2024 (1) TMI 199 - AT - Customs

Customs broker license suspension set aside after tribunal finds no requirement for physical address verification under CBLR

CESTAT Ahmedabad set aside the Commissioner's order continuing suspension of a customs broker license. The Commissioner found the broker failed to verify ... Suspension under Regulation 16(1) of CBLR, 2018 - Requirement of immediate action for suspension - Requirement to record reasons for suspension (CBIC Instruction No.24/23 dated 18.07.2023) - Due diligence and KYC obligations of customs broker under CBLR - Scope of verification required from a customs brokerSuspension under Regulation 16(1) of CBLR, 2018 - Requirement of immediate action for suspension - Requirement to record reasons for suspension (CBIC Instruction No.24/23 dated 18.07.2023) - Validity of the suspension and its continuation in view of the requirement that suspension be exercised only where immediate action is necessary and reasons for such immediacy be recorded - HELD THAT: - The Tribunal examined the Commissioner's exercise of power to suspend the customs broker licence under Regulation 16(1) read with Regulation 16(2) of CBLR, 2018 in the light of CBIC Instruction No.24/23 (18.07.2023), which emphasises that suspension is an emergent power to be used only in appropriate cases where immediate action is necessary and that reasons for considering immediate suspension necessary should be recorded. The impugned orders rested on historic allegations relating to shipping bills filed in 2016 and continued suspension in 2023. The Tribunal found that the Commissioner's observations did not demonstrate the requisite emergent necessity or record why immediate suspension was appropriate in the circumstances. Given the passage of time since the alleged events and the absence of specific recorded reasons justifying immediate suspension, the continuation of suspension was not sustainable. Applying the principle that suspension should not be routine or mechanical and must be supported by reasons of immediacy, the Tribunal set aside the suspension and its continuation.Suspension and its continuation set aside for want of justification and recorded reasons showing immediate action was necessary.Due diligence and KYC obligations of customs broker under CBLR - Scope of verification required from a customs broker - Whether the appellant failed to perform due diligence/KYC such that disciplinary suspension was warranted - HELD THAT: - The Tribunal considered the Commissioner's finding that the broker had failed to verify the identity and the existence of the IEC-holding exporters and had dealt with persons who were not the IEC holders. The appellant asserted that KYC documents (Aadhaar, PAN, IEC and other documents) were obtained and that CBLR does not mandate physical inspection of the principal's premises. The Tribunal accepted that regulation did not require physical verification of the address as a precondition to filing shipping bills and noted the appellant's contention and record that KYC documents had been obtained. In absence of evidence demonstrating the broker's knowledge of forged factory stuffing permissions or active participation in the alleged fraud, and having regard to the limited role of the broker in filing 29 of 1,474 shipping bills, the Tribunal found the Commissioner's conclusion that the broker was wanting on fundamental responsibilities to be unsupported for purposes of suspension. Therefore the disciplinary action in the form of suspension could not be sustained on the grounds of inadequate KYC in the factual matrix before the Tribunal.Findings of failure to discharge due diligence insufficient to sustain suspension; suspension set aside on this ground as well.Final Conclusion: Appeal allowed; the orders of suspension dated 24.07.2023 and continuation dated 23.08.2023 are set aside because suspension was not shown to be necessary as an immediate emergent measure and the broker's KYC/due diligence did not, on the material before the Tribunal, justify suspension. Issues Involved:1. Legitimacy of the suspension of Customs Broker License under regulation 16(1) and 16(2) of CBLR 2018.2. Compliance with regulation 10 of CBLR 2018 by the appellant.3. Timeliness and necessity of the suspension action.4. Adequacy of due diligence by the appellant.Summary:Issue 1: Legitimacy of the suspension of Customs Broker License u/s 16(1) and 16(2) of CBLR 2018The appeal was filed against the order of the Commissioner suspending the Customs Broker License of the appellant u/s 16(1) of CBLR 2018, continued by a subsequent order u/s 16(2) of CBLR 2018. The appellant argued that the suspension was initiated seven years after the alleged offense, contrary to the immediate action requirement specified in regulation 16(1). The Tribunal noted that the CBIC Instruction No. 24/2023 mandates recording reasons for immediate suspension, which was not done in this case. The Tribunal found no merit in the Commissioner's observations for continuing the suspension and thus set aside the impugned orders.Issue 2: Compliance with regulation 10 of CBLR 2018 by the appellantThe appellant contended that they conducted due diligence as per regulation 10 of CBLR 2018 by verifying all relevant documents like Aadhar Card, PAN Card, IEC Certificate, etc., provided by the alleged exporter. The Tribunal observed that the appellant had indeed obtained all necessary KYC documents before filing the shipping bills and there was no requirement for the customs broker to physically verify the address of the exporter.Issue 3: Timeliness and necessity of the suspension actionThe appellant argued that the action was initiated seven years after the alleged offense, which contradicts the immediate action requirement of regulation 16(1). The Tribunal referenced the decision in National Shipping Agency 2008 (226) ELT 46(BOM) to emphasize that suspension should be an emergent power used only when immediate action is necessary. The Tribunal found that the Commissioner's order lacked the necessary reasoning for immediate suspension, as required by CBIC Instruction No. 24/2023.Issue 4: Adequacy of due diligence by the appellantThe appellant argued that they had complied with regulation 11(n) of CBLR, 2013 read with regulation 10(n) of CBLR, 2018, which requires due diligence. The Tribunal noted that the appellant had verified the KYC documents provided by the exporter and there was no evidence of the appellant's involvement in any fraudulent activities. The Tribunal concluded that the appellant had fulfilled their responsibilities as a customs broker and found no merit in the Commissioner's observations.Conclusion:The Tribunal set aside the impugned orders and allowed the appeal, concluding that the suspension of the Customs Broker License was not justified based on the provided evidence and the appellant's compliance with the required regulations.(Pronounced in the open court on 04.01.2024)