Failure to conduct physical verification of exporter’s genuineness is not by itself a ground for suspension of customs broker’s licence: Delhi HC

Under the Customs Brokers Licensing Regulations 2018, Section 10(e) provides that a customs broker must exercise due diligence to verify the accuracy of any information he provides to a customer in connection with any work relating to the clearance of cargo or baggage.

Similarly, Section 10(n) of the Customs Brokers Licensing Rules, 2018 provides that it is the duty of a customs broker to verify the correctness of the Importer-Exporter Code (IEC) number, Goods and Services Tax Identification Number (GSTIN), identity of his client and existence of his client at the given address, using reliable, independent and authentic documents, data or information.

The judge’s bench Judge Yashwant Varma AND Judge Ravinder Dudeja It has been observed that “The CB would not be in breach of its obligations if it relied on “reliable, independent, authentic documents, data or information” such as IEC and GSTIN, which are issued by the Director General of Foreign Trade and GST Officers, respectively”.

Facts in the case:

The appellant was a licensed Customs Broker and also held a separate CB License issued by the Mumbai Commissionerate. Upon investigation into the transactions carried out by M/s Fine Overseas for fraudulent purpose of obtaining rebate of Integrated Goods and Services Tax and also for withdrawal of benefits, the Chief Commissioner of Customs ordered the cancellation of the license granted to the appellant in terms of Regulation 7(3) of the Customs Brokers Licensing Regulations, 2018 and also found the appellant guilty of violating Regulations 10(e) and 10(n) of the CBLR 2018. Further, the CB License held by the appellant was suspended by the Commissioner of Customs which was subsequently withdrawn.

Supreme Court comments:

The bench noted that CESTAT, having found that the applicant had facilitated fraudulent exports, held that the suspension of the applicant’s licence was a “proportionate penalty” even though there was no violation of Regulation 10(e).

The bench said suspension is a remedy which can be resorted to by the respondents in situations where they feel that immediate action against the CB is required pending completion of inquiry and investigation as per Regulation 16.

The bench further observed that the violation of Regulation 10(n) of CBLR 2018 was based on the statement of Zoheba Moin, authorised representative and manager of M/s Fine Overseas, who had recorded the official address, lease agreement, importer-exporter code, GST identification number and annual turnover for the tax year 2017-18 of M/s Fine Overseas, and details of her business activities.

After perusing Regulation 10(n), the bench held that the CB would not be in breach of its obligations if it relied on “reliable, independent, authentic documents, data or information” such as IEC and GSTIN, which are issued by the Director General of Foreign Trade and GST officials, respectively.

Moreover, Regulation 10(n) does not require physical verification of the exporter’s genuineness. Accordingly, the complainant is not guilty of failing to comply with the obligation imposed by Regulation 10(n) CBLR 2018.

Therefore, finding the complainant’s allegations substantiated, the Supreme Court ruled that the order issued by CESTAT was manifestly erroneous and could not be upheld.

Counsel for the complainant/taxpayer: Pradeep Jain, Shubhankar Jha and Harneet Pushkarna

Counsel for the Respondent/Revenue: Harpreet Singh, with Suhani Mathur

Case Title: Aradhya Export Import Consultants Pvt Ltd vs. Commissioner of Customs

Case number: CUSAA 81/2023

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