2024 (2) TMI 27 - AT - Customs

Customs broker license revoked for fraudulent exports under duty drawback scheme, failed client verification under CBLR 2018

CESTAT New Delhi upheld revocation of customs broker license for fraudulent exports involving floor covering goods under duty drawback and focus product ... Duty to exercise due diligence by Customs Broker - Liability of Customs Broker for facilitation of fraudulent exports - Verification of IEC, GSTIN and client identity as regulatory obligation - Mens rea and aggravating conduct in licence revocation and penalty - Principle of proportionality in imposing revocation of licence - Time bar and limitation in initiation of proceedings based on offence report - Principles of natural justice and opportunity of hearingVerification of IEC, GSTIN and client identity as regulatory obligation - Duty to exercise due diligence by Customs Broker - Liability of Customs Broker for facilitation of fraudulent exports - Compliance with Regulation 10(a), (d), (e) and (n) of CBLR, 2018 and validity of revocation of Customs Broker licence, forfeiture of security deposit and imposition of penalty. - HELD THAT: - Tribunal accepted the adjudicating authority's findings that investigations and recorded statements establish that the appellant relied on a third party (Shri Kultar Singh), did not independently verify IECs or the existence and identity of the six exporters, suggested the description used in export documents, received additional cash payments without bills and was shown samples of the goods prior to export. Those facts demonstrate failure to verify IEC/GSTIN and client functioning as required under the CBLR and active facilitation of the fraudulent exports. On that basis the Tribunal held that the appellant contravened Regulation 10(a), (d), (e) and (n) and that the revocation, forfeiture and penalty imposed flowed from those contraventions. The Tribunal therefore found no error in the adjudicating authority's conclusion upholding the regulatory obligations and consequent sanction. [Paras 17, 18, 22, 23]The adjudicating authority correctly found contravention of Regulation 10(a), (d), (e) and (n) of CBLR, 2018; revocation of licence, forfeiture of security and penalty are sustained.Time bar and limitation in initiation of proceedings based on offence report - Whether the revocation proceedings were barred by limitation/time bar. - HELD THAT: - The Tribunal recorded that the show cause notice in the present matter was issued within 90 days of the offence report received in October 2019 and distinguished earlier, separate orders and investigations from 2014-2016 which related to different subjects. On that factual basis the Tribunal rejected the contention that the revocation proceeding was time barred. [Paras 15]The challenge based on time bar is rejected; proceedings were not barred.Principles of natural justice and opportunity of hearing - Whether the impugned order was passed ex parte in violation of natural justice. - HELD THAT: - The Tribunal examined the adjudicating authority's hearing schedule and the appellant's attendance. Personal hearing opportunities were granted and dates recorded; although the appellant sought adjournment and some representatives attended, the appellant did not appear on the scheduled dates. On those facts the Tribunal concluded that the assertion of an ex parte order in violation of natural justice was not established. [Paras 16]The order was not invalid for being passed ex parte; principles of natural justice were not breached.Mens rea and aggravating conduct in licence revocation and penalty - Principle of proportionality in imposing revocation of licence - Whether mens rea existed and whether revocation was disproportionate given the appellant's conduct. - HELD THAT: - The Tribunal relied on recorded statements and admissions that the appellant suggested the description of goods, was shown samples, and received unbilled cash payments from exporters. Those circumstances were held to demonstrate deliberate facilitation and culpable knowledge (mens rea). The Tribunal acknowledged that revocation is a grave penalty and must meet proportionality, but concluded that active connivance and receipt of secret consideration made revocation and penalty commensurate with the misconduct. [Paras 19, 22]Mens rea and aggravating conduct established; revocation and penalty are not disproportionate in the facts of this case.Final Conclusion: The appeal is dismissed. The Tribunal upheld the adjudicating authority's findings that the Customs Broker had failed to exercise required due diligence, actively facilitated fraudulent exports and therefore breached Regulation 10(a), (d), (e) and (n) of CBLR, 2018; the revocation of licence, forfeiture of security deposit and imposition of penalty were sustained, the proceedings were not time barred and no breach of natural justice was made out. Issues Involved:1. Legality of the order passed by the Commissioner of Customs revoking the Customs Broker (CB) license, forfeiting the security deposit, and imposing a penalty.2. Compliance with Know Your Customer (KYC) norms.3. Alleged misdeclaration and undervaluation of export goods.4. Time-barred issuance of show cause notices.5. Mens rea and the proportionality of punishment.Summary:1. Legality of the Order:The appellant challenged the legality of the order passed by the Commissioner of Customs, arguing that it was passed ex-parte without proper appreciation of evidence and compliance with KYC norms. The Tribunal noted that the opportunity for personal hearing was granted, and representatives of the appellant did appear for the hearing. Therefore, the argument that the case was heard ex-parte does not hold water.2. Compliance with KYC Norms:The appellant contended that they had complied with KYC norms and that the relevant documents were seized by the Directorate of Revenue Intelligence (DRI). However, the Tribunal found that the appellant did not independently verify the actual Importer Exporter Code (IEC) holders and relied on Shri Kultar Singh for the IEC codes. The Tribunal concluded that the appellant had not verified the correctness of IEC, GSTIN, identity, and functioning of the client at the declared address as required under the Customs Broker Licensing Regulation (CBLR), 2018.3. Misdeclaration and Undervaluation:Investigations revealed that the appellant was aware of the misdeclaration and undervaluation of export goods. Statements from various individuals indicated that the appellant had suggested the description of the goods and charged extra fees in cash without issuing bills. The Tribunal found that the appellant had connived with the main player, Shri Kultar Singh, and had not advised the clients correctly nor informed the appropriate authorities.4. Time-Barred Issuance of Show Cause Notices:The appellant argued that the revocation of the license was time-barred as the offence was reported in 2014 and 2015, and the show cause notice was issued in 2020. The Tribunal noted that the show cause notice in the instant case was issued within 90 days of the offence report received in October 2019. Hence, the argument of time-bar was not accepted.5. Mens Rea and Proportionality of Punishment:The appellant argued that in the absence of mens rea, no penalty should be imposed for a technical breach of the law and that the punishment should be commensurate with the offence. The Tribunal found that the appellant had actively connived in the misdeclaration and undervaluation of goods, thus establishing mens rea. The Tribunal upheld the revocation of the CB license, forfeiture of the security deposit, and imposition of a penalty, finding no error in the adjudicating authority's decision.Conclusion:The Tribunal dismissed the appeal, holding that the appellant had failed to comply with the responsibilities under Regulation 10(a), (d), (e), and (n) of the CBLR, 2018, and upheld the revocation of the CB license, forfeiture of the security deposit, and imposition of a penalty.