2025 (11) TMI 1122 - HC - Customs

Licence suspension for customs house agent under s.110 Customs upheld; partial security forfeited, renewal requires additional deposits

The HC modified the CESTAT order concerning a customs house agent whose licence was suspended for over-valuation and seizure under s.110 Customs Act. The ... Restoration of Respondent's (CHA) licence - levy of redemption fine - over-valuation of goods - seizure u/s 110 of the Customs Act, 1962 on the ground that they were liable for confiscation - HELD THAT:- The KYC documents have also been shown on behalf of the Respondent. Though, any other details of the exporter are not readily available with the Respondent/CHA, considering the fact that for the last three years, the licence has remained suspended, the Court is of the opinion that the three year suspension/revocation is adequate message for the Custom broker not to indulge in such acts in future. Thus the Court is not inclined to set aside the order of CESTAT on this aspect. In M/s. Ashiana Cargo Services v. Commissioner of Customs (I&G) [2014 (3) TMI 562 - DELHI HIGH COURT], this Court discussed the proportionality of punishment imposed on Custom House Agents in an appeal where the CESTAT upheld the revocation of the license of the Appellant under the Custom House Agents Licensing Regulations, 1984. The Court modifies the impugned judgment of CESTAT dated 5th March, 2025, to the effect that out of the security deposit of Rs. 5,00,000/-, a sum of Rs. 2,00,000/- shall stand forfeited - The CHA’s licence shall be renewed by the Customs Department upon deposit of a further amount of Rs. 2,00,000/- to the Customs Authority. In addition, an amount of Rs. 2,00,000/- shall be deposited. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the findings of the Tribunal that the Customs House Agent (CHA) violated Regulations 10(a) and 10(q) but not Regulations 10(d) and 10(n) of the Customs Brokers Licensing Regulations, 2018 justify revocation of licence and forfeiture of security deposit, or a lesser penalty is proportionate. 2. Whether a CHA owes a duty of verification/due diligence as to the credentials and bona fides of exporters and whether failure to verify, or connivance in creation of a fake exporter, attracts disciplinary action under the Regulations. 3. Whether the doctrine of proportionality applies to disciplinary action under the CHA Regulations and how precedents govern the choice between suspension and revocation. 4. Whether modification of appellate relief to impose partial forfeiture of security deposit and monetary payments as condition for renewal is legally permissible and appropriate given findings of misconduct. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sufficiency of findings under Regulations 10(a), 10(q), 10(d) and 10(n) to warrant revocation and forfeiture Legal framework: Disciplinary powers under the Customs Brokers Licensing Regulations permit actions including suspension and revocation of CHA licences and forfeiture of security deposits for violations such as failure to act honestly and cooperating with authorities (embodied in Regulations including 10(a), 10(d), 10(n), 10(q)). Precedent treatment: The Tribunal reduced extreme sanctions where record did not establish forgery or fabrication of documents (no breach of 10(n)/10(d)), while upholding sanctions where lack of cooperation or other violations were proved; High Court authorities emphasise proportionality in imposing revocation. Interpretation and reasoning: The Tribunal found proved violations of 10(a) and 10(q) (including lack of cooperation) but no evidence of fake/forged documents or direct fabrication implicating 10(n)/10(d). The Adjudicating Authority's broad conclusion that exporter did not exist and that CHA connived was not fully borne out by documentary/forensic proof of forgery. The Court accepted the Tribunal's bifurcated factual findings and analysed whether those findings independently sustain the extreme penalty of revocation and full forfeiture. Ratio vs. Obiter: Ratio - where violations are limited to lack of cooperation and regulatory breaches absent evidence of forged documents or direct connivance, revocation and full forfeiture are not automatically warranted; proportionality must be assessed. Obiter - commentary on the detrimental effect on incentives to bona fide exporters. Conclusions: The Court endorsed the Tribunal's conclusion that Regulations 10(d) and 10(n) were not violated but found that proven violations of 10(a) and 10(q) did not, by themselves, justify the extreme sanction of full forfeiture and permanent revocation. Accordingly, the Tribunal's upholding of the monetary penalty but setting aside revocation was accepted in principle, subject to modification (partial forfeiture and conditional monetary deposits) to reflect misconduct. Issue 2: Duty of CHA to verify exporter credentials and consequences of failure/connivance Legal framework: CHA Regulations impose duties of supervision, due diligence and verification on brokers given their role in authenticating trade documents and facilitating customs processes; regulatory scheme contemplates accountability where CHAs facilitate misuse. Precedent treatment: Earlier High Court decisions recognise that CHAs must exercise supervision and due diligence and can be punished for permitting misuse; however, absence of mens rea or knowledge may mitigate severity. Authorities balance discipline with proportionality when mens rea is not established. Interpretation and reasoning: The Court reiterated that CHAs have an obligation to verify credentials and cannot abdicate supervisory duties; where record shows suspicious exporter behaviour (non-traceability, use of surrogates to tender statements, disparate pricing suggesting over-valuation), the CHA's failure to verify is culpable. Nevertheless, proof of active connivance or creation of fake exporters requires positive evidence beyond circumstantial inference. The facts demonstrated troubling conduct and inadequate cooperation, but not conclusive proof of forgery or active creation of a sham exporter by the CHA. Ratio vs. Obiter: Ratio - CHAs owe a duty of verification and failure to discharge it attracts regulatory consequences; however, active connivance requires clearer proof. Obiter - criticism that lack of remorse and the broader public interest justify stern measures to deter such conduct. Conclusions: The Court affirmed the regulatory duty of CHAs to verify exporter credentials and validated penalty for failure to cooperate, but declined to treat mere failure as equivalent to proven collusion in forging exporter identity absent direct evidence. Issue 3: Application of the doctrine of proportionality to disciplinary penalties under CHA Regulations Legal framework: The principle of proportionality requires that administrative penalties be commensurate with the gravity of the infraction and that decision-makers weigh aggravating and mitigating factors when choosing between suspension and revocation. Precedent treatment: High Court precedents emphasise that revocation should be reserved for serious infractions with aggravating features (e.g., mens rea, repeated misconduct) and that absence of knowledge may militate against revocation; appellate forums should respect the Commissioner's discretion but may intervene where proportionality is not demonstrated. Interpretation and reasoning: The Court applied proportionality: while misconduct (failure to cooperate, inadequate verification) was proved and warranted penal response, lack of conclusive evidence of forgery or mens rea reduced the gravity. The Tribunal's approach invoking proportionality to set aside revocation but uphold penalty was accepted; the Court nevertheless modified relief to reflect misconduct by ordering partial forfeiture and additional monetary conditions before licence renewal, balancing deterrence and the extreme civil consequences of revocation. Ratio vs. Obiter: Ratio - proportionality must guide disciplinary responses; revocation is not automatic absent aggravating factors. Obiter - illustrative references to earlier cases where monetary remediation plus limited suspension were ordered as suitable alternatives. Conclusions: Proportionality governed outcome: upheld monetary sanction and saved the CHA from permanent civil death by conditioning renewal on monetary payments and partial forfeiture rather than full forfeiture and continuing revocation. Issue 4: Legality and appropriateness of modifying appellate relief by partial forfeiture and conditional monetary deposits for licence renewal Legal framework: Appellate courts possess power to modify administrative orders and impose conditions that are commensurate with findings of misconduct, including partial forfeiture and conditional payments, so long as actions remain within statutory/regulatory scheme and respect proportionality. Precedent treatment: Prior decisions have permitted monetary conditions and limited suspensions in lieu of permanent revocation where proportionality and mitigating factors justified such modification. Interpretation and reasoning: Given the Tribunal's findings and established proportionality principles, the Court found it appropriate to (a) forfeit part of the security deposit as punitive and deterrent measure (Rs. 2,00,000 out of Rs. 5,00,000), (b) require deposit of further sums to Customs for renewal of licence (Rs. 2,00,000) and (c) direct payment of specified amounts to public welfare/bench-related funds (two sums of Rs. 1,00,000 each) as restorative measures reflecting public interest and deterrence. These directions were framed to ensure the CHA faces meaningful consequences while preserving the possibility of regulated future practice subject to strict warning. Ratio vs. Obiter: Ratio - appellate modification by partial forfeiture and conditioning renewal upon payments is permissible to achieve proportionality and deterrence. Obiter - admonition that further illegality will attract stringent action. Conclusions: The Court lawfully modified the Tribunal's order: partial forfeiture and conditional monetary deposits were imposed as appropriate remedial measures; licence renewal conditioned upon compliance. The Tribunal's setting aside of complete forfeiture and revocation was retained but qualified.