Failure to Verify Importer’s Credentials and Mis-declaration of Goods: CESTAT Upholds Revocation of Customs Broker License [Read Order]

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that a customs broker’s license can be revoked when the broker fails to verify the importer’s credentials and mis-declared goods are discovered.

Sagar Shipping Services, the appellant, was a licensed customs broker with validity until 27 August 2027. The appellant filed Bill of Entry No. 9892525 dated 13 January 2024 on behalf of importer Digen Traders for a consignment declared as base oil arriving at Mundra Port.

On examination, only 80 drums contained base oil while 658 drums contained areca nuts valued at Rs. 5.71 crores. The importer was later found to be non-existent, with fake addresses, false GST and IEC registrations, and fraudulent documents procured through a freight forwarder.

A show cause notice was issued alleging violation of Regulations 10(d), 10(e), and 10(n) of the Customs Broker Licensing Regulations, 2018. The Principal Commissioner of Customs, Jodhpur, revoked the appellant’s license, forfeited the security deposit of Rs. 5,00,000, and imposed a penalty of Rs. 50,000.

The appellant’s counsel argued that the broker complied with CBLR 2018 by verifying documents such as PAN and bank statements, IEC from the DGFT portal, and GST registration from the GST portal. It was also argued that requesting a “First Check” examination even before DRI intervention showed bona fide conduct.

The appellant’s counsel argued that there is no legal obligation for a broker to visit a client’s premises physically and relied on several judgments including Naman Gupta v. CC, Kunal Travels v. CC, and HIM Logistics Pvt. Ltd.

The revenue counsel argued that the appellant failed to conduct due diligence, relied entirely on documents from a freight forwarder, and never contacted the importer directly. They further argued that the broker filed the bill of entry without proper authorization and did not report discrepancies to Customs.

The department explained that even unintentional violations by a customs broker are sufficient for punitive action, citing decisions such as CC v. K.M. Ganatra & Co. and Falcon India v. CC.

The two-member bench comprising Dr. Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member) observed that the appellant never met the importer, acted only on the freight forwarder’s instructions, and admitted this fact in a statement under section 108 of the Customs Act, which was never retracted.

The tribunal observed that reliance solely on GST and IEC details without verifying the importer’s actual functioning fell short of the obligations under CBLR 2018. The tribunal pointed out that a customs broker holds a position of trust between importers and the department and is expected to exercise due diligence and report non-compliance.

The tribunal explained that negligence in verifying importer credentials and failing to advise clients correctly amounts to a violation of the broker’s obligations. The appeal was dismissed, and the revocation order was upheld.

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