No Evidence on Failure to Exercise Due Diligence by CB for Illegal Sugar Export: CESTAT quashes Penalty [Read Order]

The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside the penalty imposed on a Customs Broker (CB), holding that there was no evidence to establish that the broker had failed to exercise due diligence or had knowledge of the alleged illegal export of sugar disguised as raw rice.

The appellant, a licensed Customs Broker, was accused of abetting an exporter in the attempted export of sugar under the guise of “Raw Rice.” Following detection of the alleged offence, Customs authorities at Tuticorin forwarded an offence report. Based on the report, a Show Cause Notice was issued under the provisions of the Customs Broker Licensing Regulations, 2018 (CBLR, 2018). Subsequently, the adjudicating authority concluded that the appellant had violated Regulations 10(d), 10(e), and 10(n) of the CBLR, 2018 and imposed a penalty. Aggrieved by the order, the Customs Broker preferred an appeal before the Tribunal.

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The appellant contended that the exporter had represented the goods as “Raw Rice” and all documents furnished for customs clearance described the consignment accordingly. Acting on the basis of the information and documents provided by the exporter, the appellant filed the Shipping Bill declaring the goods as raw rice.

It was argued that the appellant had no knowledge that bags containing sugar were allegedly mixed with the raw rice consignment. Had such information been disclosed, the Shipping Bill would not have been filed. Therefore, the allegation that the appellant failed to inform the Department about non-compliance with Regulation 10(d) of the CBLR, 2018 was unsustainable.

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In support of its submissions, the appellant relied on the decision of the Delhi High Court in Kunal Travels v. Commissioner of Customs, wherein it was held that a Customs House Agent cannot be held liable for misdeclaration made by an importer or exporter in the absence of evidence establishing knowledge or involvement. The appellant submitted that a Customs Broker is not expected to conduct an extensive background investigation into the importer or exporter approaching it for facilitation of customs clearance.

Opposing the appeal, the Departmental Representative argued that a Customs Broker, being well versed with the provisions of the Customs Act, Rules, Regulations, and allied laws, is obligated to strictly comply with the requirements of the CBLR, 2018. It was contended that since this was the broker’s first transaction with the exporter, greater vigilance and enhanced due diligence ought to have been exercised before filing the Shipping Bill.

After considering the rival submissions, the Tribunal of P.A. Augustian, Member (Judicial) and Pullela Nageswara Rao, Member (Technical) held that “As regards violation of Regulation 10(e) and 10(n) of the CBLR, 2018, though it is an admitted fact that there was illegal export of goods, there is no allegation in the impugned order regarding knowledge of the appellant and no admissible evidence to conclude that the appellant, being a Customs Broker, failed to exercise due diligence to ascertain the correctness of any information which he imparted to his client with reference to clearance of cargo.”

Holding that the essential ingredients required to establish violations of the Customs Broker Licensing Regulations were not proved, the Tribunal set aside the penalty imposed on the appellant and allowed the appeal.

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