AUGUST 20, 2018

By S Murugappan, Advocate, Chennai

CBEC/CBIC has been regularly tinkering with the provisions relating to the functioning of Custom House Agents/Customs Brokers. In the latest change, Customs Brokers Licensing Regulations, 2018 have been notified superseding the previous Regulations of 2013. While few of the changes in the new regulations are welcome, several others give rise to more questions than provide answers to pending issues.

Two years moratorium:

Regulation 7(4) of the new Regulations has brought in a new restriction with regard to the functioning of a customs broker in Customs station other than the one where he is granted a licence. According to this sub-regulation the customs broker will be able to transact business in other stations only after a period of two years from the date of issue of licence in the parent Custom House. The previous regulations did not contain any such restrictions and there does not appear to be any logical or justifiable reason for bringing in such restrictions. If a customs broker is found fit to transact business in one Customs station under the regulations which have all India application, there does not appear to be any reason to put his operations on hold for two years in other ports / airports across the country. There will be genuine reasons for a customs broker to operate in several places across the country. As such, unknown fears should not have cast a shadow in pan India operations for such licence holders.

Production of authorisation whenever required:

Regulation 10(a) of new regulations retains the same conditions with regard to obtaining of an authorisation from the persons by whom the customs broker is engaged. It only states that whenever required by the authorities, such authorisation should be produced. In practice, it was found that this obligation has not worked satisfactorily. CESTAT has held in numerous cases that once an importer or an exporter has allowed the customs broker to file documents on his behalf there is implied authorisation. This requirement appears to be rather hesitant and uncertain than forceful and determined. It could have been better if it is made mandatory that every time a document is filed by a customs broker, the same is filed with a proper authorisation of the importer / exporter concerned, given for each transaction or a generic one for all transactions with a confirmation by the customs broker that the same has not been revoked as on date by the importer or the exporter. This will ensure that there is no subletting of licences and the Customs also need not play hide and seek with the requirement that only when it is required, the customs broker should produce authorisation. It is a known fact that the department searches for such authorisations only when violations take place. If authorisation is to be given along with the documents to be filed, then, that itself will eliminate a major portion of the violations at the first instance and cases of subletting will be greatly reduced. The new regulations have, sadly, failed to plug this loophole.

KYC norms:

Verification of the identity of the client continues to be one of the obligations as given in Regulation 14(n). Right from 2010, the Board is insisting that the customs brokers not only obtain KYC documents from their clients but they are also supposed to verify the correctness of documents such as IEC and also the identity of their client as well as their actual functioning at the declared address by using reliable, independent information. These requirements go beyond what is normally understood as KYC norms. While identity documents are necessary, the verification of the correctness of documents like IEC or verification of the functioning of the client at the declared address are beyond the scope of an authorised agent. If these have to be done for every shipment handled by the customs broker then he should run a separate investigation department and such pre-verification process itself will cause delays in prompt clearance work.

Even the Reserve Bank of India's instructions to banks require the banks to obtain independent documents only with regard to identity and address of the individuals as well as corporates / firms and do not ask them to verify the genuineness of the identity documents or verify their availability at the declared address.

In the case of Kunal Travels (Cargo) Vs. CC (Import & General), IGI Airport, New Delhi reported in - 2017-TIOL-894–HC–DEL-CUS the Division Bench of the Hon'ble Delhi High Court has made the following observations.

"The aforesaid clauses do not obligate the CHA to look into such information which may be made available to it from the exporter/ importer. The CHA is not an inspector to weigh the genuineness of the transaction. It is a processing agent of documents with respect to clearance of goods through customs house and in that process only such authorized personnel of the CHA can enter the customs house area. What is noteworthy is that the IE Code of the exporter M/s H.M. Impex was mentioned in the shipping bills, this itself reflects that before the grant of said IE Code, the background check of the said importer/ exporter had been undertaken by the customs authorities, therefore, there was no doubt about the identity of the said exporter. It would be far too onerous to expect the CHA to inquire into and verify the genuineness of the IE Code given to it by a client for each import/ export transaction. When such code is mentioned, there is a presumption that an appropriate background check in this regard i.e. KYC etc. would have been done by the customs authorities. … … … … … … … … The grant of the IE Code presupposes a verification of facts etc. made in such application with respect to the concern or entity."

Inspite of such observations by the High Courts and also by CESTAT, the Board continues to retain this requirement. It appears that this is only to make the customs brokers a scapegoat for any lapses on the part of customs officials and to shield such customs officials. Shifting of this responsibility, which is really a part of government machinery's work, to the customs brokers can lead to collusion and corruption between the fly by night operators and pliable government officials, as ultimately, the customs brokers may not have appropriate infrastructure to carry out detailed spot verification of clients' locations.

Prohibition orders :

With regard to proceedings that are initiated against a customs broker, it is now provided, under Regulation 15, that a prohibition order will be valid only for one month from the date of such prohibition order. This is a welcome move as there are numerous instances where prohibition orders continue to operate even though the proceedings initiated in the Custom House against the customs broker, where the licence was granted, have been concluded. Thus, there were peculiar situations where the licence issuing authority has exonerated the customs broker and allowed him to continue the operations in his jurisdiction but in another Customs station, prohibition orders continued without any remedy.

Offence report:

Now, in terms of an explanation to Regulation 17, an 'offence report' is defined. This reads as follows:

"Explanation. - Offence report for the purposes of this regulation means a summary of investigation and prima facie framing of charges into the allegation of acts of commission or omission of the Customs Broker or a F card holder or a G card holder, as the case may be, under these regulations thereunder which would render him unfit to transact business under these regulations."

It is not provided as to who has to make this summary or framing of charges. In the previous regulations this was linked to the investigating agency. Further, as in the case of 2013 regulations, immediate suspension has been de-linked with the offence report. Thus, the suspensions can be made immediately by the Principal Commissioner / Commissioner but inquiry can be initiated within 90 days of receipt of offence report. In the past also, Commissioners have justified taking action belatedly after noticing an alleged omission or commission of an offence by a customs broker by merely contending that the offence report is yet to be received by them and thus, the alleged omission is not within their knowledge. Now, with the de-linking of the suspension with regular inquiry proceedings which have to start based on an offence report, the Customs department can virtually make a customs broker non-existent by waiting for the offence report which can be prepared by any agency / investigating authority at their sweet will and pleasure. There is no minimum time limit prescribed for making of an offence report from the time the alleged omission occurred.

Inclusion of 'F' Card Holders and 'G' Card Holders and extent of penalty :

The new regulations provide for separate actions against the customs broker, the "F" card holder (authorised signatory) as well as "G" card holder. It is surprising that the new provisions under Regulation 18(1) speak about imposition of penalty on a customs broker but Regulation 17(7) restricts the orders to be passed by the Principal Commissioner or Commissioner only for revoking the suspension or revoking the licence after completion of inquiry. But, additionally, powers are given under Regulation 14 to the Principal Commissioner / Commissioner to order forfeiture of part or whole of security. Various sub-regulations under Regulation 17 prescribe the procedure for penal action against a customs broker or "F" card holder but there is no procedure prescribed for initiating action against a "G" card holder. Regulation 17(9) only states that the Deputy Commissioner / Assistant Commissioner can pass orders against "G" card holder and also bar him from transacting business for six months. Thus, under the new provisions, a "G" card holder can be condemned without due process of law.

Appeal provisions:

The proviso to Regulation 19 stipulates that an appeal filed by a "G" card holder before Commissioner (Appeals) is to be expeditiously decided within two months of filing of the appeal. Such a stipulation is absent with regard to appeals filed by the customs brokers or "F" card holders before CESTAT. Suspension or revocation of a licence, which effectively stops the business operations of a customs broker, has necessarily to be tempered with the fundamental right to carry on any profession or business enshrined in Article 19 of the Constitution. Hence expeditious decisions on their appeals will be necessary, especially when hundreds of orders are issued nowadays suspending or revoking licences of customs brokers at the slightest pretext without having regard to the "sense of proportionality" and thus throwing out their livelihood.

(The views expressed are strictly personal.)