CESTAT Bangalore Cancels Penalty on Customs Broker for Alleged Misdeclaration in Sugar Export Case

Background of the Dispute

The appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, arose from a penalty imposed on a Customs Broker under the Customs Broker Licensing Regulations, 2018 (CBLR, 2018). The core allegation was that the Customs Broker had facilitated an exporter in attempting to ship sugar while declaring the cargo as raw rice.

Customs authorities at Tuticorin prepared an offence report dated 29.11.2022, alleging that the appellant Customs Broker had abetted the exporter in this misdeclaration. On the basis of this offence report, a Show Cause Notice dated 27.02.2022 was issued under the CBLR, 2018.

Pursuant to adjudication, the authority concluded that the Customs Broker had breached:

  • Regulation 10(d)
  • Regulation 10(e)
  • Regulation 10(n)

of the CBLR, 2018, and consequently imposed a penalty. The present appeal challenged that order before the Tribunal.

Stand of the Customs Broker

Role in Filing the Shipping Bill

The appellant, a licensed Customs Broker, argued that its role was confined to processing export documentation and filing the shipping bill based on details and records submitted by the exporter. It was emphasized that:

  • All details in the shipping bill were derived from the exporter’s declarations and supporting documents.
  • Any misdeclaration or concealment was attributable to the exporter, not to the Customs Broker, provided the broker had acted in good faith and followed prescribed procedures.

The Branch-in-Charge of the appellant, Shri N. Jayachandran, had his statement recorded under Section 108 of the Customs Act, 1962. In this statement, he explained the sequence of events and the due diligence exercised by the broker.

KYC Compliance and Prior Track Record of Exporter

According to the statement of Shri N. Jayachandran:

  • The exporter approached the Customs Broker through a reference from a friend.
  • The broker obtained KYC documents of the exporter before proceeding with the export documentation.
  • The appellant verified earlier Shipping Bills and enquired about the export activities of M/s. Pattinathar Trading, Chennai.
  • The exporter informed that they were regularly exporting wheat flour to Sri Lanka.

The Tribunal was informed that earlier shipping documents showed that the exporter had genuine prior export transactions, which reinforced the Customs Broker’s good faith reliance on the exporter’s declarations.

Deployment of Surveyor and Staff at CFS

To demonstrate that reasonable care was taken during the export process, the appellant pointed out that:

  • An additional surveyor was appointed over and above the regular CFS surveyor.
  • One of the appellant’s staff members was physically present to oversee the export operations.

When questioned by the Superintendent of Customs, Tuticorin, as to why sugar concealed in raw rice bags was not detected despite the presence of this extra oversight, Shri N. Jayachandran clarified that:

  • The surveyor and staff were engaged in counting the bags.
  • All gunny bags carried identical brand names and markings, giving no visual cue that any bags contained sugar instead of raw rice.
  • There was no visible reason for suspicion, and therefore the broker’s personnel did not identify the concealment.

Disclosure Regarding Nature of Goods

The Customs Broker consistently maintained that:

  • The exporter had categorically represented that the cargo comprised raw rice.
  • All documents furnished by the exporter, including invoices and declarations, described the goods as “Raw Rice” only.
  • The shipping bill was thus filed declaring the goods as “Raw Rice”.

The appellant asserted that if they had been informed, or had any reason to believe, that sugar bags were mixed within raw rice bags, they would not have filed the shipping bill in that manner.

Explanation for Affidavit / Undertaking Discrepancy

The adjudicating authority had also criticized the appellant for filing an incorrect affidavit/undertaking on behalf of M/s. Pattinathar Trading, Chennai. In response, the appellant clarified:

  • The error arose due to a clerical / cut-and-paste / typographical mistake, resulting in the wrong name/designation being inserted.
  • There was no intention to mislead or fabricate; it was a documentation error without any mala fide motive.

Further, the Branch-in-Charge stated that: