Customs Broker Licence Can’t Be Revoked Without Proof of Deliberate Collusion in Drawback Fraud: CESTAT

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has upheld the forfeiture of the security deposit of customs broker while rejecting the Revenue's plea for revocation of his licence, holding that though serious supervisory lapses were established, there was no conclusive evidence of deliberate collusion in the alleged fraudulent drawback export scheme. The Bench of Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has observed that the materials on record did not conclusively establish deliberate collusion, sharing of drawback proceeds, receipt of illegal gratification or conscious participation by the customs broker in the alleged fraudulent scheme. The proceedings established failures relating to supervision and due diligence rather than intentional involvement in fraud. The case involved three cross appeals arising out of Orders-in-Original dated February 8, 2016, and August 30, 2016, passed by the Commissioner of Customs, Chennai-VIII. While customs broker S. Murugan challenged the order forfeiting his security deposit, the Department sought restoration of the earlier suspension and revocation of the customs broker licence under the Customs Brokers Licensing Regulations (CBLR), 2013. According to the records, the Directorate of Revenue Intelligence (DRI), Delhi, had investigated an alleged fraudulent drawback export racket involving dummy firms purportedly controlled by Vikas Sharma and Sushail Sehgal. Proceedings were initiated against the customs broker alleging violations of Regulations 11(a), 11(b), 11(d), 11(e), 11(n), 17(5), and 17(9) of the CBLR, 2013. Although the licence had initially been suspended on January 5, 2016, the suspension was subsequently revoked after a post-decisional hearing. Later, a show cause notice proposed revocation of the licence, forfeiture of security deposit and imposition of penalty. The inquiry officer found violations of Regulations 11(a), 11(b), 11(n) and 17(9), while dropping allegations under Regulations 11(d), 11(e) and 17(5). Based on these findings, the adjudicating authority ordered forfeiture of the security deposit but refrained from revoking the licence. Before the Tribunal, counsel for S. Murugan argued that the proceedings were based mainly on allegations emerging from the DRI investigation and that no independent evidence existed to establish conscious involvement of the customs broker in fraudulent drawback exports. It was contended that export documents had been processed on the basis of information supplied by the exporters and that the adjudicating authority had rightly exercised discretion under Regulation 20(7) by imposing a lesser punishment. Reliance was placed on the Tribunal's decision in Commissioner of Customs v. Trishiv Logistics Pvt. Ltd. to argue that the Department could not seek enhancement of punishment merely because it considered forfeiture inadequate. The Revenue, on the other hand, contended that the customs broker had failed to exercise proper supervision and had allowed customs clearance activities to be conducted through intermediaries without adequately verifying exporters and Importer Exporter Code (IEC) holders. It also argued that the adjudicating authority had prematurely revoked the suspension before completion of the DRI investigation and that mere forfeiture of security deposit was insufficient considering the gravity of the violations. Examining the evidence, the Tribunal observed that the case essentially concerned whether the customs broker had discharged the obligations of due diligence, supervision and verification imposed under the licensing regulations. It noted that statements recorded during investigation showed that customs clearance operations in Delhi were being coordinated substantially through intermediaries and that effective supervision by the licence holder was lacking. The Tribunal further found that exporters involved in the disputed transactions had not been adequately verified, thereby constituting breaches of Regulations 11(a), 11(b), 11(n) and 17(9) of the CBLR, 2013. The Tribunal accepted the principle laid down in Trishiv Logistics Pvt. Ltd., observing that Regulation 20(7) grants discretion to the adjudicating authority either to revoke the licence or to impose lesser consequences depending on the gravity of the violations proved. Accordingly, it held that the Department could not insist upon revocation merely because it considered the punishment inadequate. With respect to the order revoking suspension of the licence, the Bench held that mere pendency of investigation by the DRI could not justify indefinite continuation of suspension in the absence of material demonstrating active involvement of the customs broker in fraudulent exports. The Tribunal therefore found no infirmity in the order lifting the suspension. The CESTAT upheld the findings regarding violations of Regulations 11(a), 11(b), 11(n) and 17(9) and affirmed the decision to forfeit the security deposit without revoking the customs broker licence. Consequently, the appeal filed by S. Murugan seeking complete exoneration as well as the departmental appeals seeking revocation of suspension and licence cancellation were all dismissed, and both Orders-in-Original were sustained. Case Details Case Title: Commissioner of Customs Versus Mr. S. Murugan Citation: JURISHOUR-1524-HC-2026(CHE) Case No.: Customs Appeal No. 41158 of 2016 Date: 02.06.2026 Counsel For Appellant: S. Murugappan, Advocate Counsel For Respondent: Rajini Menon, Authorised Representative Click Here To Read Order Read More: Sub-Contractor Not Liable for GTA Service Tax When Principal Contractor Already Paid Service Tax: CESTAT

Customs Broker Licence Can’t Be Revoked Without Proof of Deliberate Collusion in Drawback Fraud: CESTAT

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