuggling out of the country the prohibited ‘Red Sanders’, was submitted by the CB M/s Exim Management Services, by filing the same online from their office, as it is evident from the face of the shipping Bill. Thus, there is no possibility for the appellants CB to either know the actual content of the export goods and to bring to the notice of the Deputy Commissioner of Customs (DC) or Assistant Commissioner of Customs (AC) about the mis-declaration of export goods or about the delay in transportation of such export goods. Thus, we are of the considered view that the violation of Regulation 10(d) ibid, as concluded in the impugned order is not sustainable.

9.1 Learned Principal Commissioner of Customs (General) had come to the co inclusion that the CB had violated the provision of Regulation 10(n) ibid, on the ground that the appellants had never met the exporter/IEC holder, and they were not careful and diligent in undertaking the KYC verification process about the background of exporter.

9.2 We find from the records, that the appellants CB had initially obtained the KYC documents from the exporter and once they were not handling the export consignment, they had sent it to other CB or persons concerned with such export at Pune. Thus, the appellants CB has no role to play in respect of export documents handled by one another CB at Pune.

9.3 Further, we also find that the Hon’ble High Court of Delhi has held in the case of Kunal Travels (Cargo) Vs. Principal Commissioner of Customs (I&G), IGI Airport, New Delhi reported in 2017 (354) E.L.T. 447 (Del.), that the appellants CB is not an officer of Customs who would have an expertise to identify mis-declaration of goods. The relevant portion of the said judgement is extracted below:

“The CHA is not an inspector to weigh the genuineness of the transaction. It is a processing agent of documents with respect to clearance of goods through customs house and in that process only such authorized personnel of the CHA can enter the customs house area…………… 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.”

9.4 From the above order of the Tribunal and on the basis of the factual matrix of the present case, particularly when the appellants CB was not handling the export consignment, it cannot be said that they had violated Regulation 10(n) ibid. Further, it is not the case that the appellants CB is the customs broker, who had handled the export consignment, in order to apply the ratio of judgement of the Hon’ble Supreme Court in the case of K.M. Ganatra and Co., It is an undisputed fact that the appellants CB had no role to play in the export transaction and it is only M/s. Exim Management Services, Pune holding CB license No. CHA.PNR – 54 is the CB in the case. Thus, we find that the impugned order holding violation of Regulation 10(d) and 10(n) ibid on the appellants CB is not legally sustainable.

10. In view of the foregoing discussions, we do not find any merits in the impugned order passed by the learned Principal Commissioner of Customs (General), Mumbai in revocation of the CB license of the appellants; for forfeiture of security deposit and for imposition of penalty, inasmuch as there is no violation of regulations 10(d) and 10(n) ibid, and the findings in the impugned order is contrary to the facts on record.

11. Therefore, by setting aside the impugned order dated 12.03.2024, we allow the appeal in favour of the appellants.

(Order pronounced in open court on 26.08.2024)