Sub-letting Of Customs House Agent Licence, A Serious Violation Of Regulations

M/S. K.MK. GANA TRA AND CO. (THE RESPONDENT) WAS granted a Regular Customs House Agent (CHA) licence under Regulation 10 of the Customs house Agents Licensing Regulations, 1984 framed under Section 146 of the Customs Act, 1962. While the respondent was carrying on the business, a letter was received from the Joint Director, DRI, BZU, Mumbai wherein it as mentioned that certain units based in Moradabad and Rampur area were misusing DEEC and DEPC Scheme and submitting fictitious or forged shipping bills either with a view to obtain inadmissible Duty Entitled Pass Books (DEPBs) or for fulfilling the export obligations against advance licences under Duty Exemption Entitlement Certificate (DEEC) Scheme, and to obtain waiver of BG conditions against the DEEC Licence as per the Exim Policy, though in reality no physical export of goods was taking place. In essence, the communication was to the effect that document were fabricated to show that goods were exported.

On the basis of the aforesaid information, investigations were initiated and certain firms were identified which were involved in the misuse of the licence in the aforestated manner . During the investigation it was found that an endeavor had been made to give the impression that they were bone fide exporters. The shipping bills were filed and for the said purpose, services of CHA licnece of the respondent licensee was utilized. It had further come to the notice of the authorities that after due investigation and interrogation, it had allowed its license to be used by certain unauthorized persons for monetary consideration. After the said aspect came to light, the licence was suspended under Regulation 21(2) of the 1984 Regulations and an enquiry was held against it under Regulation 23 of the 1984 regulations. The enquiry officer held the enquiry and submitted the report on 25.10.2005 holding, inter alia, that the misconduct alleged against the respondent that it had allowed the unauthorized persons to handle the shipping bills stood proved, and accordingly opined that the articles of charge under Regulations 12, 13(b), 13(d), 20(1)(c), 13(n) of the Custom House Agent Licensing Regulations, 2004 (the 2004 Regulations) were established.

On the basis of the said enquiry report, the Commissioner of Customs (General), New Customs House Ballard Estate, Mumbai on 22.8.2006, after affording appropriate opportunity of hearing to the respondent and analysing the facts and the material brought on record, came to hold that there had been misuse of the licence issued in favour of the respondent and further the violation was serious in nature and it did tantamount to involvement in fraudulent activity affecting the revenue. Being of this view, it cancelled the licence and revoked the entire security deposit.

Aggrieved by the aforesaid order, the respondent preferred Appeal No. C/1135/06 – Mum before the Customs, Excise & Service Tax Appellate Tribunal (the Tribunal). The tribunal, by its decision dated 12.12.2006 opined thus:

We have considered the submissions. We find that it is an admitted fact that the appellant has allowed Shri Vipul Shah to carry on business on monthly rental basis or a consignment basis which has resulted in fraudulent exports by his client whose credentials were not looked into by the CHA. This cannot be considered as a mere commission agent being employed by the CHA. In fact no authorization from the customer in favour of the CHA is on record and the copy produced by the appellant is without any date and there is no evidence that it was procured before taking up the business of the exporters in question. On the other hand the appellants contend that the same was recovered by the DRI but could not show any panchnama to that effect. We find that the tribunal has in the case of Noble Agency held that the statement of defence witness that employer for whom he was working did not have CHA licence and that he was using licence of the notice CHA on payment of monthly sums is sufficient to prove subletting of licence. The decision has been concurred with in the case of Nanda International v. Commissioner of Customs, Chennai [2004 (176) I.L.T. 524 (Tri.- Chennai)] the only difference being that since in latter case the licence remained revoked for a period six years & therefore, a lenient view was taken and the licence was restored though forfeiture of security deposit was upheld. In the instant case, we find that the licence has been suspended for the last two years and has now been revoked permanently. We consider it too harsh a punishment as it deprive the CHA of his livelihood. We consider that revocation for a period of three years from the date of suspension of licence (i.e. 1.3.2004) would be sufficient and on expiry of three years licence may be restored on taking fresh security deposit as we confirm the order of the Commissioner in forfeiting the security deposited by the appellant earlier. Dissatisfied with the order of the tribunal, the revenue preferred Customs Appeal No. 71 of 2007 before the High Court of Judicature at Bombay. The Division Bench of the High Court, by the impugned order dated 10.8.2007, did not accept the stand of the revenue that subletting of CHA is a serious violation and that apart, the respondent is a habitual offender in committing the offence of subletting and in that factual backdrop, the tribunal was not justified in restricting the period of revocation to a span of three years. After repelling the stand of the revenue, the High Court further proceeded to observe that the tribunal has appositely exercised the discretion and taken a reasonable view and hence, the order of the tribunal did not warrant any interference.

Against the judgement of the High Court special leave petition was filed. The Supreme Court allowed the appeal, set aside the orders passed by the High Court and the Tribunal and restored that of the Commissioner.

The operative part of the judgement read as under:

Relying on the statutory provisions, it is submitted by learned counsel for the respondent that the tribunal has jurisdiction to confirm, modify or annul the decision. There can be no cavil over the issue that the tribunal can dislodge or confirm or modify the order. The vesting of jurisdiction with the tribunal by the statute is beyond any pale of controversy. The dispute pertains to exercise of such jurisdiction. When a jurisdiction is exercised, it has to be exercised in accordance with law, regard being had to the factual matrix of the case. The tribunal having been conferred the power to modify the order, restricting the period of revocation would definitely come within the sweep of the said power. The issue would, as stated earlier, be whether the said jurisdiction has been properly exercised in the case at hand. On a perusal of the order passed by the Commissioner, it is clearly perceptible that there has been number of violations by the respondent. The enquiry report which formed the plinth of the order of the Commissioner demonstrates that by virtue of the transfer of the licence in contravention of the Regulations, on many an occasion, immense financial loss has been caused to the revenue. As the factual matrix would exposit, it is a serious violation. The misconduct reflects a chain of acts. In such a situation, we are disposed to think that the discretion exercised by the tribunal is inappropriate.

************************************

In this regard, Ms. Mohana, learned senior counsel for the appellant, has placed reliance on the decision in Noble Agency v. Commissioner of Customs, Mumbai [2002 (142) E.L.T. 84 (Tri. – Mumbai) wherein a Division Bench of the CEGAT, West Zonal Bench, Mumbai has observed:

************************************

The CHA occupies a very important position in the Custom House. The Customs procedures are complicated. The importers have to deal with a multiplicity of agencies viz. carriers, custodians like BPT as well as the Customs. The importer would find it impossible to clear his goods through these agencies without wasting valuable energy and time. The CHA is supposed to safeguard the interests of both the importers and the Customs. A lot of trust is kept in CHA by the importers/exporters as well as by the Government Agencies. To ensure appropriate discharge of such trust, the relevant regulations are framed. Regulation 14 of the CHA Licensing Regulations lists out obligations of the CHA. Any contravention of such obligations even without intent would be sufficient to invite upon the CHA the punishment listed in the Regulations.

************************************

We approve the aforesaid observations of the CEGAT, West Zonal Bench, Mumbai and unhesitatingly hold that this misconduct has to be seriously viewed.

************************************

Reference : Supreme Court. Commissioner of Customs v. M/s K.M. Ganatra & Co., civil appeal no. 2940 of 2008 (from the Judgement and Order dated 10.8.2007 of the High Court of Judicature at Bombay in Customs Appeal No. 71 of 2007).