2025 (9) TMI 147 - HC - Customs

Respondent to pay Rs.4 lakh; 13-month suspension imposed; payment will terminate SCN proceedings; appeal disposed.

Commissioner Of Customs (Airport And General) Versus M/s. Jaiswal Import Cargo Services Ltd.

Commissioner Of Customs (Airport And General) Versus M/s. Jaiswal Import Cargo Services Ltd. - 2025:DHC:7566 - DB ISSUES PRESENTED AND CONSIDERED 1. Whether revocation of a Customs Broker licence under the Customs Brokers Licensing Regulations, 2018 (CBLR 2018) is sustainable where the broker submitted KYC documents that were not shown to be fraudulent but goods imported by a client were diverted to the domestic market instead of being warehoused for re-export. 2. Whether the legal obligations of a Customs Broker under Regulation 10(n) and related provisions of CBLR 2018 require physical verification of the importer's premises in addition to verification of government-issued documents (and whether portal verification suffices). 3. Whether findings of complicit behaviour or active facilitation by the Customs Broker are necessary to justify revocation (as opposed to suspension) of the broker's licence - i.e., application of the proportionality doctrine in disciplinary action under CBLR 2018. 4. Whether, as a matter of relief, past suspension/revocation already undergone by the broker satisfies the requirement of proportionate disciplinary action, and whether restitution/contribution can be ordered as part of settlement of SCN proceedings. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustainability of revocation where importer's goods were diverted but KYC documents were not proved fraudulent (Legal framework) Revocation/punitive measures against Customs Brokers are governed by CBLR 2018 (notably Regulations 10, 14, 16, 17 and 18) which fix obligations of brokers and prescribe penalties including suspension and revocation. (Precedent Treatment) The Tribunal's decision relied on prior High Court authority holding that verification of government-issued documents can be done via portals and that mere submission of valid KYC documents without proof of fraud does not ipso facto establish a breach warranting revocation. (Interpretation and reasoning) The Court accepted the Tribunal's finding that KYC documents submitted were valid and not shown to be fraudulent. The Court noted absence of positive evidence on record demonstrating that the broker knowingly enabled diversion or that the documents themselves were forged; therefore the primary culpability lay with the importer whose premises proved bogus. The Court emphasised that mere diversion of goods by the importer, without demonstrable mens rea or active facilitation by the broker, does not automatically justify revocation. (Ratio vs. Obiter) Ratio: Revocation is not sustainable where the broker has produced valid KYC documents and there is no record evidence of fraudulent documents or of active facilitation by the broker. Obiter: Observations on the importer's primary responsibility and consequent limits of broker's culpability. (Conclusion) The revocation was found unsustainable on these facts; the Tribunal's setting aside of the revocation was upheld subject to proportionality considerations addressed under Issue 3. Issue 2 - Extent of broker's duty: physical verification vs. verification of government-issued documents (Regulation 10(n)) (Legal framework) Regulation 10(n) prescribes obligations relating to due diligence and KYC by Customs Brokers under CBLR 2018; the scope of physical verification and the acceptability of portal verification are central to the question. (Precedent Treatment) The Tribunal and the Court relied upon prior decisions holding that there is no legal requirement that a broker physically verify the premises if government-issued documents can be verified from official portals; such precedent was followed rather than distinguished. (Interpretation and reasoning) The Court endorsed the Tribunal's factual finding that the broker verified the IEC, GSTIN, bank AD code letter, PAN and Aadhar, and that there was nothing on record to show those documents were fake. The Tribunal's conclusion - that the obligation of the broker is to verify government-issued documents and that portal verification suffices - was accepted as consistent with binding precedent and with the regulatory text as applied. (Ratio vs. Obiter) Ratio: Verification of government-issued documents through official sources satisfies the broker's duty under Regulation 10(n) where no statutory text mandates an additional, independent requirement of physical premises inspection. Obiter: Practical observations on limitations of portal verification in exceptional cases were not necessary to the decision. (Conclusion) The obligation to physically verify premises was not imposed on the broker in these circumstances; KYC verification undertaken was sufficient for regulatory compliance under the facts found. Issue 3 - Proportionality and necessity of aggravating factors (mens rea/active facilitation) to justify revocation versus suspension (Legal framework) Disciplinary measures under CBLR 2018 include suspension and revocation; constitutional and administrative law principles of proportionality govern assessment of penalties under regulatory regimes affecting trade and livelihood. (Precedent Treatment) The Court relied on established jurisprudence applying the proportionality doctrine to revocation of broker licences, which requires aggravating factors (e.g., mens rea, gross or flagrant violations, active facilitation) to justify irretrievable civil consequences of revocation. That jurisprudence was followed and incorporated into the analysis. (Interpretation and reasoning) The Court examined the gravity of the infraction, concurrent findings, and absence of evidence demonstrating awareness or active facilitation by the broker. The Court reiterated that not every regulatory infraction warrants revocation; where infractions are not of the gravest order or lack aggravating factors, suspension for an adequate period can achieve both punitive and deterrent aims without causing disproportionate civil consequences. Considering that the broker had been effectively prevented from business for 13 months, the Court applied proportionality and held that the period already undergone was an adequate and proportionate disciplinary response. (Ratio vs. Obiter) Ratio: Revocation must be reserved for cases with aggravating factors such as mens rea or gross facilitation; absent such factors, suspension for a proportionate period suffices. Obiter: Illustrative examples of aggravating conduct were drawn from earlier cases but are not exhaustive. (Conclusion) The revocation was disproportionate on the facts; the 13 months of suspension/revocation already undergone was held to be sufficient punishment in light of the nature of the violation and absence of aggravating conduct. Issue 4 - Relief by way of deposit/contribution and restriction of revocation period (Legal framework) Courts have inherent and statutory powers to mould equitable relief and settle SCN proceedings where appropriate, including directions for payments to public funds or legal service institutions as part of disposing of disciplinary proceedings. (Precedent Treatment) The Court applied discretionary remedial powers consistent with prior practice of ordering monetary contributions or mitigation measures in lieu of or in addition to regulatory penalties; this remedial approach was applied rather than treated as novel precedent. (Interpretation and reasoning) Having found revocation disproportionate and noting the business prejudice already suffered, the Court accepted a voluntary offer by the broker to contribute a specified sum towards public/institutional causes as a mitigating factor. The Court used this as a basis to cap the period of effective revocation/suspension to the duration already undergone and to direct staged deposits to revenue and legal service/bar association accounts. (Ratio vs. Obiter) Ratio: The Court may, exercising discretion and proportionality, accept monetary contribution and limit disciplinary sanction to the period already undergone where such outcome aligns with corrective and rehabilitative aims. Obiter: Specific allocation of funds to named institutions is a fact-specific moulding of relief. (Conclusion) The Court ordered payment of the specified sum within a fixed time and restricted the revocation/suspension to the 13 months already undergone, thereby disposing of the SCN proceedings subject to the directed payments. Cross-references Refer to Issue 2 for the factual basis that informed Issue 1; the sufficiency of KYC verification (Issue 2) was central to rejecting a finding of aggravating conduct required under Issue 3. The remedial outcome in Issue 4 flows from the proportionality analysis in Issue 3 and the evidentiary conclusions in Issues 1-2.