Customs broker penalties under sections 114(iii) and 114AA overturned due to lack of substantial evidence proving connivance in overvaluation

CESTAT Chennai allowed appeals by customs broker against penalties under sections 114(iii) and 114AA of Customs Act, 1962 for alleged overvaluation of goods. The tribunal held that the broker had exercised due diligence by obtaining proper authorization, KYC documents, IEC, PAN, and GST registration details from the exporter. The department failed to establish connivance or abetment in overvaluation, relying only on circumstantial evidence that a letter from exporter was dispatched from broker's location. The tribunal emphasized that allegations against customs brokers affecting their livelihood require substantial evidence, which was lacking. The impugned orders were set aside.

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Issues Involved:

1. Alleged overvaluation of goods for export.
2. Imposition of penalties under Section 114(iii) and 114AA of the Customs Act, 1962.
3. Application of Section 147(3) of the Customs Act, 1962 to deem the Customs Broker as the exporter.
4. Role and due diligence of the Customs Broker in verifying KYC documents.
5. Prior revocation of the Customs Broker's license under CBLR, 2018.

Summary:

Overvaluation of Goods:
The department alleged that the exporter inflated the value of "Air Inlet Automobile spare parts" to claim ineligible MEIS benefits and undue IGST refunds. Market enquiry revealed a significant discrepancy between the declared value and the actual market price, leading to the seizure of goods and issuance of a Show Cause Notice under Section 124 of the Customs Act, 1962.

Imposition of Penalties:
Penalties were imposed on the appellants under Section 114(iii) and 114AA of the Customs Act, 1962, holding them liable as agents of the exporter. The original authority imposed penalties totaling Rs. 8,00,00,000 on various appellants, asserting they acted as agents and thus were deemed to be the exporter under Section 147(3) of the Customs Act, 1962.

Application of Section 147(3):
The Tribunal found that Section 147(3) does not bind the Customs Broker (CHA/CB) who acts on behalf of the importer/exporter with the goods. The Tribunal cited the case of Gajanan B. Sudrik vs. CC(EP) Mumbai to support this argument, stating that the principal is not bound by unauthorized acts of an agent.

Role and Due Diligence of the Customs Broker:
The Customs Broker obtained all necessary KYC documents, including IEC, PAN details, and GST registration, before filing the shipping bills. The Tribunal noted that the Customs Broker exercised due diligence and there was no evidence of connivance or abetment in the overvaluation of goods. The Tribunal referenced the case of Kunal Travels (Cargo) vs CC (ING) New Delhi, emphasizing that due diligence by the CHA does not imply intent to defraud unless proven otherwise.

Revocation of License under CBLR, 2018:
A Show Cause Notice was issued under CBLR, 2018, alleging violations and proposing revocation of the Customs Broker's license. The Tribunal had previously set aside the revocation order, and the High Court of Kerala modified the Tribunal's order, removing the observation that the appellant needed to reapply for the license.

Conclusion:
The Tribunal concluded that the department failed to establish that the appellants connived or abetted in the overvaluation of goods. The evidence was insufficient to prove any fraudulent intent or falsification of documents by the appellants. Consequently, the penalties imposed under Section 114(iii) and 114AA were set aside, and the appeals were allowed with consequential relief.

(Order pronounced in open court on 25.09.2023)

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