M/s. M. K. Saha and Co. vs Commissioner Of Customs (Airport And ACC)

These two appeals have been filed by the Revenue and the Customs Broker assailing the same order in original Impugned order dated 3.3.2021 passed by the Principal Commissioner of Customs (Airport &ACC) and hence both appeals are being disposed of together. Appeal no.C 75487/2021 is filed by the Revenue and appeal no. C/75473/2021 is filed by the Customs Broker M/s. MK Saha and Co Customs Broker. In the impugned order the Principal Commissioner passed the following order in paragraph 32:

(i) I, hereby, order for imposing penalty of Rs. 50,000/-(Rupees fifty thousand only) on the CB namely M/S MK Saha and company, 145/A, Ashoke Garh, Kolkata 700108 having license number M—57 Code no. 2405 (PAN ABCFM0925F), by exercising powers conferred upon me under regulation 18 of CBI law, 2018 for violation of Regulations 10 (b), 10 (d), 10 (e) and 10(n) of CBLR, 2018.

(ii) The full amount of security deposit furnished by the CB viz., M/S MK Saha and Co., Customs broker license number M-57 code no. 2405 (PAN number ABCFM 0925F) is also ordered to be forfeited as per provision of regulation 14 of CB alert 2018 for violating regulations 10 (b), 10 (d), 10 (e), & 10 (n) of CBLR, 2018.

Thereafter, a corrigendum dated 3 May 2021 was issued by the Principal Commissioner to the impugned order as follows:

In the subject order in original No. KOL/CUS/Airport/ADMN/04/2021 dated 3.3.2021, after para 32 (ii), the following para shall be inserted: —

“Para 32(iii)- I order for restoration of the license of the CB, M/S MK Saha and company, subject to fresh security deposit and payment of penalty imposed under paragraph 32(i).”

In its appeal C/75487/2021, Revenue is aggrieved (a) that the learned Principal Commissioner has not revoked the CB licence under Rule 14 and

(b) that he ordered restoration of the licence (subject to fresh security deposit and payment of penalty imposed). In its appeal C/7543/2021, the Customs Broker is aggrieved by both the forfeiture of the security deposit and imposition of the penalty. Para 32(iii) of the order in original issued by way of Corrigendum was assailed by the Customs Broker in WPO No. 203 of 202 before the Hon’ble High Court of Calcutta and it has been set aside by the High Court by Judgment dated 6.9.2021. The relevant paragraph of this judgment is as follows:

(iv) In my considered opinion, in exercise of powers of rectification under section 154 of the Customs Act, Commissioner of Customs, cannot by way of corrigendum insert additional punishment of suspension of Customs Broker Licence or impose conditions for revocation of suspension of Customs Broker Licence of the petitioner in the original adjudication order in the name of correcting clerical, arithmetical or typographical mistake since additional punishment of suspension of the aforesaid licence or imposing of conditions for revocation of suspension of Customs Broker Licence would amount substantial alteration in the original order of rectification and the same could not be called a correction of clerical, arithmetical or typographical mistake in the original adjudication order. I am of the considered view that in case of non-compliance of the adjudication order by the petitioner legal consequences will follow automatically and for compliance or implementation of the original order of adjudication a further corrigendum under section 154 of the Customs Act, 1962, is not required.

As the corrigendum has already been set aside by the High Court, the only questions to be decided in these two appeals are:

a) Has the Customs Broker violated Regulations 10(b), (d), (e) and (n)?

b) If the answer to (a) above is YES, can the imposition of penalty of Rs. 50,000/- under Regulation 18 be sustained?

c) If the answer to (a) above is YES, can the forfeiture of the entire security deposit under Regulation 14 be sustained?

d) If the answer to (a) above is YES, has the learned Principal Commissioner erred in not cancelling the licence of the Customs Broker?

The appellant Customs Broker filed four Shipping Bills No. 6772616 dated 8.8.2018, 6772734 dated 8.8.2018, 6783913 dated 9.8.2018 and 6783966 dated 9.8.2018 for export of goods by the exporter and the Shipping Bills were assessed provisionally by the proper officer after drawing samples on 10.8.2018 and the containers were allowed to be shipped on 16.8.2018. Thereafter, on 20.8.2018, officers of the Directorate of Revenue Intelligence, DRI received intelligence and sent a letter to the Commissioner of Customs (Port) Custom House, Kolkata, requesting to issue necessary instructions for 100% examination of the consignments in the presence of DRI. On 21.8.2018, officers of DRI investigated the export consignments of the exporter M/s. Skivvis Textiles which were described in the documents as ‘Vegan Leather Shoe Sole Components’ declared to be valued at

Rs. 6.22 crores. DRI found that the goods were cut pieces of scrap leather of very low value. In other words, the goods which were already provisionally assessed after drawing samples for testing by the proper officer and which were allowed to be shipped were again stopped and examined by the officers of DRI without waiting for the outcome of the test reports or other enquiries and finalization of the Shipping Bills by the proper officer. DRI, after its investigation concluded that the goods were mis-declared and over-valued. The Panchnama drawn during DRI’s investigation on 21.8.2018 by the Panchas in the presence of the exporter, examiner of customs, Customs Broker and the DRI officers states ‘The goods appeared to be of very inferior in quality and highly overvalued.’

According to the Revenue, the clearance work of these goods including the filing of Shipping Bills was handled by Shri Babul Dey, the employee of another Customs Broker Firm, M/s. Behag Overseas using the Customs Broker licence of the appellant. Shri Dey also admitted to clearing other consignments also likewise. Shri Mantosh Kumar Saha, Proprietor of the appellant firm admitted that Shri Babul Dey had filed the Shipping Bills but after he had signed on them. He claimed that Babul is their authorized signatory and marketing executive and had joined the appellant firm only a month before the incident. They had not got any G-Card in the name of Shri Babul Dey. According to the appellant Customs Broker, Shri Dey only provided them the business of this exporter for a commission and had not processed the clearance of the goods through Customs. A Show Cause Notice, SCN dated 23.4.2019 was issued to the appellant Customs Broker proposing to revoke its licence and forfeit the security deposit on the following grounds.

(i) As per Regulation 10(b), the Customs broker shall transact business in the Customs Station either personally or through an authorized employee duly approved by the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be. However, in the present case, Shri Babul Dey joined the Customs Broker firm in July 2018 but the Customs Broker did not get him duly approved by the Deputy Commissioner of Customs or Assistant Commissioner of Customs. Therefore, M/s. M K Saha & Co appear to have violated Regulation 10(b).

(ii) As per Regulation 10(d), the Customs broker shall advise his client to comply with the provisions of the Act, other allied Acts and the rules and regulations thereof, and in case of non-compliance, shall bring the matter to the notice of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be. In the present case, the CB M/s. M K Saha & Co did not advise his client to comply with the provisions of the Act. They did not bring to the notice of the department the anomalies. Therefore, they appear to have violated Regulation 10(d).

(iii) As per Regulation 10 (e), the Customs broker shall exercise due diligence to ascertain the correctness of any information which he imparts to a client with reference to any work related to clearance of cargo or baggage. The Customs Broker has not exercised due diligence to impart necessary and correct information. In fact, the exporter was not a client having not engaged the CB. Therefore, they appear to have violated Regulation 10(e) of

CBLR, 2018

(iv) As per Regulation 10(n), the Customs broker shall verify correctness of Importer Exporter Code (IEC) number, Goods and Services Tax Identification Number (GSTIN), identity of his client and functioning of his client at the declared address by using reliable, independent, authentic documents, data or information. In his statement given under section 108 of the Customs Act, Shri M K Saha submitted that Shri Sumit Saha, Proprietor of Skivves Textiles came to his office and submitted the KYC and export documents. But in his statement given before DRI, Shri Sumit Saha categorically stated that other persons had arranged the Customs Broker. Thus, it appears that the CB has not verified the KYC and export documents and has violated the Regulation 10(n).

These four allegations form the entire case against the appellant Customs Broker. After appointing an enquiry officer and giving opportunity of being heard and allowing cross examination, the learned Principal Commissioner passed the impugned order. We have perused the impugned order and the submissions in both appeals and the arguments put forth by both sides.

We find that this case against the Customs Broker emanated from a case booked by DRI against the exporter. It forms the basis for this case according to the impugned order as well as both the appeals. Thus, the case booked by DRI provides the context and background to this case. In this case, the Shipping Bills were filed which were provisionally assessed after drawing samples and goods were allowed to be shipped by the proper officer. Thus, the assessment of the Shipping Bill was not yet complete and would have been completed after tests, enquiries, etc. by the proper officer and finalization of assessment. Evidently, the proper officer himself had doubts about the consignments and drew samples and assessed goods provisionally. Before the goods could he shipped, DRI intervened and again looked into those very goods and concluded that the goods were overvalued to claim fraudulent export benefits. Assessment of Bills of Entry or Shipping Bills, including provisional assessment is a quasi-judicial process by the proper officer and the quasi-judicial order, though not a finalassessment order and though not even a speaking order must be respected.

Every assessment, including provisional assessment, is appealable by both the Revenue and the exporter to the appellate authority. Assessment of a Shipping Bill or Bill of Entry need not necessarily result in payment of duty. Where the proper officer needs further information or enquiries, he can resort to provisional assessment and thereafter finalise the assessment. In this case, nothing is presented before us to show that the provisional assessment order has been appealed against or modified by the Commissioner(Appeals). Therefore, the provisional assessment order of the proper officer is still valid. We do not find any provision of the Customs Act under which either a provisional assessment or final assessment can be modified by officers of DRI and a different decision taken. In the case of Jairath International, Punjab-Haryana High Court M/S Jairath International And ... vs Union Of India And Others on 4 October, 2019 CWP No.702 of 2017(O&M), this legal position was clarified by the High Court of Punjab and Haryana. In that case, goods were exported on claim for drawback. Thereafter, DRI received intelligence that the exported goods were overvalued to claim ineligible drawback. Accordingly, an SCN was issued proposing to revise the value downwards and recover the excess drawback. Relying on the judgment of the larger bench of the Supreme Court in the case of ITC, ITC Ltd. vs Commissioner of Central Excise, Kolkata IV CIVIL APPEAL

NOS. 293294 OF 2009 Hon’ble High Court of Punjab and Haryana held that once an assessment of a Shipping Bill is done by the proper officer, the value therein cannot be modified even by a higher officer. Relevant extract of paragraph 15 of the judgment is as follows:

“We on examination of the scheme of the 1962 Act and in view of the judgment of Hon'ble Supreme Court in case of ITC Vs. CCE (Supra) find that Rule 16 of Drawback Rules, 1995 is also in the nature of execution proceedings thus an officer even higher in rank than proper officer, who framed assessment at the time of export, cannot modify a shipping bill qua value and consequent entitlement of duty drawback while issuing notice or passing order under Rule 16 of the Drawback Rules, 1995.”

In this case, assessment was provisional and not final but provisional assessment is also an assessment and provisional assessment orders are often appealed against. If either the exporter or the Revenue was aggrieved by the Provisional Assessment order, the proper course would have been to file an appeal to the Commissioner (Appeals).Based on the DRI’s investigation, action was taken against the appellant Customs Broker by the impugned order which are the subject matter of these two appeals.

We now proceed to examine and answer the questions which we framed in paragraph 4 above.

Has the Customs Broker violated Regulations 10(b), (d), (e) and (n)?

Regulation 10(b)

This regulation requires the Customs Broker to conduct the operations personally or through his employees duly approved by the Assistant Commissioner or Deputy Commissioner of Customs. The allegation against the Customs Broker in the SCN is that Shri Babul Dey filed the Shipping Bills who was employed by the Customs Broker but it did not obtain approval of the Assistant Commissioner or Deputy Commissioner of Customs.

The Custom Broker’s response was that Shri Dey was only appointed on trial basis only as a marketing agent and not for Customs clearance work and hence the question of obtaining the permission of Assistant Commissioner or Deputy Commissioner does not arise at that stage. During hearing, Shri Dey was cross- examined in which he stated that:

a) He was the employee of M/s. Behag Overseas and was not and was never the employee of the appellant Customs Broker.

b) However, he did some work of business promotion for the appellant customs broker.

c) With respect to the consignment in dispute, he stated that he only provided the job to the appellant.

d) He did not handle any export consignments on behalf of the appellant customs broker and only earned money from them as a business promotion for providing the job to them.

Learned Commissioner did not agree with the arguments of the appellant Customs Broker and the statements made during cross-examination and held that the Inquiry officer was correct in concluding that Shri Dey handled the Customs work of the disputed consignment on behalf of the appellant.

We have considered the arguments and the evidence before us. We find no reason to doubt the cross-examination and hold that Shri Babul Dey did the export work of the disputed consignment with the Customs because if he was an employee of another Customs Broker, his G-card would say

so. In this case, besides the paper work, samples have also been drawn at the time of provisional assessment. If Shri Dey was unauthorisedly representing the exporter in the Shipping Bills filed in the name of the appellant Customs Broker, the Customs officers would not have entertained him.

It would not be unreasonable to assume that if the shipping bill is filed by Customs Broker X and the person representing the Custom Broker has a G- Card of Customs Broker Y, officers would not entertain or deal through him because he would have no locus standi. We, therefore, find that balancing the evidence available on both sides, we find in favour of the Customs Broker and hold that it has not been established that the Customs broker has violated Regulation 10(b) of CBLR, 2018.

Regulation 10(d)

This regulation requires the Customs Broker to advise his client to comply with the provisions of the Act, other allied acts and rules and regulations thereof, and in case of non-compliance, bring it to the notice of the Assistant Commissioner or Deputy Commissioner of Customs. The case of the Revenue is that the appellant did not advise its client (exporter) to comply with the provisions and has actively assisted the exporter in fraudulent activities and tried to cover up their misdeeds by wrong interpretation. It has also been alleged that the container was stuffed by the exporter in the presence of the Customs Broker. We do not find anything on record to establish what the appellant has or has not advised its clients. Even if the goods were stuffed in the presence of the Customs Broker, the goods were examined and samples were also drawn by the Customs officers who, thereafter, allowed provisional export of the goods. Evidently, after whatever, enquiries, tests, etc. which may be necessary are conducted, the assessments will have to be finalized. After the provisional assessment was done which appears to have not been appealed against and hence still valid, DRI intervened and examined the same goods again and came to a different conclusion that the goods were heavily overvalued with a fraudulent intent to claim ineligible drawback. Simply because DRI came to a different conclusion in an export which was already provisionally assessed, it does not mean that the exporter had committed a fraud and that the appellant Customs Broker has colluded with the exporter in such a

fraud. At any rate, valuation of the goods is to be done by the exporter (self assessment) or proper officer (re-assessment). We do not find anything remotely in the Customs Act, Rules and Regulations which gives the Customs Broker any power with respect to valuation of imported or export

goods. We, therefore, find that there is no evidence to establish that appellant has violated Regulation 10(d).

Regulation 10(e)

This regulation requires the Customs broker to exercise due diligence to ascertain the correctness of any information which he imparts to a client with reference to any work related to clearances of cargo or baggage. In the impugned order, learned Principal Commissioner held that ‘on scrutiny of the offence report, documents recovered and statements of Shri Babul Dey, Shri M K Saha and Shri Sumit Saha, it appears that the Government revenue would not have suffered, if the Customs broker had exercised due diligence to exhaustively scrutinize the documents of the exporters, which they failed to do. Thus, prima facie, indicated that the CB has not exercised due diligence to impart necessary and correct information”. He further observed “it is apparent that the CB was aware of the poor quality of the goods and also its low value, being their authorised person, Shri Somnath Das visited the godown of M/s. Skivvies textile at Salt Lake…” We find that the learned Principal Commissioner has mis-read the provision of this clause. It only requires the Customs Broker to exercise due diligence to ascertain the correctness of information which he imparts to his client. In this case, the client is the exporter and we do not find anything in the allegation, let alone any evidence that the appellant has provided any incorrect information to the exporter. There is no evidence or even an allegation that the appellant customs broker had provided to the exporter any wrong information regarding any laws, procedures, instructions or anything else. The entire case of the DRI was the exporter has overvalued the goods. We, therefore, find that the appellant has not violated Regulation 10(e) of CBLR, 2018.

Regulation 10(n)

This regulation requires the Customs broker to verify correctness of Importer Exporter Code (IEC) number, Goods and Services Tax Identification Number (GSTIN), identity of his client and functioning of his client at the declared address by using reliable, independent, authentic documents, data or information. The case of the Revenue is that in his statement to the officers of DRI under section 108, Shri M. K. Saha, proprietor of the appellant Customs Broker said that Shri Sumit Saha, Proprietor of M/s Skivves Textiles came to his office and submitted the KYC and export documents. On the other hand, Shri Sumit Saha, stated that other persons arranged the Customs Broker. Thus, it appears that the appellant Customs Broker has not verified the KYC and export documents and has violated Regulation 10(n). We find that the identity and functioning of the exporter was not in doubt and in fact, the officers have recorded the statement of the exporter. It has also been alleged in the SCN and the impugned order that the Customs Broker was present at the time of stuffing of the container at the exporter’s godown. The only allegation is that there is a discrepancy between the statement of the appellant Customs Broker (who said that the KYC and export documents were given to him by the exporter at his office) and the statement of the exporter (who said that the Customs Broker, i.e., the appellant, was arranged through some other persons). We do not find anything in Regulation 10(n) that mandates how the documents should be handed over by the exporter/importer to the client. All that is required is that the KYC documents must be received and verified to ensure the identity of the client which is not in doubt even according to the SCN itself. Therefore, the charge of violation of Regulation 10(n) against the appellant Customs Broker cannot sustain.

In view of above, we find that the findings in the impugned order that the appellant Customs broker has violated Regulation 10(b), 10(d), 10(e) and 10(n) cannot be sustained and need to be set aside and we do so. The answer to Question (a) in paragraph 5 above is NO.

Consequently, the answers to (b), (c) and (d) are also negative.

In view of the above, the Stay application filed by the Customs Broker stands disposed of. Revenue’s appeal is rejected and Customs Broker’s appeal is allowed and the impugned order is set aside with consequential relief to the appellant Customs Broker.

(Order pronounced on 07/Dec/2021).