TaxTMI 
TaxTMI 
2023 (9) TMI 421
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....e the Tribunal. 3. The brief facts of the case are that an investigation report dated 21.01.2022 received from Special Intelligence & Investigation Branch (SIIB) of Airport Special Cargo Commissionerate (APSC), Mumbai Customs Zone-III, indicated that out of 21 identified fraudulent exporters of Cut & Polished diamonds, the appellants as Customs Broker had handled two of such exporters. During the investigation it was found that unscrupulous persons had created bogus entities by obtaining Import Export Code (IEC) in the name of real estate agents, drivers, teachers who were unrelated with the Diamond trade and used such non-functional IECs, with non-existent address declared in IECs, for fraudulent export activities. The appellants have handled exports in respect of two such exporters viz. M/s Swastik Enterprises and M/s Ganesh Exports. The investigation also revealed that on paper the proprietor of M/s Swastik Enterprises is shown as Shri Mukesh Madhu Regar, even though the actual owner of the business entity is Shri Nikunj. Similarly, in respect of M/s Ganesh Exports the on paper proprietor is shown as Shri Mangi Lal Gurjar, even though the actual owner of the business entity is ....
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....ts were not given copy of investigation report dated 21.02.2022 to effectively defend them despite their request for supply of the same. Thus, he stated that suspension action taken in the impugned order does not sustain as such action should be made only in appropriate cases, where immediate action is necessary. In this regard, he relied upon the following case laws: - (a) Commissioner of Customs Vs. National Shipping Agency - 2008 (226) E.L.T 46 (Bom.) (b) Schankar Clearing & Forwarding Ltd. Vs. C.C. (Import & General) - 2012 (283) E.L.T. 349 (Del.) (c) R.S. Kandalkar Vs. Commissioner of Central Excise - 2014 (299) E.L.T. 360 (Tri. - Mumbai) (d) P. Cawasji & Co. Vs. Commissioner of Customs (General), Mumbai - 2018 (364) E.L.T.871 (Tri. - Mumbai) (e) P.P. Associates Vs. Commissioner of Customs (General), Mumbai - 2016 (343) E.L.T. 684 (Tri. - Mumbai) 5. Learned AR appearing for the Revenue reiterated the findings recorded in the impugned order. He further submitted that the appellants have processed the shipping bills without proper antecedent verification of exporters by using any reliable means, even after knowing that the export goods belong to a thi....
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....all - (a) obtain an authorisation from each of the companies, firms or individuals by whom he is for the time being employed as a Customs Broker and produce such authorisation whenever required by the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be; xxx xxx xxx xxx (d) advise his client to comply with the provisions of the Act, other allied Acts and the rules and regulations thereof, and in case of noncompliance, shall bring the matter to the notice of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be; xxx xxx xxx xxx (k) maintain up to date records such as bill of entry, shipping bill, transhipment application, etc., all correspondence, other papers relating to his business as Customs Broker and accounts including financial transactions in an orderly and itemised manner as may be specified by the Principal Commissioner of Customs or Commissioner of Customs or the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case maybe; xxx xxx xxx xxx (n) verify ....
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....oner in respect of Regulation 10(a) ibid. 10. As regards Regulation 10(d) ibid, it is on record in the impugned order at paragraph No. 30(2) that the CB never met the proprietors of the export firms and thus the CB had not given any advice to his clients. Further, Shri Dnyanesh P Walunj, Director of appellants/CB firm had given in his voluntary statement dated 20.11.2021 before the Customs authorities that he knew that the export goods in respect of said two export entities belonged to a third person other than the exporters, which is in violation of the provisions of the Customs Act. However, the CB failed to bring these details to the notice of the Assistant/Deputy Commissioner concerned, so that the Customs department could have taken immediate necessary action against the deviant exporters. However, these fraudulent exports were identified and brought to fore only by the Customs SIIB investigation subsequently. In this regard, in order to appreciate the importance of the role of Customs Broker/Custom House Agent and the timely action which could prevent the export frauds, we rely on the judgement of the Hon'ble Supreme Court in affirming the decision of the Coordinate Bench of....
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....t the CB could not maintain proper record in respect of the exporter and their addresses. We find that as per Regulation 10(k) ibid, the nature of records that are required to be maintained up-to-date by a Customs Broker is mentioned therein as 'bill of entry, shipping bill, transshipment application etc., all correspondences, other papers relating to his business as Customs Broker and accounts including financial transactions in an orderly and itemized manner as may be specified by the Principal Commissioner/Commissioner of Customs or the Deputy/Assistant Commissioner of Customs'. Though it is possible that the verification of addresses of the exporters from where they are functioning could have been verified by a Customs Broker through correspondence with them and thus such details may form part of the records to be maintained, we find that this is not the case before us. It is not shown to us that there was such prescription for maintenance of records specified by the Principal Commissioner, and even if so, that the appellants had resorted to correspondence with the exporters for maintaining the same as a part of records required under Regulation 10(k). In view of the aforesaid ....
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....dent, authentic documents, data or information."; xxx xxx xxx [F. No. 502/5/2008 - Cus.VI]" 12.2. In explaining the changes brought through the aforesaid Notification the Central Board of Excise & Customs (CBEC) had also issued a Circular No. 9/2010-Customs dated 08.04.2010, the relevant portion of which is extracted below: "(iv) Know Your Customer (KYC) norms for identification of clients by CHAs: 6. In the context of increasing number of offences involving various modus-operandi such as misuse of export promotion schemes, fraudulent availment of export incentives and duty evasion by bogus IEC holders etc., it has been decided by the Board to put in place the "Know Your Customer (KYC)" guidelines for CHAs so that they are not used intentionally or unintentionally by importers / exporters who indulge in fraudulent activities. Accordingly, Regulation 13 of CHALR, 2004, has been suitably amended to provide that certain obligations on the CHAs to verify the antecedent, correctness of Import Export Code (IEC) Number, identity of his client and the functioning of his client in the declared address by using reliable, independent, authentic ....
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....of the founder, the managers, Directors and the beneficiaries, in full, complete and correct. (iii) Telephone and fax number, e-mail address of the trust, founder and trustees. (i) Certificate of Registration, if registered (ii) Power of Attorney granted to transact business on its behalf (iii) Any officially valid document to identify the trustees, settlers, beneficiaries and those holding the Power of Attorney, founders/ managers/ directors and their addresses (iv) Resolution of the managing body of the foundation/ association (v) Telephone bill." 12.3. In the present form of sub-Regulation 10(n) of CBLR, 2018, the said earlier regulation 13(o) had been modified by adding the Goods and Service Tax Identification Number (GSTIN) as one more particular for verification by the Customs Broker with the advent of introduction of GST in 2017. On careful perusal of the above details, it transpires that the Regulations and the Board's circular provide that certain specific features of an importer/ exporter needs to be verified in terms of specified documents mentioned in Annexure to the said Circular dated 08.04.2010, in order to fulfill the obligations by a ....
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....phs of the above referred Order are extracted below: "6. We have considered the submissions on both sides. Regulation 10(n) requires the Customs Broker to verify correctness of Importer Exporter Code (IEC) number, Goods and Services Tax Identification Number (GSTIN),identity of his client and functioning of his client at the declared address by using reliable, independent, authentic documents, data or information. This obligation can be broken down as follows: a) Verify the correctness of IEC number b) Verify the correctness of GSTIN c) Verify the identity of the client using reliable, independent, authentic documents, data or information d) Verify the functioning of the client at the declared address using reliable, independent, authentic documents, data or information 7. Of the above, (a) and (b) require verification of the documents which are issued by the Government departments. The IEC number is issued by the Director General of Foreign Trade (DGFT) and the GSTIN is issued by the GST officers under the CBIC or by officers of the Government of India or under the Governments of State or Union territory. The question which aris....
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...., when he signed it, the official character which he claims in such paper. 8. The onus on the Customs Broker cannot, therefore, extend to verifying that the officers have issued the certificate or registration correctly. It has been held by the High Court of Delhi in the case of Kunal Travels 2017 (3) TMI 1494 - Delhi High Court - that "the CHA is not an inspector to weigh the genuineness of the transaction. It is a processing agent of documents with respect of clearance of goods through customs house and in that process only such authorized personnel of the CHA can enter the customs house area........ It would be far too onerous to expect the CHA to inquire into and verify the genuineness of the IE code given to it by a client for each import/export transaction. When such code is mentioned, there is a presumption that an appropriate background check in this regard i.e., KYC, etc. would have been done by the customs authorities....." (emphasis supplied)." Of course, if the Customs Broker comes to know that its client had obtained these certificates through fraud or misrepresentation, nothing prevents it from bringing such details to the notice of Customs officers for their consi....
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....Regulation 10(n). 11. The fourth and the last obligation under Regulation 10(n) requires the Customs Broker to verify the functioning of the client at the declared address using reliable, independent, authentic documents, data or information. This responsibility, again, can be fulfilled using documents or data or information so long as they are reliable, independent and authentic. Nothing in this clause requires the Customs Broker to physically go to the premises of the client to ensure that they are functioning at the premises. By their nature, Customs formations are located only in a few places while exporters or importers could be from any part of the country and they hire the services of the Customs Brokers. Besides the fact that no such obligation is in Regulation 10(n), it will be extremely difficult, if not, totally impossible, for the Customs Broker to physically visit the premises of each of its clients for verification. For instance, if an importer from a small town in, say, Madhya Pradesh imports goods through ICD Tughlakabad in Delhi, the Customs Broker operating in Delhi cannot be expected to leave his entire business and travel to that town to verify physically if ....
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....ere issued by the jurisdictional GST officers who, or whose predecessors or colleagues, must have issued the GST registration. Thereafter, if it is found that the exporter was not operating from that address at all and the GST registration was wrongly issued, the responsibility rests on the officers who issued the GST Registration and not the Customs Broker. This wisdom in hindsight of the officers that the GSTIN was wrongly issued at that address cannot be held against the Customs Broker. 14. The appellants relied on the GST Registration Certificates and if relying on them is an offence, issuing them when the firms didn't even exist must, logically be a much graver offence and the officers who issued them must be more serious offenders. There is nothing in the reports of the jurisdictional officers which were the Relied Upon Documents in the SCN to indicate as to why and how the GST registration was issued when the exporters did not exist at all. We also find that other documents were procured by the appellant which were also issued by various other authorities which have not been alleged to be, let alone, proven to be fake or forged by the Revenue. Evidently, they also m....
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....go - 2017 (346) E.L.T. 472 (Tri. Del) by this Tribunal which decision was upheld by the High Court of Delhi. The ratio of this order should apply to this case. 19. We have examined the order in the case of Millenium Express Cargo and find that, that was a case where the cigarettes were smuggled concealed in a consignment of induction cookers and the Bill of Entry was filed by the CHA whose licence was then revoked for violation of Regulations 13(e) and 13(o) of CHA licensing Regulations, 2004. Of these, 13(o) is parimateria with CBLR 10(n) under consideration in this case. In the case of Millenium express cargo, the CHA has not even ever claimedthat it had verified the existence of the importer at the given address. Paragraph 5 of this order is reproduced below: 5. We have considered the contentions of both sides. It is an admitted fact that the appellant had dealt with the importer M/s. Nikhaar Associates. It is also a fact that the importer was found to be non-existent. CHA Regulation 13(e) state that "a CHA shall exercise due diligence to ascertain the correctness of any information which he imparts to a client with reference to any work related to cl....
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....en address. Obviously, the appellant failed to fulfil the requirement of Regulation 13(o) ibid. 20. Millenium express Cargo does not support the case of the Revenue since there is nothing on record to show that the exporters did not exist at the premises at the time of export or that the appellants were aware about the non-existence of the exporters when they filed the Shipping Bills. In fact, there is not even an assertion by the Revenue that on the day the Shipping Bills were filed the exporters did not exist at the premises. 21. As far as the documents issued by various Government officers are concerned the submission of the learned departmental representatives is interesting and needs a deeper examination. It is their submission that the documents were neither issued fraudulently nor issued carelessly but were issued within the mandate of the officers who issued them and this mandate does not include physical verification. In other words, the submission is that the system designed by the Government for issue of these certificates itself is such that they can be issued even to persons who do not exist at all at the declared premises. We proceed to examine this propos....
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....tion of the address of the exporter/importer. 24. Learned Authorized representatives for the Revenue relied on the decision of a coordinate bench of this Tribunal in Baraskar Brothers that there is an obligation on the Customs Broker to conduct a physical verification. Firstly, there is nothing in the Regulation 10(n) about physical verification. It requires verification that the person is operating from that address and this verification can be done through independent, reliable, authentic, documents, data or information. Secondly, this decision of the coordinate bench in Baraskar brothers is contrary to the decision of the jurisdictional Delhi High Court in Kunal Travels which is binding on us. 25. We now proceed to examine details of these cases: Appeal C/51658/2021- Bright clearing & Carrier Pvt. Ltd. 26. Show cause notice dated 23.12.2020 alleged that the appellant processed exports in respect of 31 non-existent exporters but verification was done only in respect of the following 3 exporters which form the basis of the entire case: (i) M/s Nipun Enterprises (07ABJGPG4747J1ZF)- RUD-2: The report of the jurisdictional officer does not indic....
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..... People and businesses are remembered by their names and not by their GSTIN or PAN or Voter ID Card number. If anyone goes to an area and enquires, for instance, if a person with a particular PAN lives hardly anyone would confirm. Interestingly, the reports also indicate that the premises were rented while at the same time indicating that the exporter was non-existent. It is not clear who, according to the reports had rented the premises if the exporter did not exist at all. 30. The report in respect of Nipun Enterprises states NOC (No objection Certificate) denied. The report in respect of Sunrise Impex indicates 'Not recommended' and the report in respect of P K Exim states ITC (input tax credit under GST) not admissible. There is also nothing in the CBLR requiring the Customs Broker to seek, let alone, obtain any NOC from any officer to process exports of any exporter. Similarly, nothing in the CBLR requires any recommendation from any officer for a Customs Broker to process exports. Similarly, the admissibility of ITC under GST is to be examined by the jurisdictional officers and the Customs Broker has neither any power nor any duty to decide if the ITC is admissible.....
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.... and imposed penalty of Rs. 50,000/-. 35. Two verification reports in respect of this appellant state that the exporter is 'not bonafide'. The third verification is self contradictory inasmuch as it, on the one hand, states that the exporter does not exist at the place and on the other hand confirms that physical copies of PAN and IEC were provided during verification. It is not clear who has provided these documents if the exporter did not exist at that premises. The reports nowhere state that the exporters never functioned from those premises and the GSTIN were issued by the department to non-existent firms or they ceased to function from those premises after the GSTIN were issued. So far as the reports of the officers that the exporters were not bonafide' is concerned, nothing in Regulation 10(n) of the CBLR, 2018 requires the Customs Broker to obtain a certificate from any officer that the exporter is bonafide. In fact, it is not even clear what the officers meant that the exporters are not bonafide. If the officers report that some exporters are not bonafide, it does not establish that the Customs Broker had not fulfilled its obligations under Regulation 10(n). The en....