2022 (12) TMI 483 - AT - Customs

Customs Brokers Not Liable for Exporter Verification

The appeals were allowed, and the impugned orders were set aside with consequential benefits. The Customs Brokers had fulfilled their obligations under ... Regulation 10(n) of the Customs Brokers Licensing Regulations, 2018 - verification of IEC and GSTIN - presumption of genuineness of government-issued certificates - obligation to verify identity and functioning at declared address using reliable, independent, authentic documents, data or information - no requirement on Customs Broker to re evaluate or supervise acts of issuing government officers - limits of due diligence by Customs Brokers - physical verification not mandatoryRegulation 10(n) of the Customs Brokers Licensing Regulations, 2018 - verification of IEC and GSTIN - presumption of genuineness of government-issued certificates - obligation to verify identity and functioning at declared address using reliable, independent, authentic documents, data or information - no requirement on Customs Broker to re evaluate or supervise acts of issuing government officers - Scope and ambit of the duty cast on a Customs Broker by Regulation 10(n). - HELD THAT: - Regulation 10(n) imposes four discrete duties: (a) verify correctness of IEC, (b) verify correctness of GSTIN, (c) verify identity of the client by reliable, independent, authentic documents/data/information, and (d) verify functioning of the client at the declared address by reliable, independent, authentic documents/data/information. Verification of IEC and GSTIN requires the broker to satisfy itself that such certificates/registrations were issued by the competent officers (for example, by online checks or comparison with originals) but does not require the broker to re investigate or ensure the correctness of the issuing officer's decision. Courts and statutes presume genuineness of government issued certificates; a broker is not to be treated as an inspector of government action. Identity and functioning can be established by independent, reliable and authentic documents/data/information (e.g., PAN, passport, Aadhaar, bank attestations, GST registration, IEC, etc.); physical inspection is an option but not mandated. Once a broker has performed verification in the manner permitted by the regulation, it is not obliged to maintain continuous surveillance of the client's subsequent conduct or to guarantee that issuing authorities did not err or that registrations remain valid thereafter. If a broker acquires knowledge of fraud or misrepresentation by the client, it must bring it to the notice of Customs; absent such knowledge, the broker need not sit in judgment over a valid registration.Regulation 10(n) requires verification as to issuance and client identity/functioning using reliable independent authentic materials but does not impose on the Customs Broker an obligation to re assess or police the correctness of certificates issued by government officers or to conduct mandatory physical verification in every case.Obligation to verify identity and functioning at declared address using reliable, independent, authentic documents, data or information - limits of due diligence by Customs Brokers - physical verification not mandatory - reliance on GSTIN/IEC as authentic evidence - Whether the evidence in the show cause notices established violation of Regulation 10(n) by the appellants in the three appeals. - HELD THAT: - The material relied upon by the Revenue consisted mainly of DGARM risk lists and verification reports concluding that certain exporters were 'non existent', 'non bonafide' or 'risky'. The tribunal examined the reports and the documents collected by the brokers (copies of IEC, PAN, Aadhaar, GST registration, bank attestations and AD code details) and found: (a) verification of IEC/GSTIN was satisfied where brokers relied on registrations which were not shown to be forged or invalid at the time of reliance; (b) identity and functioning obligations can be met by independent authentic documents and data and need not involve mandatory physical inspection; (c) the verification reports did not clarify whether the exporters never existed when the shipping bills were filed or whether the situation changed later; (d) reports often relied solely on GSTIN or returned letters and did not amount to proof that the brokers had failed to undertake the verification prescribed by Regulation 10(n); and (e) systemic issuance of registrations without physical checks, or later deterioration in the registrant's status, cannot be converted retrospectively into proof of the broker's non compliance absent evidence that the broker knew of or wilfully ignored fraud. Applying these principles to each appeal, the evidence in the show cause notices was inadequate to sustain findings of breach of Regulation 10(n).The evidence in the respective show cause notices did not establish that the appellants violated Regulation 10(n); the orders revoking licences, forfeiting security deposits and imposing penalties were unsustainable and were set aside.Final Conclusion: The tribunal held that Regulation 10(n) obliges Customs Brokers to verify issuance of IEC/GSTIN and the client's identity and functioning by reliable, independent and authentic documents, data or information but does not require brokers to re examine or supervise the correctness of government officers' actions or to conduct compulsory physical inspections; applying this standard, the evidence in the impugned show cause notices did not prove breaches by the appellants, and the cancellation/forfeiture/penalty orders were set aside with consequential benefits. Issues Involved:1. Scope of the obligation of the Customs Broker under Regulation 10 (n).2. Evidence adduced in each of the show cause notices to allege that the Customs Broker had not fulfilled its obligation under Regulation 10 (n).3. Sustainability of the impugned orders based on the evidence and submissions in defense by the appellant.Issue-wise Detailed Analysis:1. Scope of Regulation 10 (n):Regulation 10(n) requires the Customs Broker to verify the correctness of the 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 using reliable, independent, authentic documents, data, or information. The obligations can be broken down as follows:- Verify the correctness of IEC number and GSTIN (documents issued by government departments).- Verify the identity of the client using reliable, independent, authentic documents, data, or information.- Verify the functioning of the client at the declared address using reliable, independent, authentic documents, data, or information.The Customs Broker is not required to ensure that the government officers have correctly issued these documents. The verification of certificates part of the obligation is fully satisfied as long as the Customs Broker satisfies itself that the IEC and GSTIN were indeed issued by the concerned officers, which can be done through online verification, comparing with the original documents, etc. The onus on the Customs Broker does not extend to verifying that the officers have correctly issued the certificate or registration. The Customs Broker cannot sit in judgment over the certificate or registration issued by a Government officer so long as it is valid.2. Evidence Adduced in Show Cause Notices:Customs Appeal No. 50789 of 2021 - M/s Surya Jyoti Global Logistics:The show cause notice alleged that the appellant had processed exports for 13 exporters who did not exist. The evidence included:- RUD 1: A single-page e-mail from DGARM to the Commissioner stating that 2,710 risk exporters were identified, but no specific customs broker was mentioned.- RUD 2, 3 & 4: Verification reports indicating that the exporters (M/s A to Z International, M/s Suryavanshi Impex, and M/s T.R. Trading) were non-existent or not bonafide.The appellant had collected various documents from its clients, including IEC, PAN card, Aadhar card, GST registration, bank account details, and AD code details. The Commissioner held that these documents were not as per Board Circular 9/10-CUS. However, the reports did not clarify if the exporters never functioned from the premises or ceased to function after the exports.Customs Appeal No. 50790 of 2021 - M/s Hari Mohan Dwivedi:The show cause notice referred to 17 exporters indicated by DGARM as being not verified or traceable, but physical verification was conducted only for M/s Vintage Overseas. The sole verification report showed that the exporter was non-existent, but also clarified that several GST Returns had been filed and tax was paid. There was no evidence to support the view that the exporter never operated from that premises or that the Customs Broker had not verified the exporter as per Regulation 10 (n).Customs Appeal No. 51654 of 2021 - M/s Rajinder P. Kapur:The show cause notice alleged that 31 exporters were non-existent, but verification reports were enclosed only for three exporters (M/s ZAPP Incorporation, M/s G.R. Traders, and M/s Imperial Enterprises). The reports indicated that the exporters were non-existent or not bonafide, but did not establish that the exporters never operated from those premises or that the Customs Broker had not verified as per Regulation 10 (n).3. Sustainability of the Impugned Orders:In each of these cases, the evidence produced in the show cause notices did not support the allegations that the appellants had violated Regulation 10 (n) of CBLR. The Customs Broker is not required to obtain any 'Recommendation' or a certificate from any officer that the exporter is 'bonafide.' The impugned orders cannot be sustained based on the evidence provided.Conclusion:The appeals are allowed, and the impugned orders are set aside with consequential benefits. The Customs Brokers had fulfilled their obligations under Regulation 10 (n) and cannot be held responsible for the non-existence or non-bonafide status of the exporters as alleged. The burden of verifying the existence and functioning of the exporters lies with the government officers who issued the relevant documents.