Penalty on CHA for Not Verifying Export Credentials: CESTAT Sets Aside Penalty, Says CHALR Rules Apply [Read Order]

The Chennai Bench of Customs,Excise and Service Tax Appellate Tribunal ( CESTAT ) set aside penalties imposed on a Custom House Agent employee, holding that procedural lapses such as failing to verify exporter credentials fall under the Customs House Agents Licensing Regulations (CHALR), 2004 and not the Customs Act.

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E. Joseph John,appellant-assessee,worked for a Custom House Agent and filed shipping bills for M/s. S.K. Enterprises, Tirupur. Based on specific intelligence, DRI officers intercepted a truck at Tuticorin Sea Port carrying a container declared to contain 1000 bags of dehusked coconut, as per Shipping Bill dated 2.4.2013.

On examination, although the container was sealed and showed no signs of tampering, officers found red sanders logs hidden behind the coconut bags. The red sanders, a prohibited item for export, weighed ₹79.50 lakhs and was seized for being illegally attempted to be exported in violation of the Customs Act, 1962 and the Foreign Trade Policy.

A Show Cause Notice dated 4.10.2013 was issued to the appellant, alleging his role in filing the shipping bill that led to the attempted export. The adjudicating authority imposed penalties of Rs.10,00,000 under Section 114(i) and Rs.3,00,000 under Section 117 of the Act, leading to the present appeal.

The assessee counsel,argued that the assessee was only accused of not verifying the exporter’s credentials or getting proper authorization before filing the shipping bill, which was done on instructions from others. He said this did not justify penalties under Section 114 or 117 of the Customs Act, as the assessee did not do anything that made the goods liable for confiscation, nor did he abet any such act.

He stated that at most, it was a violation of the CHALR 2004, and any action should have been taken under those rules, not under the Customs Act. He also pointed out that the Rs.3,00,000 penalty under Section 117 was illegal, as the maximum allowed was Rs.1,00,000.

He added that the lower authority wrongly treated the CHALR violation as a breach of the Customs Act, which was not correct, and the order should be set aside.

The department representative supported the order and asked for it to be upheld.

A single member bench M.Ajit Kumar ( Technical Member) reviewed the case records and submissions from both sides. It found that the charges against the appellant related to his failure, as a CHA employee, to verify the exporter’s credentials and get proper authorization before filing the shipping bill that led to the attempted export of red sanders.

The appellate tribunal noted that although the assessee received unusually high fees, there was no evidence of collusion or illegal gain. It held that suspicion or negligence alone was not enough to impose penalties under Section 114 of the Customs Act, as there was no act that made the goods liable for confiscation.

It also ruled that action for violating the CHALR, 2004 should be taken under those regulations, not under the Customs Act. Referring to a similar earlier case, the tribunal reiterated that procedural lapses by a customs broker must be dealt with under the licensing rules.

Since no specific violation under the Customs Act was proved, the CESTAT set aside the penalty and allowed the appeal.

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