Sale/purchase transaction would not be void on account of it being reflected as sale/ purchase on High Seas basis

While hearing an appeal against revocation of Customs Broker’s license, the High Court of Delhi observed that the aspect as to whether or not there had been any loss of revenue as a consequence of the Customs Broker’s actions was indeed a material factor to be considered, while determining the punitive measures.

Nevertheless, the Division Bench of Justice Vibhu Bhakru and Justice Amit Mahajan set aside the impugned order insofar as it sought to revoke the Appellant’s license, considering that the license was already expired when it was ordered to be revoked and that the Appellant would anyway seek to renew the license.

The Appellant was represented by Mr. Pradeep Jain, Advocate, whereas the Respondent-Revenue was represented by Mr. Anish Roy, Senior Standing Counsel.

The Appellant, a Customs Broker holding valid license under the the Customs Brokers Licensing Regulation, 2013, (CBLR) faced proceedings commenced by the Department, on receipt of an Offence Report in the form of an Order-in-Original passed by the Adjudicating Authority.

The dispute stems from a consignment of imported goods, declared as ‘Samsung 65 LED Monitor’, for which the Appellant had filed Bill of Entry. The importer declared that the goods had been purchased on High Sea Sale basis from a company which itself had purchased the goods from Singapore.

The Department had doubts in respect of the High Sea Sale agreement and alleged that the agreement was notarised prior to dispatch of the goods from Singapore and that part of the goods were dispatched before notarisation, whereas the other part of the consignment was dispatched after notarisation. The Department opined that a High Sea Sale could have been affected only after the goods left Singapore and before their arrival in India.

The offence report indicated that the real importer of the goods had attempted to evade payment of Customs duty by abusing the Served From India Scheme scrips issued under Chapter 3 of the Foreign Trade Policy.

The Department further alleged that the High Sea Sale Agreement was not in accordance with relevant provisions of the law and the Bill of Entry should have been filed by a different party. Hence penalties were imposed both on the importer as well as on the Appellant-Customs Broker.

The Offence Report concluded that the Appellant had violated Regulations 11(d), 11(e) and 11(m) of CBLR, 2013. The Appellant’s license was revoked and penalty of Rs 25000/- was imposed.

On appeal, the CESTAT sustained the penalties as well as revocation of license, based simply on the fact that the Appellant had admitted the High Sea Sales Agreement as being invalid.

On hearing the contentions of both the parties, the Bench observed that even though the transaction in question had wrongly been reflected as High Sea Sale, the error was not of material consequence. The Bench also observed that the Revenue could not point out any provision of law which stated that a sale/purchase transaction would be voided on account of it being reflected as a sale or purchase on High Seas basis.

Commenting on the nature of the CBLR, the Bench observed that the Regulations were essentially disciplinary proceedings meant to ensure compliance with statutory provisions. Therefore, any punishment meted out under the regulations would warrant interference with where the same is disproportionately excessive in relation to the alleged violation.

The Bench further noted that different Regulations in the CBLR, such as Regulation 18 and Regulation 22, provided for a range of punishments meant to be imposed by the Commissioner of Customs. Thus, the Bench observed that it was not necessary that every contravention of the CBLR would attract extreme levels of punishment or revocation of license, the effect of which would be of depriving the Customs Broker of livelihood.

The Bench further clarified that the Commissioner of Customs had a discretion to impose a measure of punishment which was appropriate and in keeping with the seriousness of the violation. The Bench also observed that this discretion was coupled with a duty to ensure that the punishment meted out is commensurate with the seriousness of the contravention on part of the Customs Broker.

The Bench also rejected the Department’s contention that the transaction being revenue-neutral was immaterial. The Bench observed that revocation of license and imposition of penalty were punitive measures and it was imperative to examine the potential harm and actual harm caused by the infraction in respect of which penalty was imposed. Here, the Bench clarified that whether the infraction had caused any material loss, was an essential factor to be considered while determining the punitive measures to be inflicted on the Customs Broker.

Moreover, it is settled law that failure to consider the relevant factors in the decision-making process render the decision arbitrary and thus, amenable to challenge as offending the equal protection clause, the Bench clarified.

Thus, the Bench found that the punishment of revocation of license was disproportionately heavy in relation to the infraction that warranted the same. Hence the Bench remanded the matter to the CESTAT for ascertaining whether the Appellant contravened any provisions of the Customs Act or Rules made thereunder.

Also, the order cancelling revocation of license was set aside since the license was already expired as on the date of order of revocation was passed and that the Appellant was anyway seeking its renewal. Nevertheless, the monetary penalty was accepted by the Appellant.

Cause Title: M/s SMS Logistics vs Commissioner of Customs (General) [CUSAA 212/2019 / 2023-Enterslice-2-HC-Del-Customs]

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