2023 (11) TMI 839 - AT - Customs

Tribunal Revokes Rs. 50,000 Penalty on Customs Broker; No Due Diligence Failure or Mala Fide Intent Found.

The Tribunal set aside the Rs. 50,000 penalty imposed on the customs broker, M/s. Access World Wide Cargo, for allegedly violating the Customs Broker ... Levy of penalty on the customs broker under Regulation 14 read with Regulation 18 of the Customs Broker Licensing Regulations 2013/2018 - ineligible drawback claimed - proof of mala fide and wilful misrepresentation by the customs broker or not - HELD THAT:- The impugned order though is an independent order issued in terms of the Customs House Licensing Regulations 2013/2018, the offence remains the same that ineligible drawback claimed by the exporter ADPL. In the impugned order, the enquiry officer in his report found that “It is seen from the facts of the case that the customs broker has informed the exporter about the non-availability of drawback and exporters have on their own violation opted to go for drawback under Section 75. As such, there is nothing forthcoming in the show-cause notice or the Order-in-Original that the customs broker has imparted any wrong information to the exporter. In fact, the allegation was that while they have given right caution to the exporter, they have not intimated the Department when the exporter chose to do the other way. There are no specific case of failure to exercise due diligence in imparting information to their client. Hence, the charge of failure to comply with Regulation 10(e) cannot be held against the Customs Broker”. The Commissioner in the impugned order based on the findings of the inquiry officer held that “I concur with the enquiry officer that the allegation of violations of Regulation 10(e) as unsustainable since the said provision requires due diligence in imparting to the customer. In this case, the exporter was aware of the provisions and carried out the claim of drawback on their own violation and it is not coming out that the customs broker has advised wrongly.” The Tribunal vide its Final Order had clearly held that since the exporter had challenged the eligible claim of drawback before the revisionary authority the matter was sub-judice and it also observed that the department had failed to prove that there is a mala fide and wilful misrepresentation by the customs broker and accordingly penalty was set aside on the set of facts of ineligible drawback claimed by the exporter. Considering all these facts and taking into account the unblemished record of the customs broker as held by the Commissioner, the penalty imposed upon the appellant is set aside - The appeal is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a customs broker can be penalised under the Customs Broker Licensing Regulations for an ineligible drawback claimed by an exporter when the broker informed the exporter of ineligibility and did not provide incorrect advice. 2. Whether the conditions for revocation of a customs broker's licence under Regulation 14 are attracted where an exporter independently files for drawback contrary to the broker's advice. 3. Whether penalty under Regulation 18 of the Customs Broker Licensing Regulations can be sustained in the absence of proof that the broker wilfully misrepresented facts, acted mala fide, or failed to exercise due diligence as required by Regulation 10(e). 4. The relevance of prior reliance on a distinct penal provision (Section 114AA of the Customs Act) in determining liability under the Customs Broker Licensing Regulations and the effect of earlier findings that the departmental case lacked proof of mala fides. ISSUE-WISE DETAILED ANALYSIS Issue 1: Liability of customs broker for exporter's ineligible drawback when broker communicated ineligibility Legal framework: Regulation 10(e) of the Customs Broker Licensing Regulations imposes a duty of due diligence upon the broker in imparting information to the customer; Regulation 18 authorises imposition of penalty for contravention of the Regulations. Precedent treatment: Earlier decision of the Tribunal set aside a penalty imposed under a different statutory provision, noting absence of proof of mala fide and that the broker did not wilfully misrepresent facts; appellant relied on authorities supporting that penalty cannot be imposed absent cogent findings of regulatory breach. Interpretation and reasoning: The enquiry officer found documentary and testimonial facts showing the broker informed the exporter about non-availability of drawback and did not advise wrongly. The exporter independently opted to pursue drawback under Section 75 notwithstanding the broker's warning. The Commissioner concurred with the enquiry officer that there was no failure to exercise due diligence by the broker in imparting information; consequently the specific charge under Regulation 10(e) could not be sustained. Ratio vs. Obiter: Ratio - A broker cannot be penalised under the Regulations for an exporter's unilateral decision to claim ineligible drawback where the broker exercised due diligence and did not provide incorrect advice. Obiter - Observations reiterating that the exporter was aware of provisions and proceeded of its own volition. Conclusion: Penalty under the Regulations could not be sustained on the basis that the broker failed to inform or misled the exporter; absence of evidence of improper advice defeats regulatory liability tied to Regulation 10(e). Issue 2: Attractiveness of Regulation 14 (revocation) where exporter acts contrary to broker's advice Legal framework: Regulation 14 prescribes conditions and grounds under which a licence may be revoked, typically requiring grave violations or specified ingredients to be established. Precedent treatment: The Commissioner declined to pursue revocation after considering relevant facts; the Tribunal noted the Commissioner's finding of an unblemished record and that ingredients of Regulation 14 were not attracted. Interpretation and reasoning: Since the enquiry and the Commissioner's findings established the broker had no antecedent blemish and that the alleged violation arose from the exporter's independent action, the stringent threshold for revocation under Regulation 14 was not met. The Commissioner expressly dropped the revocation proposal on this basis. Ratio vs. Obiter: Ratio - Revocation under Regulation 14 requires satisfaction of its specific ingredients; mere occurrence of an ineligible drawback occasioned by the exporter does not automatically attract revocation where broker compliance and good record are shown. Obiter - Policy considerations favouring proportionality in disciplinary action. Conclusion: Revocation of licence was not warranted; Regulation 14's conditions were not attracted on the established facts. Issue 3: Sustainment of penalty under Regulation 18 absent proof of wilful misrepresentation or mala fides Legal framework: Regulation 18 permits imposition of penalty for contravention of the Customs Broker Licensing Regulations; proving contravention requires material establishing breach, including lack of due diligence or culpable conduct where relevant. Precedent treatment: Tribunal's earlier order (setting aside a penalty imposed under Section 114AA) emphasised absence of proof of mala fide/wilful misrepresentation and factual errors in the departmental findings; appellant cited case law supporting the proposition that penalties cannot be imposed without cogent findings and evidence. Interpretation and reasoning: The enquiry officer's report and the Commissioner's concurrence found no material demonstrating that the broker imparted wrong information or deliberately concealed matters from the department; the only allegation was that the broker did not intimate the Department when the exporter proceeded contrary to advice. Such omission, standing alone and without evidence of mala fides or failure of due diligence, does not constitute a contravention warranting penalty under Regulation 18. The Tribunal gave weight to the broker's unblemished record and prior findings that the departmental case was factually incorrect in material respects. Ratio vs. Obiter: Ratio - Regulation 18 cannot be invoked to penalise brokers in absence of proof of contravention, mala fide action, wilful misrepresentation, or demonstrable failure of due diligence; an omission to inform the Department of a client's contrary action, without more, is insufficient. Obiter - The Tribunal's comments on the department's misapprehension of facts in prior proceedings and that part of the drawback was dropped by the adjudicating authority. Conclusion: Penalty under Regulation 18 was not sustainable on the evidence; the imposition of Rs. 50,000 was set aside. Issue 4: Effect of prior reliance on a distinct penal provision (Section 114AA) and relevance of earlier Tribunal findings Legal framework: Distinct statutory provisions impose differing standards and penalties; findings under one provision may bear evidentiary weight but do not automatically determine separate regulatory proceedings unless common elements are established. Precedent treatment: The Tribunal previously set aside a penalty imposed under Section 114AA, finding section inapplicable to the broker and that the department failed to prove mala fides; those findings were relied upon in the present consideration under the Licensing Regulations. Interpretation and reasoning: While the impugned order under the Licensing Regulations was independent, the underlying alleged wrongful act remained the same. The Tribunal treated the earlier findings - including that there was no proof of mala fide conduct and that the department had misconstrued facts - as persuasive on the issue of whether the broker breached regulatory duties. Given overlap in the factual matrix, earlier determinations that exculpated the broker materially undermined the case for penalty under the Regulations. Ratio vs. Obiter: Ratio - Prior authoritative findings that the departmental case lacked proof of mala fides and that the broker did not wilfully misrepresent are relevant and may be determinative where the same facts are in issue in subsequent regulatory action. Obiter - Procedural independence of separate orders remains, but substance governs outcome. Conclusion: The Tribunal accorded weight to earlier findings and, on the totality of facts (including uncontroverted evidence of the broker's conduct and record), set aside the penalty imposed under the Customs Broker Licensing Regulations. Overall Disposition Given (a) the broker informed the exporter of ineligibility and exercised due diligence under Regulation 10(e), (b) absence of evidence of wilful misrepresentation or mala fide conduct, (c) the conditions for revocation under Regulation 14 were not attracted, and (d) prior findings undermining the departmental case, the penalty imposed under the Customs Broker Licensing Regulations was unsustainable and was set aside.