No Evidence of Customs Broker's Knowledge of Misdeclared Sugar Export: CESTAT Quashes Penalty Under CBLR

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore Bench, has set aside the penalty imposed on Cochin-based customs broker M/s Marks Logistics, ruling that there was no evidence to establish that the broker had knowledge of or participated in an attempted export of sugar allegedly misdeclared as raw rice. The Tribunal, comprising Justice P.A. Augustian (Member Judicial) and Pullela Nageswara Rao (Member Technical), allowed the appeal filed by the customs broker and quashed the penalty imposed under the provisions of the Customs Broker Licensing Regulations, 2018 (CBLR, 2018). The case originated from an investigation into an alleged attempt to export sugar in the guise of raw rice. Customs authorities at Tuticorin had forwarded an offence report against the customs broker, alleging that it had abetted the exporter in the attempted illegal export. Based on the offence report, proceedings were initiated under the Customs Broker Licensing Regulations, and a show-cause notice was issued alleging violations of Regulations 10(d), 10(e), and 10(n) of the CBLR, 2018. Subsequently, the adjudicating authority concluded that the customs broker had failed to discharge its obligations under the regulations and imposed a penalty. The broker challenged the order before the Tribunal. The customs broker argued that it merely processed documents submitted by the exporter and had no knowledge that the goods presented for export allegedly contained sugar concealed among bags declared as raw rice. The broker contended that all documentation provided by the exporter described the cargo as raw rice and that the shipping bill was filed based on those documents in good faith. The broker relied on the statement of its Branch-in-Charge, who explained that KYC documents had been obtained before undertaking the assignment. He further stated that additional surveyors and staff had been deployed during the export process and that the gunny bags appeared identical, bearing the same branding and markings, leaving no reason to suspect that sugar had been mixed with the rice consignments. The appellant also pointed out that an incorrect affidavit filed on behalf of the exporter resulted merely from a clerical “cut-and-paste” error and was not evidence of any deliberate misconduct. A significant aspect of the broker’s defence was that it had conducted KYC verification before filing the shipping bill. According to the broker, it had collected and verified the exporter’s credentials and was unaware of any attempt to misdeclare the cargo. The broker emphasized that it learned of the alleged presence of sugar only during the customs examination process. The appellant further argued that there was documentary evidence showing that customs authorities had been alerted about the suspected concealment, contrary to the findings recorded in the impugned order. The Tribunal examined whether the customs broker could be held liable merely because the exporter allegedly attempted to misdeclare the goods. It noted that the broker's branch manager had consistently maintained that the firm had no knowledge of the concealment of sugar and would never have filed the shipping bill had it been aware of the true nature of the cargo. The Bench observed that the evidence on record did not establish that the broker knowingly facilitated any illegal export. The Tribunal also referred to the fact that the broker had obtained KYC documents before undertaking the transaction, which supported its claim of due diligence. Regulation 10(d) requires customs brokers to advise clients to comply with customs laws and report non-compliance to authorities where necessary. The Tribunal found no basis to conclude that the broker had failed in this duty. Since there was no evidence showing that the broker was aware of the alleged misdeclaration, it could not be said that the broker failed to advise the exporter or report any known violation. The Bench therefore rejected the allegation of breach of Regulation 10(d). The Tribunal also examined allegations under Regulations 10(e) and 10(n), which relate to exercising due diligence and verifying client credentials. While acknowledging that an illegal export attempt had allegedly occurred, the Bench emphasized that the crucial question was whether the customs broker had knowledge of the wrongdoing or had failed to exercise reasonable care. The Tribunal found that the adjudicating authority had not produced any admissible evidence demonstrating that the broker knowingly furnished incorrect information or failed to exercise due diligence. It further held that the typographical error in the affidavit could not by itself establish misconduct, especially when KYC verification had been completed. The customs broker relied on several precedents, including the decision of the Delhi High Court in Kunal Travels v. Commissioner of Customs, which held that a customs house agent cannot ordinarily be expected to conduct extensive background investigations into importers or exporters and cannot be penalized for incorrect information supplied by clients without proof of knowledge or involvement. The Tribunal found the principles emerging from such precedents relevant to the present dispute, particularly regarding the limits of a customs broker’s responsibilities. Allowing the appeal, the Tribunal concluded that the findings regarding violations of Regulations 10(d), 10(e), and 10(n) were unsustainable. It held that the customs broker had obtained KYC documentation, lacked knowledge of the alleged misdeclaration, and could not be penalized solely because the exporter was found involved in an attempted illegal export. CESTAT set aside the penalty imposed on M/s Marks Logistics and granted consequential relief in accordance with law, bringing an end to the proceedings against the customs broker. Case Details Case Title: M/s. Marks Logistics Versus Commissioner of Customs Citation: JURISHOUR-1558-CES-2026(BAN) Case No.: Customs Appeal No. 20139 of 2024 Date: 02.06.2026 Counsel For Appellant: Baby. M. A, Advocate Counsel For Respondent: Vikalp Jain, Superintendent (AR) Click Here To Read Order Read More: Customs Seizes Rs. 5.38 Crore Hydroponic Weed Smuggling Bid at IGI Airport Hidden In Geysers

No Evidence of Customs Broker’s Knowledge of Misdeclared Sugar Export: CESTAT Quashes Penalty Under CBLR

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