Customs Broker's Failure Of Due Diligence May Attract Penalty, Not Licence Revocation: CESTAT Chennai

On 2 June, the Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), held that authorities may penalise a customs broker for failing to exercise proper supervision and due diligence, but cannot revoke a customs broker licence in the absence of evidence showing deliberate involvement in fraud.

Technical Member Vasa Seshagiri Rao and Judicial Member Ajayan T.V., while hearing appeals arising from a Directorate of Revenue Intelligence (DRI) investigation into alleged fraudulent drawback exports carried out through dummy firms, upheld the forfeiture of the customs broker's security deposit but declined to interfere with the Commissioner's decision not to revoke the licence. The Bench held:

“The evidence on record sufficiently establishes failure of due diligence, supervision and verification expected under Regulations 11(a), 11(b), 11(n) and 17(9) of CBLR, 2013. Even in the absence of conclusive evidence of deliberate collusion, permitting customs work to be carried out through inadequately supervised intermediaries and failure to properly verify exporters constitute serious lapses attracting disciplinary action under CBLR.”

The case arose after authorities alleged that export clearances linked to suspected dummy entities were processed through the customs broker licence of S. Murugan. They also alleged that intermediaries carried out customs clearance operations in Delhi without adequate supervision by the licence holder.

After examining the record, the Tribunal found that the customs broker failed to properly supervise operations and verify the credentials of exporters, thereby violating Regulations 11(a), 11(b), 11(n) and 17(9) of the Customs Brokers Licensing Regulations, 2013. The Bench held that permitting inadequately supervised intermediaries to undertake customs-related work constituted a serious regulatory lapse warranting disciplinary action.

However, the Tribunal found no evidence that the customs broker colluded in the alleged fraud, shared drawback proceeds, received illegal gratification, or consciously participated in the fraudulent export scheme. It observed that the case involved failures of supervision and due diligence rather than active participation in customs fraud.

The Bench further held that Regulation 20 of the CBLR, 2013 gives the adjudicating authority discretion to determine the appropriate penalty based on the gravity of the violations. Since the Commissioner had ordered forfeiture of the security deposit while deciding against licence revocation, it found that decision neither arbitrary nor disproportionate. It observed:

“Mere pendency of investigation by DRI, Delhi could not by itself justify indefinite continuation of suspension in the absence of conclusive material establishing active involvement of the Customs Broker in the alleged fraudulent exports.”

Accordingly, the CESTAT upheld the findings of regulatory violations and sustained the forfeiture of the customs broker's security deposit. It also rejected the Department's plea for licence revocation, holding that the established lapses, though serious, did not justify the extreme penalty of cancelling the licence.

For Appellant: S. Murugappan, Advocate

For Respondent: Rajini Menon, Authorised Representative