Customs broker's license revocation overturned for KYC verification failures under Customs Broker Licensing Regulations 2013

CESTAT Mumbai held that a customs broker's license revocation and penalty were excessive for failing to verify client premises and identity under Customs Broker Licensing Regulations 2013. The broker filed bills of entry for diamond imports worth Rs. 97.65 crores but failed to conduct proper KYC verification of client addresses. While the broker was found guilty of breaching fundamental verification obligations, the tribunal determined that license revocation and penalty were disproportionate consequences. The security deposit forfeiture was upheld, and the broker must provide fresh security deposit under 2018 regulations to continue operations. Appeal partially allowed.

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Issues Involved:
1. Revocation of customs broker licence.
2. Forfeiture of security deposit.
3. Imposition of penalty.
4. Alleged breach of Customs Broker Licencing Regulations, 2013.

Summary:

1. Revocation of Customs Broker Licence:
The appellant, M/s Commercial Clearing Agencies Pvt Ltd, faced revocation of their 'customs broker' licence u/s 18 of Customs Broker Licencing Regulations, 2013. The Principal Commissioner of Customs (General), Mumbai found them guilty of failing to verify the correctness, identity, and antecedents of their clients as required by regulation 11(n). The inquiry report absolved them of charges under regulations 11(a) and 11(d).

2. Forfeiture of Security Deposit:
The security deposit was forfeited under regulation 18 due to the appellant's failure to conduct due diligence on their clients, M/s Shree Charbhuja Diamonds Pvt Ltd and M/s Yogeshwar Diamonds Pvt Ltd, whose identities were misused by other individuals for multiple remittances.

3. Imposition of Penalty:
A penalty of Rs. 50,000 was imposed under regulation 22. The appellant argued that they complied with 'know your customer (KYC)' norms and verified the importers' authenticity through the Directorate General of Foreign Trade (DGFT) website, referencing the case of Transpeed Logistics Pvt Ltd v. Commissioner of Customs, New Delhi, which emphasized that physical verification of premises was not mandatory.

4. Alleged Breach of Customs Broker Licencing Regulations, 2013:
The appellant contended that the regulations did not stipulate the specific requirements imposed by the Principal Commissioner. The Tribunal noted that while the appellant had undertaken KYC procedures, the peculiarities of the diamond trade warranted a closer look at the client's antecedents. The appellant's failure to verify the client's operational address was deemed a significant breach.

Conclusion:
The Tribunal found that the appellant failed to verify the client's premises, a fundamental obligation. However, it concluded that the breach did not merit the harsh penalties imposed. The revocation of the licence and the penalty were set aside, but the forfeiture of the deposit was upheld. The appellant may operate the licence upon making a fresh security deposit as per Customs Broker Licencing Regulations, 2018. The appeal was disposed of on these terms.

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