The Delhi High Court has upheld the revocation of a Customs Broker licence after finding serious regulatory violations arising from the broker’s admitted decision to allow his licence and digital credentials to be used by a G-card holder for monetary consideration and the filing of a Shipping Bill in the name of an exporter without obtaining its authorisation.

The Bench of Justice Anil Kshetarpal and Justice Shail Jain has held that no substantial question of law arose for consideration under Section 130 of the Customs Act, 1962 and found no perversity or error of law in the Customs, Excise and Service Tax Appellate Tribunal’s decision sustaining the disciplinary action.

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The appeal challenged the CESTAT’s Final Order dated August 27, 2024, which had dismissed the broker’s appeal against the Commissioner of Customs’ order dated August 2, 2021.

The Commissioner had revoked the Customs Broker licence, forfeited the entire security deposit of Rs.75,000, and imposed a penalty of Rs.50,000 under the Customs Brokers Licensing Regulations, 2018 (CBLR, 2018).

The central legal controversy before the High Court was whether these findings and penalties warranted interference, particularly in light of the broker’s admitted conduct of permitting his G-card holder to use the Customs Broker licence and credentials for consideration and filing a Shipping Bill in the name of an exporter without obtaining authorisation from that exporter.

The proceedings arose from an attempted export under the Shipping Bill. The Shipping Bill was filed in the name of M/s Deepnidhi International, declaring the goods as “decorative iron material” with an FOB value of Rs.66,000.

The consignment was destined for Sweden. Acting on intelligence concerning an attempted export of prohibited goods, officers of the Special Intelligence and Investigation Branch placed the consignment on hold for detailed examination.

During 100% examination on December 16, 2019, Customs officers recovered 33 boxes containing wooden logs. The material was subsequently identified as approximately 1,158 kilograms of Red Sanders (Pterocarpus santalinus).

The Court noted that export of Red Sanders required the requisite permission of the CITES Management Authority. As no such permission was produced, the goods were treated as prohibited and seized under Section 110 of the Customs Act on the belief that they were liable to confiscation under Section 113(d).

A significant aspect of the case was the manner in which the Shipping Bill came to be filed.

The investigation found that the Customs Broker had not obtained any authorisation from Deepnidhi International before filing the Shipping Bill in its name. More importantly, the investigation revealed that the broker had not even contacted Deepnidhi before undertaking the Customs transaction.

The documents relating to the consignment had instead been provided by an individual associated with another firm, who allegedly requested that the Shipping Bill be filed in the name of Deepnidhi rather than in the name of his own firm. The Shipping Bill was accordingly filed in Deepnidhi’s name without that entity’s knowledge or authorisation.

The High Court attached considerable significance to the broker’s own statement recorded during the investigation.

The broker stated that he received Rs.10,000 per month from his G-card holder and admitted that he had lent his Customs Broker licence and dongle to him for a price. The CESTAT had also taken note of the admission regarding receipt of the monthly amount.

The Court held that this admission was not merely an inference drawn by the Department. It directly established that the licence and dongle had been made available to another person for monetary consideration.

According to the High Court, there was an important distinction between allowing a G-card holder to act on behalf of a Customs Broker within the permissible regulatory framework and parting with the use of the Customs Broker’s licence and dongle for a fixed monetary consideration. The latter conduct was expressly prohibited by Regulation 1(4) of the CBLR, 2018.

The Court relied upon Regulation 1(4) of the CBLR, 2018, which provides that a Customs Broker licence is granted in favour of the licensee and that the licence cannot be sold or otherwise transferred.

The broker argued that there had been no transfer of proprietary title in the licence and that the expression “sub-letting” did not appear in Regulation 10.

The High Court rejected this approach, holding that the question was not whether the conduct could technically be labelled “sub-letting”. The relevant statutory prohibition was against selling or otherwise transferring the licence. The Court emphasised that the substance of the conduct, rather than the label attached to it, was determinative.

By lending the licence and dongle for consideration and thereby enabling another person to undertake Customs transactions using his credentials, the broker had contravened Regulation 1(4).

The broker argued that he had verified the exporter’s IEC and GST particulars through available online records and that there was no evidence establishing that he knew about the prohibited goods.

The High Court, however, held that merely verifying the existence of an IEC or GSTIN did not discharge all the obligations imposed upon a Customs Broker.

Regulation 10(n) requires a Customs Broker to verify the correctness of the IEC and GSTIN, as well as the identity of the client and the functioning of the client at the declared address, by using reliable, independent and authentic documents, data or information.

In the present case, the more fundamental defect was that the broker had not obtained authorisation from Deepnidhi and had not even contacted the entity before filing the Shipping Bill in its name.

The Court therefore held that verification of the existence of an IEC or GSTIN cannot, by itself, constitute authorisation from the person in whose name a Customs transaction is undertaken.

The High Court accepted that the record might not establish that the broker himself had prior knowledge of the prohibited goods. However, it held that this did not absolve him of independent statutory obligations under the CBLR, 2018.

The Court distinguished between knowledge or participation in the underlying offence and compliance with the regulatory duties imposed upon a Customs Broker. A violation of those duties does not cease to be a violation merely because the Department cannot establish that the broker participated in or knew about the underlying prohibited export.

The Court further held that the broker could not rely on the principle that a Customs Broker is not expected to act as an investigator of every transaction. That principle would apply differently where an authorised client provides information that later proves incorrect. Here, the named exporter had not authorised the broker at all.

The Court found sufficient material to sustain the findings under Regulations 10(a), 10(d) and 10(n) of the CBLR, 2018.

Regulation 10(a) requires the Customs Broker to obtain authorisation from each company, firm or individual by whom he is employed as a Customs Broker. Since Deepnidhi had neither engaged nor authorised the broker, filing the Shipping Bill in its name was contrary to this obligation.

The Court also found the violation under Regulation 10(d) supported by the circumstances in which the Shipping Bill was filed. Rather than declining the transaction or advising the concerned party to obtain proper authorisation, the broker proceeded to file the document in the name of an exporter who had not engaged him.

As regards Regulation 10(n), the Court reiterated that the Customs Broker’s verification duty extends beyond merely checking whether an IEC or GSTIN exists in electronic records. The broker must verify the client’s identity and functioning as required by the Regulations.

The High Court did, however, find a limited defect in the CESTAT’s reasoning concerning Regulation 10(e).

That provision requires a Customs Broker to exercise due diligence to ascertain the correctness of information imparted to a client concerning work related to clearance of cargo or baggage.

The Court observed that although the record clearly established violations under Regulations 10(a), 10(d) and 10(n), the impugned order did not identify any particular incorrect information imparted by the broker to a client in respect of which due diligence had allegedly not been exercised.

Consequently, the finding under Regulation 10(e) could not independently be sustained. However, this did not affect the remaining violations, which were independently sufficient to sustain the disciplinary action.

The broker also argued that revocation of his licence was excessively harsh and disproportionate. Reliance was placed on the principle that disciplinary punishment against a Customs Broker must bear a reasonable relationship to the gravity of the infraction.

The High Court accepted that proportionality is relevant when examining punishment imposed upon a Customs Broker. However, it held that proportionality must be assessed by considering the nature of the misconduct and the cumulative effect of the established violations.

In the present case, the Court found several aggravating circumstances. The broker had admittedly allowed his licence and dongle to be used for Rs.10,000 per month; the Shipping Bill was filed in the name of an exporter without that exporter’s authorisation; and the transaction involved an attempted export of approximately 1,158 kg of Red Sanders treated as prohibited goods for want of the requisite permission.

The Court held that this was not a case of an employee independently misusing the Customs Broker’s credentials without the knowledge or authority of the licence holder. The broker himself had knowingly permitted another person to undertake Customs transactions using his credentials for consideration.

Considering the cumulative circumstances, the High Court concluded that the punishment imposed by the Commissioner and affirmed by CESTAT could not be described as shockingly or manifestly disproportionate.

The Court specifically took into account the admitted lending of the licence and dongle for consideration, absence of authorisation from the named exporter and the use of the Shipping Bill in an attempted export involving prohibited Red Sanders.

Accordingly, the Court found no perversity or error of law in the CESTAT’s findings and held that no substantial question of law arose under Section 130 of the Customs Act, 1962. The appeal was dismissed and pending applications were closed.

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