The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi has set aside the revocation of a Customs Broker licence and forfeiture of the security deposit, holding that procedural and regulatory lapses under the Customs Brokers Licensing Regulations, 2018 (CBLR) cannot by themselves warrant the harsh punishment of licence revocation where no serious breach of the Customs Act or substantive violation affecting customs revenue is established.
The bench of Dr. Rachna Gupta (Officiating President) and Hemambika R. Priya (Technical Member) upheld a penalty of Rs. 50,000 for procedural violations in one appeal and reduced the penalty in the connected appeal from Rs. 50,000 to Rs. 5,000.
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The proceedings originated from a physical verification of the Customs Broker’s premises on November 27, 2018. During the verification, the Department found that the address declared in its records at B-176, Jawahar Park, Khanpur, New Delhi was occupied by a third party, who stated that no office of the Customs Broker existed there. The Department consequently formed the view that the declared office was non-existent.
The subsequent audit alleged several violations under the CBLR, 2018. These included operating at multiple Customs ports without the required permissions or intimations, alleged use of forged signatures, involvement of unauthorised persons, alleged sub-letting of the Customs Broker licence, concealment of income and failure to disclose certain DRI show cause notices. The Department also alleged that the Customs Broker had claimed to have physically verified clients even though records suggested that it had dealt through mediators rather than directly with importers and exporters.
The second appeal concerned allegations relating to excess availment of RoSL by two exporters. On the basis of the allegations, the Department had revoked the Customs Broker’s licence, forfeited the security deposit and imposed penalties of Rs. 50,000 in each matter.
Before the Tribunal, the Customs Broker argued that the allegation concerning its office address was based on a technical lapse. It submitted that the change from the earlier address had in fact been communicated to the Department through a letter dated December 19, 2017, but the Department had failed to update its records. A subsequent change of address was also stated to have been intimated to the Department. The appellant pointed out that its current address was reflected on the ICEGATE portal and in its communications, challans and authorisations.
The appellant further contended that the alleged irregularities did not justify revocation because there was no finding of smuggling, duty evasion or mala fide conduct. It also challenged the allegations concerning signatures on Bills of Entry, pointing out that the Department had not properly established whose signatures appeared on the documents and that Bills of Entry were filed electronically through the customs system.
The Customs Broker also argued that several allegations had been dropped or were unsupported by adequate evidence. In particular, it submitted that the allegations of sub-letting the licence and certain violations under Regulation 13 had been set aside, yet the punishment had not been correspondingly reduced.
The Department maintained that the audit had established that the Customs Broker was operating from unauthorised premises and had failed to properly intimate changes of address. It also alleged that the Customs Broker had conducted clearances from several ports without filing the prescribed Form C or obtaining the necessary approval. According to the Department, the pattern of clearances and the use of signatures allegedly belonging to persons associated with other Customs Brokers demonstrated serious violations of the licensing regime.
The Department also relied on the fact that multiple Bills of Entry had allegedly been cleared at different ports on the same day. It argued that this indicated that the licence had been sub-let and was being used by unknown persons. The Department further alleged failure to produce statutory records and asserted that the Customs Broker had not cooperated with the audit.
According to the Revenue, the Customs Broker occupies a position of trust under the Customs Act and allegations such as forgery, unauthorised clearances, sub-letting and suppression of facts represented fundamental violations rather than mere procedural lapses.
The Tribunal framed the central question as whether revocation of the Customs Broker licence constituted a harsh punishment for the violations alleged under the CBLR, 2018.
The Bench examined the statutory obligations imposed upon Customs Brokers, including the obligation to obtain client authorisations, transact business personally or through authorised employees, exercise due diligence, maintain records, verify the identity and credentials of clients, report changes in address and cooperate with Customs authorities.
The Tribunal also considered the provisions governing employment and authorisation of personnel, including the requirement that only authorised F-Card or G-Card holders be permitted to sign Bills of Entry, Shipping Bills and other documents connected with customs proceedings.
On the issue of the change of address, CESTAT held that Regulation 10(o) of the CBLR, 2018 creates a clear and time-bound obligation upon a Customs Broker to intimate the Department of any change in postal address and other contact details.
The Tribunal accepted that there had been a regulatory violation because the change of address had not been properly intimated in the manner prescribed. However, it drew an important distinction between a regulatory contravention and an offence under the Customs Act.
The Bench noted that Regulation 18 itself provides for a penalty of up to Rs. 50,000 for contravention of the regulations. Since a penalty of Rs. 50,000 had already been imposed, the Tribunal held that the regulatory breach had been adequately addressed through the prescribed penal mechanism.
The Tribunal next considered the allegation that the Customs Broker had operated at ICD Loni without obtaining the required permission under Regulation 7(3).
CESTAT noted that the impugned order itself had ultimately confined the violation to ICD Loni, despite the original allegations concerning operations at several locations. The Tribunal held that failure to obtain permission under Regulation 7(3) could not automatically be equated with a breach of the primary duties imposed under Regulation 10.
Importantly, the Bench held that such a compliance failure could attract a penalty but could not justify the harsh punishment of licence revocation merely on that basis.
The Tribunal also examined allegations that Bills of Entry carried signatures which did not match the specimen signatures maintained by the Policy Section and, in one instance, allegedly bore the signature of a G-Card holder associated with another Customs Broker.
CESTAT observed that Regulation 13 is not merely a due-diligence provision. It is a core conduct and supervision provision under which a Customs Broker is responsible for the manner in which its employees conduct customs-related business. The Tribunal therefore recognised that violations concerning unauthorised persons and signatures could constitute substantive breaches of the licensing obligations.
However, the Bench ultimately distinguished between procedural irregularities and serious breaches affecting customs revenue or the integrity of the customs system. Relying upon the Tribunal’s earlier approach in cases where no substantive violation had been established, CESTAT concluded that the violations in the present matter did not justify revocation because no serious breach of the Customs Act had been established.
One of the significant findings concerned the Department’s allegation that the Customs Broker had sub-let its licence because consignments had been processed at several ports on the same day.
The Tribunal rejected the contention that the number of clearances at different ports, by itself, established sub-letting. It noted that ICEGATE is a national electronic platform through which customs documents, including Bills of Entry and Shipping Bills, can be filed and processed electronically. Consequently, the physical presence of a Customs Broker at each port is not necessarily required for electronic processing.
CESTAT emphasised that an allegation as serious as sub-letting of a Customs Broker licence requires concrete evidence. The mere fact that several consignments were processed at different ports could not, in the Tribunal’s view, constitute sufficient evidence of sub-letting.
The Tribunal further considered allegations that the Customs Broker had conducted business through mediators instead of directly dealing with importers and exporters. It held that the issue of dealing through mediators was settled and observed that a Customs Broker was not necessarily required to physically verify the premises of every client in the manner alleged by the Department.
As regards the alleged concealment of two DRI show cause notices, the appellant had consistently maintained that the notices had not been served upon it. The Tribunal found that the Revenue had not produced evidence to establish otherwise. Accordingly, these allegations were held to be unsubstantiated.
The Tribunal examined allegations concerning excess RoSL availment by exporters. The Department had sought to attribute responsibility to the Customs Broker for the exporters’ conduct.
CESTAT referred to the legal position that the Customs Broker’s statutory responsibilities do not extend indefinitely to the post-clearance conduct of an exporter. The Tribunal noted the Delhi High Court’s ruling concerning Regulation 10(d), under which a Customs Broker is not responsible for reporting offences committed by an importer after clearance where such conduct falls outside the broker’s statutory function.
The Tribunal also noted that the impugned order itself recognised that a Customs Broker cannot be held liable for mistakes committed by an exporter. Applying the Delhi High Court’s reasoning, CESTAT held that the Customs Broker could not be held responsible for the exporters’ lapses in relation to excess RoSL availment.
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