Customs Brokers Not Liable if Client Shuts Down After Verified Transactions: CESTAT Rules No Violation Under Regulation 10(n) [Read Order]

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that a customs broker cannot be held liable under Regulation 10(n) of the Customs Broker Licensing Regulations, 2018 if a client ceases operations after the broker has completed verification based on valid government-issued documents at the time of the transactions.

Brightline (C&F) Agency, the appellant, held a valid customs broker licence and was accused of handling exports for entities flagged by the Directorate General of Analytics & Risk Management (DGARM) as non-existent.

The Commissioner of Customs revoked its licence, forfeited its security deposit, and imposed a penalty citing violation of Regulation 10(n). The allegation was based on verification reports for four exporters, but the appellant submitted that it had only handled exports for one of them, Lalit Enterprises, and not for the other three.

The appellant’s counsel argued that at the time of the shipments in early 2019, Lalit Enterprises had a valid GST registration, was filing returns, and existed at the declared premises. The verification report showed that the exporter vacated the premises sometime between August 2019 and February 2020, well after the last shipment.

They further argued that Regulation 10(n) does not require physical visits to client premises and that verification can be done through authentic, independent, and reliable documents such as GSTIN and IEC.

The revenue counsel countered that the physical verification in February 2020 revealed the exporter’s non-existence and indicated inadequate verification by the broker.

The two-member bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that there was no evidence to show the appellant had handled shipments for three of the four exporters and accepted the appellant’s position on this.

Regarding Lalit Enterprises, the tribunal observed that the GSTIN and IEC were valid at the time of transactions and that Regulation 10(n) allows verification through reliable documents without mandating physical inspection. The tribunal pointed out that the regulation does not impose a duty of continuous surveillance after initial verification.

The tribunal explained that since the client’s documents were authentic and government-issued, and there was no evidence of falsity at the time of export, there was no violation of Regulation 10(n). The impugned order was set aside, and the appeal was allowed with consequential relief to the appellant.

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