Citation Codes

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Case Number

Writ Petition (L) No. 1586 of 2014

Attorney(S)

Mr. Prakash Shah with Mr. Durgaprasad Poojari and Ms. Megha Bansal i/b. PDS Legal for the Petitioner.
Mr. Pradeep S. Jetly for the Respondents.

Judges

S.C Dharmadhikari
B.P Colabawalla, JJ.

Acts

Indian Companies Act, 1956
CUSTOMS ACT 1962

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Smart Summary

Summary of Oral Judgment

Factual and Procedural Background

The petitioner is a company registered under the Indian Companies Act, 1956, engaged in forwarding and clearing cargo at Mumbai Port, established in 1983, with multiple offices and employees. The petitioner holds a customs house agent license originally issued on 21 February 2005 under the Customs House Agents License Regulations and renewed, valid up to 26 July 2016, and claims to act as agent under the Customs Brokers Licensing Regulations, 2013.

A client, Larsen & Toubro Sapura Shipping Pvt. Ltd., engaged the petitioner for import of a heavy duty pipe-laying vessel. An advance bill of entry dated 2 December 2010 was filed seeking assessment under heading 89.01 at nil rate for permanent import; subsequently the importer sought to treat the import as temporary and applied for an Essentiality Certificate and related exemption procedures. The petitioner assisted in submitting documents and sought amendment of the bill of entry on the importer’s instructions; an endorsement permitting amendment was made on 15 December 2010.

The importer filed writ petitions and there were provisional release/assessment proceedings; the vessel was later seized on 7 April 2011, leading to further litigation (including Writ Petition No. 2959 of 2011 and Writ Petition No. 2980 of 2011) and the cancellation of the Essentiality Certificate was set aside in one petition. Show cause notices were issued to the importer and others and remain pending adjudication.

Separately, the petitioner received a notice dated 14 April 2014 proposing prohibition from operating as a customs broker within Mumbai Customs Zones I, II and III. An order dated 9 June 2014 was passed by the Commissioner of Customs (General), Mumbai (second respondent), prohibiting the petitioner from operating as a customs house broker in those zones pending enquiry under Regulation 20. The petitioner brought the present writ petition challenging that impugned order. Earlier this Court had directed the authorities to pass a speaking order after hearing the petitioner and not to prohibit operations until then; the impugned order was passed after a hearing in compliance with that direction and is now impugned in this petition.

Legal Issues Presented

Whether the Commissioner of Customs (in-charge of a particular customs station) can, under Regulation 23 of the Customs Brokers Licensing Regulations, 2013, prohibit a customs broker from operating in one or more sections of the customs station (i.e., pass a prohibition order) independently of the parent Commissionerate's power to suspend or revoke the license.
Whether the impugned prohibition order could be sustained where it is based primarily on a single historical transaction (the 2010 vessel matter) that is part of ongoing adjudication and litigation.
Whether the exercise of the discretionary power under Regulation 23 was arbitrary, highhanded or otherwise vitiated because the parent Commissionerate (Cochin), which issued the license, had not suspended or revoked the license and the Mumbai Commissionerate had not explained why Regulation 23 was invoked instead of other measures.
Whether the Commissioner’s satisfaction required to invoke Regulation 23 was supported by definite material sufficient to justify prohibition of the broker's operations at the Mumbai station.

Arguments of the Parties

Petitioner's Arguments (Mr. Shah)

The power in the Customs Brokers Licensing Regulations, 2013 to prohibit a broker under Regulation 23 must be exercised on definite material and cannot be based on a solitary past incident (here, the single import involving Larsen & Toubro Sapura Shipping in 2010).
The show cause notice and impugned order are arbitrary and highhanded, particularly because the alleged incident is nearly three years old and the department failed to seize the vessel earlier or to withhold the amendment request; the petitioner acted on importer instructions and merely facilitated document submission.
The impugned order improperly functions as an indirect suspension or revocation of the license, effectively forcing the parent Commissionerate to act; Regulation 11(d), 11(m) and 17(9) do not envisage such drastic action for technical lapses or for an agent pursuing a client's case.
Proceeding while adjudication against the importer is pending and before final adjudication is impermissible; the action appears designed to prevent the petitioner from pursuing the client's case.

Respondent's Arguments (Mr. Jetly)

Regulation 23 is an independent power vested in the Commissioner in-charge of a customs station to prohibit a customs broker from working in one or more sections if satisfied that obligations in Regulation 11 have not been fulfilled; this power is not controlled by the parent Commissionerate’s power to suspend or revoke the license.
The impugned order identifies reasons showing violations of Regulation 11(d), 11(m) and 17(9), and the Commissioner’s reliance on the available material (even a single instance) does not render the order arbitrary or perverse.
The petitioner, as broker, had duties under Regulations 11 and 17 and cannot shelter behind the importer’s litigation; the prohibition is a legitimate trust-like power to prevent misuse of the license and should not be interfered with by the writ court in the absence of parameters attracting writ jurisdiction.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Court examined the impugned order, the annexures and the relevant regulations (including Regulations 3, 7–11, 17, 20 and 23 of the Customs Brokers Licensing Regulations, 2013) and proceeded along these lines:

The Court accepted the regulatory framework as empowering the authorities to issue licenses, supervise and control the working of customs brokers and ensure compliance with license conditions. It noted the licensing provisions (grant, bond, security, validity, non-transferability) and emphasised that obligations of brokers are set out in Regulation 11, including a duty to advise clients to comply with the Act and to bring non-compliance to the notice of appropriate officers.
The Court recognised that Regulation 23 confers a discretionary power on the Commissioner of Customs in-charge of a station to prohibit a customs broker from operating or from working in one or more sections. That power, the Court observed, is coupled with a duty and must be exercised only upon requisite satisfaction based on material.
The Court held that this discretionary power cannot be exercised merely because the Commissioner considered that a broker had needlessly or endlessly pursued a client's case. The Commissioner may act against both importer and broker under the Customs Act where evasion or related wrongdoing is established; there are also provisional and other measures available to the department.
Applying these principles to the facts, the Court found that the impugned action rested largely on the historical 2010 events concerning the vessel and the closely connected adjudication against the importer. Because the adjudication against the importer remained pending and many of the relevant events (including attempts to amend the bill of entry and provisional orders) dated from December 2010, the Court concluded there was no adequate explanation or justification for initiating prohibition proceedings in 2014 under Regulation 23.
The Court also observed that the Mumbai Commissionerate had taken up the matter with the parent Commissionerate in Cochin, which had issued the license. The parent Commissionerate could have suspended or revoked the license or proceeded under the Regulations; the Court found no explanation why Mumbai invoked Regulation 23 instead of allowing the parent Commissionerate to act or instead of pursuing other measures. The Court characterised the Mumbai action as hasty and arbitrary in the circumstances.
On that basis the Court concluded that the discretionary power under Regulation 23 was not properly exercised in the given facts and that the impugned order could not be sustained.

Holding and Implications

Writ Petition Allowed; impugned prohibition order quashed and set aside.

Immediate effect on the parties:

The impugned order dated 9 June 2014 prohibiting the petitioner from operating as a customs house broker within Mumbai Customs Zones I, II and III (pending enquiry) is quashed and set aside; the Writ Petition succeeds.
The Commissioner is not restrained by this order from taking appropriate steps against the importer and/or the petitioner in accordance with law and pending adjudication; the parent Commissionerate at Cochin remains free to take action (including suspension or revocation) under the Regulations.
The petitioner retains its remedies and the right to defend any future proceedings; the order does not prevent adjudicating authorities from passing orders against the importer and/or the petitioner consistent with law, and all contentions of both sides remain open for future adjudication.

Broader precedent or legal development: The judgment resolves the legality of the specific prohibition order on the facts presented and clarifies the limited circumstances in which Regulation 23 should be exercised; the Court did not purport to lay down a sweeping new legal principle beyond its application to these facts.

Disposition: Rule made absolute. No costs.

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Gac Shipping (India) Pvt. Ltd. Petitioner v. The Union Of India Through The Secretary Ministry Of Commerce & Anr. S

ORAL JUDGMENT:

1] Rule. Respondents waive service. By consent Rule made retunable forthwith.

2] This Writ Petition is by the petitioner which is a company registered under the Indian Companies Act, 1956 engaged, interalia, in the business of forwarding and clearing of cargoes of various importers and exporters at Mumbai Port. The petitioner has been established in the year 1983, has 26 offices across India and 340 employees who are engaged in the aforementioned business activities. The petitioner claims to have acted as Agent and under the sub regulations namely the Customs Brokers Licensing Regulations, 2013 for reputed clients.

2] The order dated 9 June, 2014 hereinafter referred to as impugned order has been passed by the Commissioner of Customs (General) Mumbai, who is second respondent before this Court. By this order, respondent No. 2 has prohibited the petitioner from operating as customs house brokers within Mumbai Customs Zones I, II and III pending enquiry under Regulation 20 of the aforementioned regulations.

3] The brief facts leading to the institution of this Writ Petition are that the petitioner has been issued the license under the Customs Agents Licensing Regulations, 2004 on 21 February, 2005. This license was issued under the then “Customs House Agents License Regulations”. The said license is renewed from time to time and valid upto 26 July, 2016. The petitioner claims to be operating on the basis of this license and throughout India.

4] In terms of this license and acting as customs house agent, the petitioner claims to have handled major cargoes at Mumbai Port. The details of the cargoes handled have been set out in paras-11 and 12 of the Writ Petition.

5] One Larsen & Toubro Sapura Shipping Pvt. Ltd. (hereinafter referred to as a client) engaged the services of the petitioner in respect of import of heavy duty pipe laying Vessel. The petitioner filed advance bill of entry dated 2 December, 2010 on behalf of this client, seeking assessment of the Vessel under heading 89.01 at nil rate duty for the purpose of assessment under the Act. The petitioner claims that he was acting on the advise of the importer, which initially declared the import of the said Vessel on permanent basis. However, the clients subsequently decided to treat the said import on temporary basis and applied for Essentiality Certificate from the Director General Hydrocarbon and decided to claim exemption from payment of duty of customs under a certain notification. Therefore, the requisite procedure was complied with by the importer and the petitioner claims that its role was limited to facilitate submission of documents. By letter dated 15 December, 2010, the client requested the Assistant Commissioner of Customs to permit them to amend the Bill of Entry to assess the said Vessel on temporary basis instead of permanent basis, copy of which has been annexed. Based on these instructions of the importer, even the petitioner requested the Assistant Commissioner of Customs to permit the amendment of the Bill of Entry and assess the Vessel on temporary import basis instead of permanent basis. The request made by the petitioner was allowed by making endorsement at the foot of the letter dated 15 December, 2010 (Annexure-F).

6] We are not really concerned with the disputes between the clients/importer and the customs authorities. Be, that as it may, certain dispute did arose with regard to the claim of the importer/client for exemption from payment of custom duty. The Writ Petition was filed in this Court by the client seeking appropriate directions to the Customs authorities to make an assessment of the Vessel. An order came to be passed on 23 December, 2010 on the said Writ Petition recording the statement of the customs authorities that a provisional release order will be passed as expeditiously as possible which resulted in disposal of the Writ Petition. Thereafter, the provisional assessment order was passed but the Vessel came to be seized on 7 April, 2011. This led to a Writ Petition filed by the Larsen & Toubro Limited bearing Writ Petition No. 2959 of 2011 challenging the seizure of the Vessel on which this Court made an order, copy of which is at Annexure-H to the Writ Petition. There was another round of litigation inasmuch as the Essentiality Certificate was cancelled by the Director General of Hydrocarbons, Noida (UP). Therefore, another Writ Petition bearing No. 2980 of 2011 was filed and the order cancelling the Essentiality Certificate was set aside.

7] There are now show cause notices issued to the importer and Larsen & Toubro Limited and others and which are pending adjudication. However, what we are concerned with, is the notice issued to the petitioner dated 14 April, 2014 seeking to prohibit it from operating as customs house broker within Mumbai Customs Zone-I, II and III namely Mumbai Port, Airport and Nhava Sheva. The petitioner had to come to this Court because the authorities made an order on 9 May, 2014 on the show cause notice and that was assailed by it by filing the other Writ Petition which is also on board today. This Court directed the authorities to pass a speaking order after hearing the petitioner on the show cause notice and until, then, not to prohibit it from operating as customs house broker.

8] In terms of this Court's order, the hearing was held and now the impugned order has been passed which is challenged in the present Writ Petition.

9] Mr. Shah, learned advocate, appearing in support of the petition 5/14 submitted that the Customs Brokers Licensing Regulations, 2013 may contain a regulation enabling the Commissioner's of Customs at a given port namely the Mumbai Port in this case to prohibit any custom broker from working in a section or more sections of the Customs Station if he is satisfied that such Customs Broker has not fulfilled his obligations as laid down under Regulation 11 in relation to work in that section or sections. This power can be exercised notwithstanding anything contained in the regulations, and would, therefore, be presumed to override a power to either suspend or revoke the license. However, Mr. Shah submits that the satisfaction of the authorities namely Commissioner of Customs has to be based on some definite material. The allegations made in the present show cause notice would show that they are only based on the solitary import on behalf of the client M/s. Larsen & Toubro Sapura Shipping Pvt. Ltd. Beyond that single or solitary case, the show cause notice does not allege anything by which one can conclude that the petitioner deserves to be prohibited from operating and functioning as a customs broker at the concerned Station. Even that single or solitary incident is nearly three years old. Based on that, a notice cannot be issued in April 2014 and a drastic order passed. Mr. Shah submits that the order is completely arbitrary and highhanded inasmuch as the department could not succeed in their endeavour to seize the Vessel and prior thereto could not withhold the request for amendment of the Bill of Entry. The petitioner has moved the authorities in writing with the request on behalf of the importer. That the importer was allegedly not entitled to the relief claimed in the said communications is no ground to proceed against the petitioner for violating the stipulations or the provisions of Regulation 11 and 17. Mr. Shah submits that Regulation 11(d) and 11(m) so also the Regulation 17(9) which is stated to be violated does not envisage such a step or drastic action. The Customs Broker cannot be proceeded against the petitioner for any technical lapse on his/her part or merely because the matter was not brought to the notice of Deputy Commissioner of Customs and Assistant Commissioner. Even if, that was brought to the notice, the Custom Broker may pursue the case of the importer but that does not mean that he has failed to perform his duties as Custom Broker or failed to supervise proper conduct of the employees in the transaction of his business or that there are acts of omission or commission on the part of the petitioner or its employees during their employment. Mr. Shah submits that this drastic order has been passed merely to ensure that the petitioner does not pursue the case of the importer/client. When the proceedings are pending and the client is yet to be saddled with any liability of payment of duty, or penalty, then, the impugned order could not have been passed. Further, the impugned order proceeds on the footing that the matter has been taken up with the parent Commissionerate at Cochin. Pending the parent Commissionerate's action and under Regulation 20, the Commissioner of Customs (General) Mumbai, has chosen to propose a prohibition order. He has on his own stipulated a time frame for the parent Commissionerate to act. That does not mean that Mumbai Commissionerate can ensure a suspension of the license in an indirect manner. It is for the parent Commissionerate to take the requisite step. The present order means forcing a decision on the parent Commissionerate to suspend the license of the petitioner. For all these reasons, it is submitted that the impugned order be quashed and set aside.

10] On the other hand, Mr. Jetly supported the impugned order by pointing out that Regulation 23 which has been invoked in this case must be seen as an independent power conferred in the Commissioner of Customs, Incharge of a customs Station. A Custom Broker may be operating in several custom Stations across the country. However, in a particular case, the Commissioner of Customs may prohibit the Customs Broker from working in one or more sections of the Customs Station of which he is incharge if he is satisfied that the Custom Broker has not fulfilled the obligations laid down in Regulation 11 in relation to the working in that section or sections. Mr. Jetly, therefore, submits that this is an independent power and not controlled by the power to suspend or revoke the license which is conferred in the parent Commissionerate. In the present case, there are reasons assigned and which would show that the Customs Broker has violated Regulation 11(d), 11(m) and 17(9) of the Customs Brokers Licensing Regulations, 2013. The petitioner cannot take shelter of the order passed in the Writ Petition instituted by Larsen & Toubro Limited namely the importers/clients. The petitioner as a broker was obliged to follow the Regulation and particularly the stipulations in Regulation 11 and 17. Therefore, this is a step taken so as to prevent misuse of the license and just because the Commissioner relied upon a single instance does not mean that the impugned order is vitiated by any error of law apparent on the face of the record or perversity leave alone is arbitrary and highhanded as alleged. If the petitioner was to assist the client/importer in effecting payment of custom duty by claiming only legitimate benefits and when the petitioner was aware that the imports were permanent in nature, then, it is a serious act and particularly when the obligations under the Regulation have not been discharged. For these reasons, it is submitted that such powers which are in the nature of a trust reposed in the Commissionerate should be allowed to be exercised without any interference by a Writ Court. More so, when none of the parameters within which the writ jurisdiction can be exercised are attracted in this case. There is no merit in the contention that this amounts to suspension or revocation of the license. For these reasons, it is submitted that the Writ Petition be dismissed.

11] We have with the assistance of Mr. Shah and Mr. Jetly, perused the impugned order and all annexures to the Writ Petition. We have carefully perused the Regulations. We need not go into any larger controversy or question. For the present, we are satisfied that the Regulation empowers the authorities to issue license, supervise and control the working of the Customs Brokers and equally ensure fulfillment and compliance with the terms and conditions on which the license is issued. That the Customs Broker is required to be licensed and cannot, therefore, carry on the business otherwise, is clear from reading of Regulation 3. Thereafter, there are stipulations and clauses which enable making of an application and its due consideration. The grant of license is covered by Regulation No. 7 and thereafter the execution of bond, furnishing of security, period of validity of license, are dealt with by Regulations 8 and 9. As per Regulation 10, the license is not transferable. The obligations of the Customs Broker are set out in Regulation 11 and it is his duty to advise his client to comply with the provisions of the Act and in case of non-10/14 compliance, he shall bring the matter to the notice of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be. We cannot be unmindful of the fact that brokers who are licensed have a duty not only to their client but to the public and they have to act in such a way and manner that not only the Regulations are not violated but the larger public interest is served. Regulation 23 confers a discretionary power and which would enable the Commissioner of Customs of a particular Station to prohibit the Custom Broker from operating as Custom Broker or from working in one or more sections. That power is coupled with a duty and must be exercised only on the requisite satisfaction being reached. It cannot be exercised merely because in the opinion of the Commissioner of Customs, the broker has pursued the case of the client/importer needlessly or endlessly. That is a matter which the Commissioner has to deal with independently and for which in a given case he can proceed not only against the importer/client but the broker as well. There are enough provisions in the Customs Act enabling the Commissioner to take care of evasion of duty and dealing with persons responsible for the same. There are also enough measures and which can be initiated so as to prevent such activities in future. However, when the proceedings against the importer in this case are pending and no final adjudication has taken place and the matter is as old as 3 years, then, we do not see any justification for issuing a notice to the petitioner and proceeding against it in terms of Regulation 23. There is much substance in the contention of Shri Shah that the show cause notice has close proximity with the case or stand of the importer/client. From time to time the importer/client has succeeded in protecting its rights, namely, of import and the grant of Essentiality Certificate. The petitioner can be proceeded against together with the importer under independent powers conferred in the Commissioner by the Customs Act, 1962, and that is not disputed. That a show cause notice against the importer/client is issued and is pending adjudication, is further not disputed. That provisional orders enabling clearance of the Vessel and giving security for payment of duty has been passed and all this is to the knowledge of the department. Further, the attempt of the importer/client in approaching the Assistant Commissioner of Customs to assess the Vessle not on permanent basis but temporary one and seeking amendment to the Bill of Entry, is also to the knowledge of the department. These events are of the year December 2010. Therefore, there is no explanation much less a justification for initiation of proceedings in the year 2014 against the petitioner and that too for prohibition from operation or working at the Mumbai Customs Station.

12] The Commissioner at Mumbai had taken up the issue with the Cochin Customs which is the parent Commissionerate and which has issued the license to the petitioner in terms of the Regulations. That Commissioner could have very well suspended the license if there was any requirement and necessity of doing so. Further that Commissioner could have also proceeded against the petitioner in terms of the Regulations for revoking the license. That despite, such a matter being taken up with the parent Commissionerate, the Customs Commissioner at Mumbai, thought it fit to invoke Regulation 23 is something which has not been clarified leave alone explained to us. There was, therefore, a clear haste and arbitrariness in proceeding against the petitioner. There was no reason to keep aside the adjudication proceedings and only proceed in terms of Regulation 23. For all these reasons and finding that the action is only based on the allegations in the show cause notice issued to the importer/client that we are of the opinion that the impugned order cannot be sustained. The power under Regulation 23 which is discretionary and coupled with a duty could not have been exercised in the given facts and circumstances and for the reasons that we have set out above.

13] As a result of the above discussion, the Writ Petition succeeds. The 13/14 impugned order is quashed and set aside. The Commissioner is free to take such steps against the importer/client as also the petitioner in terms of the pending adjudication proceedings or otherwise but in accordance with law. We are also not in any manner preventing the parent Commissionerate at Cochin from taking suitable action against the petitioner in terms of the Regulations. We are, therefore, clarifying that our order will not prevent the exercise of all such powers and by the competent authorities. We keep open the remedies of the petitioner as well in the event such powers are invoked and exercised by the authorities by clarifying that our present order will not prevent invocation of the power or the petitioner's right to defend the proceedings or take such measures as are permissible in law in furtherance thereof. Our order also does not prevent the adjudicating authority from passing such orders against the importer as also the petitioner in terms of the pending show cause notice and adjudication proceedings and in accordance with law. We keep open all contentions of both sides in that behalf. The Writ Petition is allowed with the above clarifications. Rule made absolute accordingly. No costs.

Gac Shipping (India)... v. The Union Of India T...