2025 (12) TMI 995 - AT - Customs

Customs broker loses appeal as licence revoked for benami exports, onion misdeclaration, violations of CBLR Regulations 1(4),10(a),(d),(n)

The CESTAT, New Delhi dismissed the customs broker's appeal and upheld revocation of licence, forfeiture of security deposit and penalty of Rs. 50,000/-. ... Revocation of Customs Broker License - forefeiture of security deposit - levy of penalty - sub-letting licence to others for monetary gains - export of prohibited goods (onions) by mis-declaring them as mangoes and pomegranates - violation of Regulations 1(4), 10 (a), 10(d), 10(e) and 10(n) of CBLR. Violation of Regulation 1(4) of CBLR - many persons were using the CB licence of the appellant and were monetarily compensating the appellant for such use - HELD THAT:- In filing the Shipping Bills, the Customs Broker acts as an agent of the exporter. Needless to say that one cannot act as an agent of someone without that person or entity asking and authorizing the person to be his agent. This is for two reasons- first that all actions of the agent will be on behalf of the principal and will bind the principal and second, any agent wants to be compensated for his services by the Principal. The question which arises is how could the appellant act as an agent of Shivam Enterprises without being engaged by it and without even contacting it and who was compensating the appellant for it’s services. The answer to both these lie in the statement of Shri Dasari Narayanmurthi. No other document or evidence has been brought on record by either side to provide any other explanation. The transaction in this case was simple - Shri Jadeja told the appellant to file Shipping Bills in the name of Shivam Enterprises and paid Rs. 1,200/- per container and provided copies of documents and the appellant filed the Shipping Bills but the actual work related to export was all done by Shri Jadeja. Shri Dasari Narayanmurthi further explained that this was the mode of their business. Several persons used their licence likewise and paid them an amount for using the licence. No evidence whatsoever to the contrary has been produced by the appellant. This is clearly a case of the appellant sub-letting its licence to others for monetary gains. From the facts on record, it is clear as crystal to us that the appellant had violated Regulation 1(4) of CBLR. Violation of Regulation 10(a) - failure to obtain the authorization from the exporter - HELD THAT:- Admittedly, the appellant had not even contacted the exporter, let alone, obtaining any authorization from it. The letter of authorization to file the shipping bill in the name of the exporter was also, along with other documents, provided by Shri Jadeja who is not the exporter - the appellant filed benami shipping bills at the behest of Shri Jadeja without being engaged by the exporter, without even contacting the exporter. It must be noted that shipping bills and bills of entry are documents which regulate the movement of goods across the nation’s economic frontiers with implications not only for the revenue but also for enforcement of any prohibitions on imports and exports. If customs brokers get away by filing shipping bills and bills of entry in the name of any IEC holder at the behest of someone else for a consideration, it will be a serious threat to the country. Anyone, for instance, can import or export drugs, arms, ammunition, etc. by getting documents filed by the customs broker in the name of anyone else by paying the customs brokers some consideration - thus, the appellant had violated Regulation 10(a) of CBLR. Violation of Regulation 10(d) - failure to advise the exporter to comply with the relevant provisions of the law - existence of evidence to substantiate that the appellant had colluded with the exporter in the attempted export of onions or not - HELD THAT:- Regulation 10(d) requires the customs broker to advise the client to follow the provisions of the Act, allied acts and Rules. It also requires the customs broker to report if the client was not following the provisions of the Act and Rules. There is no dispute that prohibited goods were attempted to be exported through the Shipping Bills filed in the name of the exporter Shivam Enterprises - there is nothing on record to show that the appellant had knowledge of the mis-declaration and therefore, the appellant could not have reported to the customs. Given the undisputed fact that the appellant was neither engaged by the exporter Shivam Enterprises nor did it contact the exporter, it is impossible for the appellant to have advised the exporter to follow the Act and Rules as mandated in Regulation 10(d) - it is thus found that the appellant had violated Regulation 10(d) of CBLR. Violation of Regulation 10(e) - failure to exercise due diligence - failure to advise the exporter about the correct provisions of the Customs law - HELD THAT:- Regulation 10(e) requires the customs broker to exercise due diligence in ensuring that the information which he imparts to the client is correct. Evidently, when the appellant had not even contacted the exporter and hence could not have given any advice, it is impossible that the appellant could have imparted some incorrect information. Therefore, the finding in the impugned order that the appellant had violated Regulation 10(e) cannot be sustained and needs to be set aside. Violation of Regulation 10(n) - failure to verify the existence of the exporter - HELD THAT:- The essence of Regulation 10(n) is not just obtaining documents from any source but is verifying the identity of the client and secondly the functioning of the client at his premises and this verification can be done through reliable, independent, authentic documents, data or information. Admittedly, the appellant was not even engaged by the exporter. When Shri Jadeja asked the appellant to file documents in the name of the exporter, the appellant did not even bother to check who the exporter was or contacted him. The appellant most certainly had not verified the identity of the exporter before filing the shipping bills. We, therefore find that the appellant had violated Regulation 10(n) of CBLR. Whether the revocation of licence, forfeiture of security deposit and imposition of penalty of Rs. 50,000/- is proportionate to the violations by the appellant? - HELD THAT:- It must be remembered that customs officers guard the nation’s economic frontiers and regulate import and export of goods not only to ensure that duties, where due, are collected but also to ensure that goods are not imported or exported in violation of either Customs Act or any other law for the time being in force. Customs broker plays an important role in the processing of imports and exports and it is for this reason, that customs broker’s licence is issued only after conducting an examination and after due diligence checks. If the Customs broker resorts to filing benami shipping bills and bills of entry, all export and import controls will be rendered meaningless and anyone can import or export any contraband – even drugs, explosives, arms and ammunition- with impunity simply by asking the customs broker to file documents in the name of X, Y or Z. Customs brokers, such as the appellant, who file such benami shipping bills and bills of entry pose a serious risk not only to the revenue but to the safety and security of the nation. In Sriaanshu Logistics vs. Commissioner of Customs (Delhi) [2024 (3) TMI 706 - DELHI HIGH COURT], the Delhi High Court upheld the revocation of licence who sub-lets his licence. Thus, the revocation of licence, forfeiture of security deposit and penalty of Rs. 50,000/- imposed on the appellant are proportionate to the offence committed. There are no infirmity in the impugned order - appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether there was a violation of Regulation 1(4) of the Customs Brokers Licensing Regulations, 2018 by sub-letting, renting or otherwise transferring the customs broker licence. (2) Whether there was a violation of Regulation 10(a) of the Customs Brokers Licensing Regulations, 2018 by filing shipping bills without obtaining proper authorisation from the exporter. (3) Whether there was a violation of Regulation 10(d) of the Customs Brokers Licensing Regulations, 2018 by failing to advise the client to comply with the law and report non-compliance. (4) Whether there was a violation of Regulation 10(e) of the Customs Brokers Licensing Regulations, 2018 concerning due diligence in imparting correct information to the client. (5) Whether there was a violation of Regulation 10(n) of the Customs Brokers Licensing Regulations, 2018 regarding verification of the Importer Exporter Code, identity and functioning of the client at the declared address. (6) Whether revocation of licence, forfeiture of security deposit and imposition of penalty of Rs. 50,000/- were proportionate to the violations found. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1): Violation of Regulation 1(4) - Sub-letting / transfer of licence Legal framework Regulation 1(4) CBLR, 2018 provides that every licence is deemed to have been granted or renewed in favour of the licensee and that no licence shall be sold or otherwise transferred. Interpretation and reasoning The Tribunal noted the undisputed facts that: (i) three shipping bills were filed in the name of an exporter which had never engaged the customs broker; (ii) the G-Card holder admitted that the shipping bills were filed at the behest of a third party for a fixed consideration per container; (iii) all export-related activities were handled by that third party, while the customs broker only lent its licence/credentials for filing documents; and (iv) the G-Card holder further stated that this was the regular mode of business and several persons used the licence for monetary consideration. Repeated requests by the inquiry officer for agreements or declarations showing authorised use of the licence by others went unanswered, and no contrary evidence was produced by the customs broker. On these facts, the Tribunal held that the broker effectively sub-let or rented out its licence to third parties for gain. Conclusions The Tribunal held that the customs broker had violated Regulation 1(4) by sub-letting its licence to others for monetary gain, amounting to an impermissible transfer of the licence. Issue (2): Violation of Regulation 10(a) - Authorisation from client Legal framework Regulation 10(a) requires a customs broker to obtain an authorisation from each client on whose behalf he acts, and to produce such authorisation when required by the customs authorities. Interpretation and reasoning The Tribunal emphasised that a customs broker acts as an agent of the exporter, and cannot act as such without being engaged and authorised by the exporter, both because the agent's acts bind the principal and because the agent expects remuneration from the principal. It was undisputed that the broker: (i) had never contacted the named exporter; (ii) was not engaged by the exporter; (iii) filed the shipping bills solely at the behest of a third party for a fixed consideration; and (iv) produced no communication or agreement with the exporter when called upon by the inquiry officer. The alleged 'authorisation' in the shipping bill file had been supplied by the third party, not by the exporter. The Tribunal accepted that there is no legal bar to acquiring clients through intermediaries, but held that, before filing documents, the broker must obtain authorisation directly from the exporter. As the broker had not even contacted the exporter, the requirement of Regulation 10(a) was not met. Conclusions The Tribunal held that the broker had filed benami (pseudonymous) shipping bills at the behest of a third party, without authorisation from the named exporter, and thus violated Regulation 10(a). Issue (3): Violation of Regulation 10(d) - Advising client and reporting non-compliance Legal framework Regulation 10(d) obliges a customs broker to advise his client to comply with the Customs Act, allied Acts and rules and, in case of non-compliance, to bring the matter to the notice of the proper officer. Interpretation and reasoning The Tribunal accepted that there was no evidence that the broker knew of the mis-declaration of prohibited goods or colluded in it, and hence could not have reported such non-compliance to customs. Accordingly, the second part of Regulation 10(d) (reporting non-compliance) was inapplicable on the facts. However, the Tribunal focused on the first part of Regulation 10(d), namely the duty to advise the client to comply with the law. Since the broker was never engaged by the exporter and had not even contacted it, it was impossible for the broker to have discharged this advisory duty towards the named exporter. Conclusions The Tribunal held that, though there was no basis to allege failure to report known non-compliance, the broker nonetheless violated Regulation 10(d) by not being in a position to advise the exporter at all, as required by the regulation. Issue (4): Violation of Regulation 10(e) - Due diligence in information imparted to client Legal framework Regulation 10(e) requires the customs broker to exercise due diligence to ascertain the correctness of any information which he imparts to a client regarding clearance-related work. Interpretation and reasoning The Tribunal noted that the essence of Regulation 10(e) is due diligence in ensuring correctness of information imparted to the client. On the undisputed facts, the broker had never contacted the named exporter and therefore had not imparted any information or advice to it. As no information was 'imparted' to the exporter, there was no factual basis to hold that incorrect information was conveyed or that due diligence in this regard was lacking. The findings of the inquiry officer and Commissioner that the broker failed to exercise due diligence under Regulation 10(e) were therefore unsupported by the record. Conclusions The Tribunal held that the alleged violation of Regulation 10(e) was unsustainable and set aside the finding of contravention under this provision. Issue (5): Violation of Regulation 10(n) - Verification of IEC, identity and functioning of client Legal framework Regulation 10(n) requires a customs broker to verify the correctness of the IEC, GSTIN, identity of the client, and the functioning of the client at the declared address, using reliable, independent, authentic documents, data or information. Interpretation and reasoning The Tribunal identified that the core of Regulation 10(n) is not merely obtaining documents from any source, but independently verifying: (i) the identity of the client; and (ii) the client's functioning at the declared premises, based on reliable and independent material. It was admitted that the broker: (i) was never engaged by the exporter; (ii) dealt only with a third party who supplied documents; and (iii) did not contact the exporter at all. When asked by the inquiry officer to produce KYC documents and evidence of verification, the broker failed to do so. The statement of the G-Card holder indicated handling of clearance work without KYC verification and without knowing the exporter. On these facts, the Tribunal found that the broker could not be said to have verified the identity and functioning of the exporter in the manner mandated by Regulation 10(n), irrespective of any web-based checks allegedly done on the basis of documents supplied by the third party. Conclusions The Tribunal held that the broker had violated Regulation 10(n) by failing to independently verify the identity and functioning of the named exporter before filing the shipping bills. Issue (6): Proportionality of revocation, forfeiture of security deposit and penalty Legal framework The Tribunal considered the sanction provisions under CBLR, 2018, particularly Regulations 14, 17 and 18, as well as judicial precedents upholding revocation where a license is sub-let or misused. Interpretation and reasoning The Tribunal recapitulated that the broker had: (i) violated Regulations 1(4), 10(a), 10(d) and 10(n); (ii) filed benami shipping bills in the name of an exporter who never engaged it; (iii) effectively allowed a third party to use its licence and credentials for consideration; and (iv) followed a business model where 'several persons' used the licence in this manner. The Tribunal stressed the critical role of customs brokers in safeguarding the nation's economic frontiers, ensuring proper collection of revenue and enforcement of prohibitions on imports and exports. If brokers are permitted to file benami shipping bills or bills of entry in the name of any IEC holder at the behest of third parties, controls over contraband, including drugs, explosives, arms and ammunition, would be seriously undermined and national security jeopardised. Relying on the reasoning of higher courts which have treated sub-letting of customs broker licences as a serious violation justifying revocation, the Tribunal held that the gravity of the misconduct and the risk it poses to revenue and security warranted strict sanction. Conclusions The Tribunal concluded that revocation of the licence, forfeiture of the entire security deposit and imposition of a penalty of Rs. 50,000/- were proportionate to the violations and their seriousness, found no infirmity in the impugned order, and dismissed the appeal.