Customs Commissioner Fails to issue Notice within 90 days: CESTAT Quashes Penalty over Custom Brokers License Proceedings [Read Order]

The Chennai Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) quashed Penalty against Customs Brokers as the CustomsCommissioner failed to show compliance with the mandatory 90-day limit for issuingShow Cause Notice under Customs Brokers Licensing Regulations (CBLR) ,2013. Thus, the Tribunal set aside license suspension and security deposit forfeiture.

The Appellant, M/s. La Freight Lift Pvt Ltd, Chennai, preferred two interconnected appeals arising from the same impugned Order-in-Original dated 06.06.2016, was aggrieved by the impugned order in original to the extent that it has ordered a forfeiture of the full amount of security deposit.

The Appellant Customs Broker operating under a valid Customs Broker Licence issued in terms of Regulation 8 of CHALR, 2004. An investigation by the Docks Intelligence Unit (DIU), Custom House, Chennai, was attempted into smuggling of Red Sanders disguised as Mild Steel Round Pipes, with Shipping Bill No. 9880221 dated 05.02.2014.

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The Appellant Customs Broker had facilitated the clearance of this export shipment for the exporter, Dharranee Roofing Plant P Ltd. Investigations revealed that Badri K Narayanan, suspected to be the main culprit, had introduced himself to the exporter as a buying agent and arranged for the customs house agent.

On the other hand, the Department alleged that the Appellant Customs Broker failed to obtain proper authorization from Dharranee Roofing Plant P Ltd, dealt with the unauthorized Badri K Narayanan, and facilitated the illegal activity. It was further stated that the customs broker's manager at Coimbatore had only visited the exporter's office and had not verified the identity, PAN, or memorandum of articles of association of the exporter.

The Department concluded that the Appellant Customs Broker failed to exercise due diligence, identify its client, verify antecedents, and ascertain the source of payments, thus violating Regulations 11(a), 11(b), 11(e), and 11(n) of the Customs Broker Licensing Regulations, 2013 (CBLR 2013). The Appellant Customs Broker's licence was suspended vide suspension order dated 17-04-2014. After a personal hearing on06-05-2014., the Commissioner of Customs, through Order-in-Original No. 25614/2014, dated 20-05-2014, continued the suspension. Subsequently, a show cause notice dated 02-06-2014 was issued, proposing revocation of the licence, forfeiture of the security deposit, or imposition of penalty under Regulation 18 of CBLR 2013.

The Regulation 18 of CBLR 2013 explained that: Revocation of licence or imposition of penalty

“The Commissioner of Customs may, subject to the provisions of regulation 20, revoke the licence of a Customs Broker and order for forfeiture of part or whole of security, or impose penalty not exceeding fifty thousand rupees on a Customs Broker on any of the following grounds, namely :— (a) failure of to comply with any of the conditions of the bond executed by him under regulation 8; (b) failure to comply with any of the provisions of these regulations, within his jurisdiction or anywhere else; (c) committing any misconduct, whether within his jurisdiction or anywhere else which in the opinion of the Commissioner renders him unfit to transact any business in the Customs Station; (d) adjudicated as an insolvent; (e) of unsound mind; and (f) has been convicted by a competent court for an offence involving moral turpitude”

In a parallel proceeding under the Customs Act, 1962, a penalty of Rs. 5 lakhs was imposed on the Appellant Customs Broker through Order in Original No. 45207/2016 dated 20-06-2016. However, this penalty was subsequently set aside on appeal vide Order in Appeal C. Cus II No. 603/2016 dated 20.06.2016, with the appellate authority finding no basis for its imposition.

The Counsel for the Appellant, S. Murugappan, primarily stated that the entire proceedings were vitiated by non-compliance with the mandatory time limits stipulated in the regulations. It was highlighted that the show cause notice dated June 2014 was issued long after the incident in February 2014, the inquiry report was submitted in May 2015, and the final order in June 2016, thereby exceeding the prescribed timelines.

Further, the Counsel relied on the jurisdictional High Court's judgment in M/s. Masterstroke Freight Forwarders Pvt Ltd., Vs. Commissioner of Customs (Imports), Chennai – 2015-TIOL-2847-HC-MAD-CUS, which held such time limits to be mandatory. Further, it was argued that Regulation 11(d) was inapplicable as there was no occasion to notice any contravention by the exporter, and there was no evidence of connivance with smugglers, citing Transport Logistics Vs. Cestat, Chennai – 2016 (338) E.L.T 380 (Mad.).

The Counsel for the Respondent, Sanjay Kakkar, submitted that the adjudicating authority wrongly presumed email authorization obtained by the customs broker, disregarding the exporter's voluntary statement dated 11.02.2014 which confirmed that Badri K. Narayanan had arranged the customs house agent.

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The Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) composed of Judicial Member, Ajayan T.V and Technical Member, Ajit Kumar, heard and reviewed the matter.

After reviewing and considering the material on record, the Tribunal said that Regulation 20(1) of CBLR 2013 mandates the Commissioner of Customs to issue a notice in writing to the Customs Broker within ninety days from the date of receipt of an offence report.

The Tribunal noted that this provision is pari materia with Regulation 22(1) of CHALR 2004, which was considered by the Madras High Court in M/s. Santon Shipping Services v. The Commissioner of Customs, reported in 2017 (10) TMI 621 - MADRAS HIGH COURT.

The High Court, in its judgment dated 13.10.2017 in C.M.A No. No.730 of 2016, unequivocally held that the 90-day limitation period is mandatory. It was held that failure to issue the show cause notice within this period renders the consequent proceedings unlawful.

Further, the Tribunal held that the impugned Order-in-Original, to the extent forfeited the security deposit of the Appellant Customs Broker, which could not be sustained and was liable to be set aside.

Thus, the appeal preferred by the Appellant Customs Broker, M/s. La Freight Lift Pvt Ltd, was allowed, and the appeal preferred by the Revenue Department was dismissed. The Appellant Customs Broker was declared entitled to consequential relief(s) as per law. The Order was pronounced in open court on 11.11.2025.

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