Reasonable verification under Customs Broker compliance rules does not require physical inspection or scrutiny of government-issued registrations.
Regulation 10(n) requires a Customs Broker to carry out reasonable verification of the client's IEC, GSTIN, identity and functioning at the declared address using reliable, independent and authentic documents, data or information. The commentary states that this duty does not extend to checking whether government registrations were properly granted or to mandatory physical inspection of every client's premises, and that continuous post-verification surveillance is not required. It further notes that later non-traceability or risk reports, without proof that verification failed when the shipping documents were filed, are insufficient to establish non-compliance for revocation, forfeiture or penalty.
Issues: (i) What is the scope of the Customs Broker's obligation under Regulation 10(n) of the Customs Brokers Licensing Regulations, 2018? (ii) Whether the material relied upon in the show cause notices established non-compliance with Regulation 10(n) so as to sustain the orders revoking the licences, forfeiting security deposits and imposing penalties?
Issue (i): What is the scope of the Customs Broker's obligation under Regulation 10(n) of the Customs Brokers Licensing Regulations, 2018?
Analysis: Regulation 10(n) requires verification of the correctness of IEC and GSTIN, the identity of the client, and the functioning of the client at the declared address by using reliable, independent and authentic documents, data or information. The obligation is one of reasonable verification and does not require the Customs Broker to investigate whether Government-issued registration documents were correctly granted by the issuing officers, nor to conduct a physical inspection of every client's premises. The Customs Broker may satisfy the requirement by relying on authentic government-issued documents and other reliable independent material, and is not expected to maintain continuous surveillance over the client after such verification.
Conclusion: The obligation under Regulation 10(n) does not extend to ensuring the correctness of issuance of government registrations or to mandatory physical verification of the premises.
Issue (ii): Whether the material relied upon in the show cause notices established non-compliance with Regulation 10(n) so as to sustain the orders revoking the licences, forfeiting security deposits and imposing penalties?
Analysis: The verification reports relied upon in the notices showed only that certain exporters were found non-existent or not traceable at the time of verification, or that some reports described them as risky, non-bonafide, or requiring further verification. The reports did not establish that the exporters were fictitious when the shipping bills were filed, nor did they show that the Customs Brokers had failed to collect and verify IEC, GSTIN, PAN, Aadhaar, bank details and AD code documents. The material also did not demonstrate any obligation under Regulation 10(n) to obtain officer-level certification that the exporters were bona fide. In these circumstances, the evidence was insufficient to prove violation of Regulation 10(n).
Conclusion: The impugned orders were not sustainable on the evidence relied upon and were liable to be set aside.
Final Conclusion: The appeals succeeded, and the licence revocations, forfeitures and penalties imposed on the appellants were quashed.
Ratio Decidendi: A Customs Broker satisfies Regulation 10(n) by conducting reasonable verification through reliable, independent and authentic documents, data or information, and cannot be penalized merely because the client's registration was later found defective or the client was found non-existent on subsequent physical verification, absent proof of failure to verify at the relevant time.