Fraudulent IGST Refund, Responsibility of Customs Broker Fulfills once Verification of Address Done: CESTAT sets aside Order Revoking Customs Broker Licence [Read Order]

In a recent case, the Delhi bench of the Customs Excise & Service Tax Appellate Tribunal ( CESTAT ) set aside the order of revoking the customs broker license against the allegation of fraudulent Integrated Goods and Service Tax ( IGST ) Refund. It was observed that the responsibility of the customs broker was fulfilled once the verification of the address was done.

M/s Friends Cargo, the appellant wherein the Customs Broker license was revoked, the security deposit was forfeited and a penalty of Rs 50,000/- was imposed.  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 Counsel for the appellant submitted that no relied-upon documents such as the DGARM report were shared with the appellant, thereby violating the principles of natural justice. He contended that in the order in original, three exporter’s physical verification reports cited against the appellant are of M/s Samium Fabrication Private Limited, Grow Well Overseas and Shyam Traders.

The verification reports of these three exporters are not substantiated, nor stated in the show cause notice and there is no evidence that the three are in any way connected to the appellant as the appellant had not handled their consignments. The counsel further added that 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, he contended that the same are automatically credited to the account of the exporter which is registered via 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. The learned counsel further submitted that there is no evidence in the SCN, Inquiry report or the impugned order to substantiate that the exports were incorrect or illegal, nor that there is any error in the documentation.

The counsel further submitted that Regulation 10(n) of CBLR, 2018 mandates the CB to verify the identity of the importer by way of independent documentation. In the present case the appellant cannot be held responsible for the exporters not being traceable as all necessary documents to ascertain the veracity of the exporter had been undertaken none of the documents is found to be false or forged.

 He contended that the mere non-traceability of an exporter by itself does not lead to any conclusion that the appellant had violated the provisions of Regulation 10(n) of the CBLR 2018. He submitted that the appellant had taken all the necessary documents and conducted verification of the exporters based on documents, which have been held as valid in the catena of judgements.

A two-member bench comprising Ms Binu Tamta, Member ( Judicial ) and Ms Hemambika R Priya, Member(Technical) observed that under Regulation 10(n) the Customs Broker is required 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 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.

It was evident that both the GSTIN as well as the IEC indicates the address of the client. This in itself is independent data to verify the correctness of the identity/address of the client. We also note that there is nothing on record to show that either of these documents was fake or forged. Therefore, once verification of the address is complete as discussed above, the responsibility cast on the appellant under Regulation 10(n) stands fulfilled.

The Tribunal set aside the impugned order revoking the Customs Brokers license of the appellant, forfeiting their security deposit and further imposing penalty on the appellant.

To Read the full text of the Order CLICK HERE

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