SEPTEMBER 16, 2024

By Dr Sanjay Kalra, LLM., Ph.D.(GST Law), Advocate, KPS Legal

INTRODUCTION: Recently, the CBIC, vide its Instruction No. 20/2024-Customs dated 03-09-2024 has instructed the Customs Authorities not to implicate Customs Brokers [hereinafter referred to as 'CB' or 'CHA'] in matters involving interpretative disputes, unless the element of abetment of the CB in the investigation is established by the Investigating Agency in its offence report. Similarly, in December, 2022, advisory was issued by the Principal Chief Commissioner of Customs, Mumbai as well as Nhava Sheva Customs, directing the officers not to impose penalty on the Custom House Agents without his connivance. Implicating Customs Brokers in a routine manner in matters involving interpretation of statute and valuation matters is not only improper but also against the National Litigation Policy of the Government, as such cases invariably increases litigation unnecessarily.

A Customs Broker is granted a license by the Customs Department for purpose of assisting Importers and Exporters in compliance required for clearance of goods from Customs. A lot of trust is kept in the Customs Broker by the Importers, Exporters as well as by the Government agencies. To ensure appropriate discharge of such trust, the Customs Brokers Licensing Regulations, 2018 [hereinafter referred to as 'CBLR, 2018'] have been framed for regulating provisions for action to be initiated against CB for lapses on their part.

Over a period of time, it is observed that many times even in cases of under-valuation of imports, over-valuation of exports, mis-classifications, concealment of goods, claiming of wrong exemption - notification, interpretation of law, a penalty on the Customs Broker is also proposed in the Show Cause Notice issued to the Importer / Exporter. A Show Cause Notice, issued under Section 124 of the Customs Act, 1962, by the Investigating Agencies, generally proposes against the Customs Broker, a penal action under Section 112, Section 114 or Section 114AA of the Customs Act, 1962. A Show Cause Notice issued by the Commissioner (General) under CBLR, 2018, may propose for a penal action against the noticee Customs Broker for any violation of the CBLR, 2018. So, let us analyse the relevant provisions of the Customs Act, 1962 and the CBLR, 2018 to know the circumstances, wherein a Customs Broker may be penalised.

Penalty on CB for violation of the Customs Act, 1962: A CB may be held liable to a penalty, under Section 112 of the Customs Act, 1962, for an act of abetment rendering the imported goods liable to confiscation under Section 111 ibid. CB may also be held liable to a penalty if he deals with such imported goods which he knows or has reason to believe are liable to confiscation under Section 111 ibid. Similarly, a CB may be held liable to a penalty under Section 114 of the Customs for an act of abetment or dealing with the offended export goods knowingly or having reason to believe that such export goods are liable to confiscation under Section 113 of the Customs Act, 1962. Further, a CB may also be penalised under Section 114AA or Sec 114AB of the Customs Act, 1962 for his act of abetment in doing the offences, specified therein. High Court in case of 'Trinetra Impex Pvt. Ltd.' [2019-TIOL-2506-HC-DEL-CUS] held that a perusal of the said provisions clearly reveals that though, for imposition of penalty in respect of the cases falling under Section 112(a) of the Act, mens rea may not be required to be proved as condition precedent, however, when it comes to imposition of the penalty on an abettor, the presence of an element of mens rea or conscious knowledge, which is a sine qua non for imposition of the penalty, is a must for imposing penalty on the Customs Broker under the Customs Act, 1962.

The element of abetment as well as pre-knowledge on part of the Customs Broker should be clearly elaborated in the Show Cause Notice. Let's see what is an 'abetment'. Section 46 of 'The Bharatiya Nyaya Sanhita, 2023' provides that a person abets an offence, who abets either the commission of an offence, or the commission of an act which would be an offence, if committed by a person capable by law of committing an offence with the same intention or knowledge as that of the abettor.

Madras High Court in 'SAHAYA EDIN PRABHU' [2008-TIOL-954-CESTAT-MAD] held that in absence of any positive role of the Customs Broker in holding the goods liable for confiscation, penalty on him may not be imposable under the Customs Act, 1962. Further, he cannot be penalised under provisions of the Customs Act, 1962, for failure to discharge his functions, when penalties for the same are provided in the CHLR, 2004. Hon'ble Supreme Court in Commissioner vs Lewek Altair Shipping Pvt. Ltd. [2019 (367) E.L.T. A328 (S.C.)] dismissed departmental appeal and upheld decision of the CESTAT, Hyderabad holding that mentioning of wrong tariff item or claiming benefit of ineligible exemption notification did not amount to mis-description of goods neither did it amount to making false or incorrect statement. Hon'ble Apex Court in case of GIAVUDAN INDIAN PVT. LTD. [2016 (337) ELT A42 (SC)] held that - Unless it is found that false details in the import documents filed with the department were entered by the CHA knowingly, CHA cannot prima facie be held to have abetted misdeclaration of the goods under import and rendered the impugned goods liable for confiscation under the Act and so he cannot be held liable to penalty.

Thus, in absence of the proven abetment or mens rea on part of the charged Customs Broker, a penalty may not be imposed on him just for contravention of any provision of the Customs Act, 1962 which renders the goods liable for confiscation.

Penalty on CB for violation of the CBLR, 2018: These regulations are promulgated under Section 146(2) of Customs Act, 1962. Proceedings contemplated against a Customs Broker should be done as per the provisions contained in the CBLR, 2018 and must be distinguished from the proceedings for demand of duty/interest/imposing penalty under Customs Act, 1962. Hon'ble High Court in Kolkata High Court in "Welcome Air Express Pvt. Ltd." [2022-TIOL-664-HC-KOL-CUS] held that CHALR, 2004 being a special law which governs duties, responsibilities and obligations of CHA, dropping of penalty proceedings under Customs Act cannot have any impact on revocation of licence granted under CHALR. Any contravention of obligations cast on CHA even without intent would be sufficient to invite upon CHA the punishments listed in Regulations.

Regulation 18 of the CBLR, 2018 provides for a pecuniary penalty on the Customs Broker who contravenes any provisions of these regulations. Regulation 14 of the CBLR, 2018 empowers the Commissioner of Customs to revoke the license of a Customs Broker and order for forfeiture of security on any of the six grounds specified therein which mainly include failure to comply with any of the provisions of CBLR, 2018 or committing any misconduct. Obligations cast on the Customs Broker are enlisted under Regulation 10 of the CBLR, 2018.

So, Commissioner may suspend a CB License under Regulation 16 or revoke it under Regulation 14, by following the procedure provided under Regulation 17 of these regulations, only if it is proved that the CB has contravened any provisions of CBLR, 2018. A CB License cannot be suspended or revoked just for contravention of any provision of the Customs Act, 1962 which renders the goods liable for confiscation. Though, Commissioner is empowered to revoke licence, which is an extreme step curtailing right to carry on any trade or profession as guaranteed by Constitution, such penalty of revocation of licence shall be imposed in grave offences and cases of connivance on part of the Customs Broker.

Conclusion: Numerous judicial pronouncements exist wherein it has been, inter-alia, held that in cases where there is no evidence of complicity in the illegal importation of goods or wrong intent or prior knowledge about the violation, the penalty cannot be imposed on the Customs Broker.

Gist of various such judgements is that in cases where there is no connivance, abetment or prior knowledge on part of the Customs Broker, he may not be held liable to penalty under provisions of the Customs Act, 1962, in following type of cases:

(i) Mentioning wrong classification or claiming benefit of an ineligible exemption notification;

(ii) Misdeclaration of description and quantity or concealment of Imported / Export goods;

(iii) Under-valuation or Over-valuation of Imported / Export Goods;

(iv) Smuggling of prohibited goods like export of red sanders, drugs etc. if there is no involvement or connivance on part of the Customs Broker;

(v) In absence of mens rea or conscious knowledge which can be attributed to the Customs Broker,

Further, following settled issues relating to penalty on a Customs Broker under CBLR, 2018, may be kept in mind:

(i) CB may be penalised for contravention of provision of CBLR, 2018;

(ii) CB cannot be penalised under provisions of the Customs Act, 1962, for failure to discharge its duties or functions obliged under CBLR, 2018.

(iii) Customs Broker is not obliged to physically verify the address of Importer / Exporter if IEC, PAN Card and Aadhar Card are valid;

(iv) Any contravention of obligations cast on CB under Regulation 10 of CBLR, 2018 even without intent would be sufficient to invite upon CB the punishments listed in Regulations.

(v) No CB License may be suspended or revoked without strictly following the procedure prescribed under Regulation 16 or Regulation 17 of the CBLR, 2018, respectively.

[The views expressed are strictly personal.]