CHA Violations to Be Dealt Under CHALR, Not Customs Act: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal(CESTAT) ruled that procedural or professional lapses attributable to a CustomsHouse Agent (CHA) fall within the regulatory framework of the Customs House Agents Licensing Regulations, 2004 (CHALR) and not Customs Act, 1962.

The appellant, M/s Sanco Trans Ltd., is a Customs Broker engaged in handling export consignments at the Inland Container Depot, Salem. Investigations were conducted by the Directorate of Revenue Intelligence (DRI) in relation to certain export transactions involving alleged misdeclaration, manipulation of shipping documents, and wrongful availment of duty drawback.

During the investigation, it was alleged that employees of the appellant had failed to properly verify exporters and had facilitated filing of shipping bills without due diligence. On this basis, show cause notices were issued proposing imposition of penalties on the appellant under the provisions of the Customs Act, 1962.

The adjudicating authority concluded that the appellant had failed to discharge its obligations as a CHA and imposed penalties under the Customs Act for alleged abetment and facilitation of irregular exports. Aggrieved by the said order, the appellant approached the Tribunal.

Advocate, T. Sundaranathan, representing the appellant argued that the Customs Act and the licensing regulations operate in distinct fields and that disciplinary action against a CHA must be initiated only in accordance with the procedure prescribed under the CHALR. Further, bypassing this mechanism would amount to misuse of penal provisions.

O.M. Reena, representing the Revenue, argued that mere availability of disciplinary proceedings under the CHALR would not preclude action under the Customs Act where the conduct of the CHA resulted in revenue loss.

The Bench comprising Ajayan T.V., Judicial Member and M. Ajit Kumar, Technical Member, observed that the CHALR constitutes a complete code governing the conduct, responsibilities, and disciplinary control of CHA. And any failure to comply with obligations is specifically addressed under the licensing framework, however must be adjudicated upon case-to-case basis.

The Bench clarified that unless there is clear evidence of conscious involvement, collusion, or intentional abetment in the commission of an offence, a CHA cannot be proceeded against under the penal provisions of the Customs Act merely for procedural or professional lapses. Further, held that the Customs Act and the licensing regulations operate in different spheres and that disciplinary action for breach of professional obligations must be initiated under the CHALR.

On merits, the Tribunal found that the allegations against the appellant fell squarely within the scope of the licensing regulations. In the absence of any evidence showing deliberate involvement or mens rea, the penalty imposed under the Customs Act was held to be unsustainable.

Accordingly, the CESTAT set aside the penalties imposed on the appellant and held that any action, if warranted, could only be taken in accordance with the CHALR.

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