2026 (2) TMI 41 - AT - Customs

Liability of Customs Broker in export fraud: KYC verification held sufficient; penalties and confiscation set aside.

Liability of customs brokers for facilitation of export fraud turned on the scope of their verification duties; the tribunal found that verification by ... Liability of Customs Broker for facilitation of export fraud - scope of obligations under Customs Broker Licensing Regulations, 2018 - sufficiency of KYC verification by Customs House Broker - penalty u/s 114AA and 114(ii) - confiscation liability u/s 113(i) - seizure u/s 110 - HELD THAT:- No evidence has been produced by the Revenue that the Customs Broker had any knowledge about the over-valuation of the alleged Sleeveless Leather Jackets. The exporter had provided KYC for Aadhar, Pan Card, IEC Certificate etc. and therefore, no verification was necessary on the part of the appellant in respect of the alleged exporter. It is sufficient for the Customs House Broker to verify the exporter on the basis of KYC documents and he is not required to visit the residential premises or business premises of the exporter. He is not physically required to verify the address. Therefore, I am of the view that there was no ground for imposing penalty upon the appellant under Section 114(ii) or Section 114AA of the Customs Act, 1962. The impugned order passed by learned Commissioner (Appeals) is not sustainable and liable to be set-aside whereas the appeal is liable to be allowed. Consequently, the appeal is allowed, impugned order passed by learned Commissioner (Appeals) is set-aside. Issues: Whether the appellant, a Customs Broker, is liable to penalty under Section 114(ii) and Section 114AA of the Customs Act, 1962 for filing shipping bills in respect of allegedly over-valued/overstated 'Leather Sleeveless Jacket' consignments, and whether the Broker's compliance with KYC requirements under the Customs Broker Licensing Regulations, 2018 absolves it of penal liability.Analysis: The Tribunal examined whether the appellant had requisite knowledge or intention, or was otherwise complicit, in the alleged over-valuation such as to attract penalties under Sections 114(ii) and 114AA. The Tribunal considered the scope of obligations imposed by the Customs Broker Licensing Regulations, 2018 (including verification of identity through KYC documents) and prior decisions holding that physical verification of client premises is not mandated. The record showed that the appellant submitted shipping bills based on exporter documents and produced KYC (Aadhaar, PAN, IEC) and there was no evidence that the appellant had opened consignments prior to customs examination or had knowledge of the alleged fraud. The Tribunal found no material establishing the appellant's prior knowledge or intent to facilitate over-valuation and relied on authorities that in absence of evidence of involvement in fraud, a Customs House Agent cannot be penalised. The Tribunal therefore concluded that imposing penalties under Section 114(ii) and Section 114AA was unsustainable on the facts.Conclusion: The Tribunal concluded that the appellant is not liable to penalty under Section 114(ii) or Section 114AA of the Customs Act, 1962 and set aside the impugned order; the appeal is allowed in favour of the assessee.