2026 (4) TMI 81 - AT - Customs

Customs Broker penalty and insolvency resolution plan effect bar continuation of extinguished pre-approval claims.

Penalty under Section 117 of the Customs Act was held unsustainable against a Customs House Agent where the Bills of Entry were filed on importer-supplied ... Imposition of penalty under Section 117 on the Customs House Agent - failed to fulfill their basic responsibility - wrong classification and declaration made in the Bills of Entry - violation of the provisions of Customs Broker Licensing Regulation, 2018 (CBLR, 2018) - Extinguishment of pre-resolution statutory claims - Validity of post-resolution show cause notice. Customs broker's liability for importer-declared classification - Penalty under residuary provision - HELD THAT: - The Tribunal held that the appellant's admitted role was confined to filing Bills of Entry on behalf of the importers and there was no allegation or evidence that the appellant had advised the tariff classification of the imported aircraft parts. The statutory obligation to make a truthful declaration in the Bill of Entry rested on the importer, and a customs broker could not be treated as technically competent or obliged to determine the correct classification of such goods. Relying on the principle noticed in M/s. Chakiat Agencies [2023 (2) TMI 490 - CESTAT CHENNAI] and Kunal Travels (Cargo) [2017 (3) TMI 1494 - DELHI HIGH COURT], the Tribunal observed that a customs broker acts as a processing agent on the basis of information supplied by the client, and innocent filing on that basis does not by itself amount to misdeclaration by the broker. The finding in the impugned orders that the appellant had filed Bills of Entry with wrong classifications for the same goods was found to be based on presumption, without evidentiary support. It was further noted that though violation of Regulation 10(d) and 10(e) of the Customs Broker Licensing Regulations, 2018 had been alleged, no proceedings had been initiated under those Regulations and no evidence of such violation was shown. In the absence of proof that the appellant had violated any provision of the Customs Act or failed to discharge any duty cast upon it under the Act, invocation of the residuary penalty provision was held to be unsustainable. [Paras 8, 9, 10, 11, 12] The penalty imposed on the customs broker under Section 117 was held to have been wrongly invoked and was set aside. Resolution plan and statutory dues - Validity of post-resolution show cause notice - HELD THAT: - The Tribunal recorded that the importers were already under insolvency proceedings and that the resolution plan had been approved prior to issuance of the impugned show cause notices. Applying the law declared in Ghanshyam Mishra and Sons Pvt. Ltd.[2021 (4) TMI 613 - SUPREME COURT], it held that once a resolution plan is approved, claims not forming part of that plan stand extinguished, including statutory dues, and no proceedings can be initiated or continued in respect of such claims for the earlier period. On that principle, the show cause notices themselves were held to be invalid, and any demand confirmed on their basis was liable to be set aside. [Paras 13] The show cause notices were treated as invalid on account of prior approval of the resolution plan, and consequential demands could not survive. Final Conclusion: The Tribunal allowed all four appeals and set aside the penalties imposed on the customs broker. It held both that Section 117 had been wrongly invoked in the absence of any proved contravention by the broker and that the show cause notices could not survive after approval of the importers' resolution plan. Issues: (i) Whether penalty under Section 117 of the Customs Act, 1962 was imposable on the Customs House Agent for the alleged wrong classification and declaration made in the Bills of Entry. (ii) Whether the proceedings could survive in view of approval of the resolution plan under the Insolvency and Bankruptcy Code, 2016.Issue (i): Whether penalty under Section 117 of the Customs Act, 1962 was imposable on the Customs House Agent for the alleged wrong classification and declaration made in the Bills of Entry.Analysis: Section 117 applies where a person contravenes a provision of the Customs Act, abets such contravention, or fails to comply with a statutory duty. The impugned penalty rested on the premise that the Customs Broker ought to have detected and corrected the importers' classification and valuation of technical goods. The record showed, however, that the Bills of Entry were filed on the basis of information supplied by the importers, that the importer bore the statutory obligation of truthful declaration and self-assessment, and that there was no evidence that the Customs Broker itself suggested the contested classification. A Customs Broker is not expected to act as a technical examiner of the goods or to independently verify the genuineness of every declaration supplied by the importer. In the absence of proof of any active role, knowledge, or statutory contravention by the Customs Broker, the ingredients for penalty were not established.Conclusion: Penalty under Section 117 was not sustainable against the Customs House Agent and the finding was in favour of the appellant.Issue (ii): Whether the proceedings could survive in view of approval of the resolution plan under the Insolvency and Bankruptcy Code, 2016.Analysis: Once a resolution plan is approved under Section 31 of the Insolvency and Bankruptcy Code, 2016, claims not forming part of the plan stand extinguished and no proceedings can be continued in respect of such claims for the pre-approval period. The impugned demand proceeded on claims arising prior to approval of the resolution plan, and therefore could not be sustained independently. This also undermined the validity of the show cause notice and the consequential adjudication.Conclusion: The proceedings were not maintainable to the extent they survived outside the resolution plan and this issue was also decided in favour of the appellant.Final Conclusion: The penalty on the Customs House Agent was unsustainable, the underlying proceedings could not be continued against the extinguished claims, and the impugned orders were set aside.Ratio Decidendi: A Customs Broker cannot be penalized under Section 117 of the Customs Act, 1962 in the absence of proof that it itself contravened the Act, abetted the contravention, or knowingly furnished the incorrect declaration, and claims extinguished by an approved resolution plan cannot be pursued further for the pre-approval period.