Obligation Of CHA Cannot Be Stretched To Undertake Background Check Of Client, Revoking Customs Brokers License Not Sustainable: CESTAT

The Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the obligation of the Customs House Agent under Section 13(e) of the CHALR, 2004 cannot be stretched to it being obliged to undertake a further background check of the client.

The bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that Regulation 10(n) requires the customs broker to verify the identity of the client using reliable, independent, authentic documents, data, or information. In other words, he should know who the client is, and the client cannot be some fictitious person. As per the Regulation, this identity can be established by independent, reliable, authentic documents, data, or information. Nothing in the clause requires the customs broker to physically go to the premises of the client to ensure that they are functioning there.

The DGARM (Directorate General of Analytics and Risk Management), CBIC, sent a communication identifying risky exporters involved in fraudulent IGST refunds who were not traceable, along with the details of customs brokers involved in the clearance of the alleged risky consignments. The appellant had handled the consignments of 48 risky exporters whose premises could not be verified physically or were untraceable. Based on the reports received, the jurisdictional commissioner alleged that the appellant had violated the provisions of CBLR 2018 by not following the KYC guidelines. The CB license was suspended, and thereafter, the inquiry as mandated was conducted. The order was passed, ordering revoking the license, forfeiture of deposit, and imposition of penalty.

The assessee submitted that no relied-upon documents, such as the DGARM report, were shared with the appellant, thereby violating the principles of natural justice. With the introduction of GST, no shipping bill can be processed without the valid GSTIN being mentioned on the shipping bill. As regards IGST refunds, they automatically get credited to the account of the exporter, which is registered via an AD code with the department, which also requires extensive documentation. The mere non-traceability of the exporters in itself is no basis to assume that the exports were fraudulent and were not eligible for an IGST refund. There is no evidence in the show cause notice, inquiry report, or impugned order to substantiate that the exports were incorrect or illegal, nor is there any error in the documentation.

The assessee contended that Regulation 10(n) of CBLR, 2018 mandates the CB to verify the identity of the importer by way of independent documentation. The appellant cannot be held responsible for the exporters not being traceable, as all necessary documents to ascertain the veracity of the exporter have been undertaken, and none of the documents have been found to be false or forged. The mere non-traceability of an exporter by itself does not lead to any conclusion that the appellant has violated the provisions of Regulation 10(n) of the CBLR 2018.

The CESTAT noted that both the GSTIN and the IEC indicate the address of the client. This in itself is independent data to verify the correctness of the identity or address of the client. There is nothing on record to show that either of these documents were fake or forged. Therefore, once verification of the address is complete, the responsibility cast on the appellant under Regulation 10(n) is fulfilled.

Counsel For Appellant: G S Arora

Counsel For Respondent: Girijesh Kumar

Case Title: World Line Cargo Movers Versus Commissioner Of Customs

Case No.: Customs Appeal No. 51779 Of 2021

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