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Thawerdas Wadhqomal v. Commr. Of Cus. (General), Mumbai

CESTAT

Sep 20, 2007

Judgment

CaseIQ

Smart Summary (Beta)

Factual and Procedural Background

The appeal challenges Order No. 05/2007-08 dated 1-5-2007 of the Commissioner of Customs (General), Mumbai Zone-1, which confirmed the suspension of the appellant's CHA Licence No. 11/106 and its continuation under the CHALR, 2004. The appellant, who held a CHA licence for over 50 years, complained that the suspension left several employees jobless and maintained that he complied with regulatory requirements (authorization letters and statutory job register). CIU authorities had investigated a Bill of Entry filed on behalf of M/s. Scale International: goods were seized, statements were recorded, and four persons were reported arrested with initial judicial custody for 14 days. The appellant contended there was no allegation or inculpatory statement against the CHA, and that the proprietor's statements were exculpatory. He explained that Mr. Salim Lalani (through M/s. Mahek Consulting Services) brought business on a commission basis and supplied documents and authority letters for filing.

Procedurally, the Commissioner suspended the CHA licence by an ex-parte order dated 7-2-2007. On appeal the Tribunal (CESTAT) by order dated 16-3-2007 set aside that suspension and remanded the matter to the Commissioner for fresh decision after affording the appellant a hearing, directing completion of fresh proceedings within one month. After adjudication, the Commissioner issued the impugned order dated 1-5-2007 confirming suspension. The present opinion reviews and decides the appeal against that impugned order.

Legal Issues Presented

Whether suspension of the appellant's CHA licence was justified on the facts and law.
Whether the appellant violated Regulation 12 of the CHALR, 2004 (prohibition on sale/transfer/sub-letting of CHA licence) or Regulations 13(a) and 13(b).
Whether procuring work on a commission basis amounts to sub-letting or transfer of a CHA licence.
Whether a CHA can be held liable for aiding and abetting illegal import or mis-declaration absent conscious knowledge or inculpatory evidence.

Arguments of the Parties

Appellant's Arguments

The appellant has held the CHA licence for over 50 years and maintained an excellent reputation; suspension caused job losses among employees.
The appellant consistently obtained authorization letters and maintained the statutory job register as required by Regulations.
The CHA did not sell, sub-let or transfer its licence; business procured on a commission basis (via Mr. Salim Lalani/M/s. Mahek Consulting Services) does not amount to sub-letting or transfer.
No allegation or inculpatory statement was made against the CHA; statements of the appellant’s proprietor were exculpatory.
The CHA acted on documents provided by clients and produced authorizations before customs when required; the CHA had no conscious knowledge of any mis-declaration.

Commissioner / Department's Contentions (as reflected in the impugned order)

The Commissioner invoked Regulation 12 of CHALR, 2004, concluding that the CHA licence had effectively been sold, sub-let or otherwise transferred (or that conduct amounted to such transfer).
The Commissioner treated certain employees as arrested and relied on investigative developments (CIU inquiries) to justify suspension.
The Commissioner charged that the appellant signed the Bill of Entry without verifying the genuineness of the importer, thereby aiding and abetting a conspiracy involving fraudulent methods.
The Commissioner relied on prior authority (Noble Agency v. Commissioner of Customs, Mumbai) to support the suspension/findings.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Noble Agency v. Commissioner of Customs, Mumbai	Relied upon by the Commissioner in the impugned order (context: licence sub-letting/transfer).	The court found the Commissioner's reliance on this judgment misplaced because the appellant had not sold, sub-let or otherwise transferred the licence.
Crown Shipping Agency v. Commissioner of Customs	Principle that procuring work on commission basis does not amount to sub-letting or transferring a CHA licence.	The court followed this authority to hold that commission-based procuring of work by third parties did not equate to sub-letting or transfer of the appellant's licence.
KMS Cargo Pvt. Ltd. v. Commissioner of Customs, New Delhi	Principle that a CHA is not automatically responsible if mis-declaration is detected on examination, and such detection does not per se warrant suspension of licence.	The court relied on this case to conclude that detection of mis-declaration during customs examination does not justify suspension of the CHA's licence in the absence of evidence of conscious participation.
Nimesh Suchde v. Commissioner of Customs, Nhava Sheva	Support for the proposition that a CHA acts on documents provided by clients and, if acting in good faith, is not liable to penal action.	The court cited this authority as part of the body of precedents establishing that CHAs filing documents in good faith are not liable absent conscious knowledge of fraud.
Eagle Agency v. Commissioner of Customs, Mumbai	Reinforces the principle that CHAs file shipping documents based on client-supplied material and are not liable if they act in good faith.	The court relied on this decision to support the conclusion that mere signing/fileing of Bills of Entry without evidence of knowledge does not amount to aiding and abetting.
Sushil Malik v. Commissioner of Customs, New Delhi	Similar authority establishing that absence of conscious knowledge precludes penal action against a CHA who files documents in good faith.	The court used this precedent with others to determine that the department failed to show conscious knowledge or benefit required to establish abetment; therefore suspension was unjustified.

Court's Reasoning and Analysis

The court examined factual and legal aspects and proceeded as follows:

Factual errors in impugned order: The court found the impugned order incorrect on facts, specifically observing that two persons (Shri Vinod Manjrekar and Shri Shiraz Lalani) were not arrested contrary to findings recorded in the Commissioner's order. The court further noted there was no allegation against the appellant and no inculpatory statements by arrested persons imputing knowledge to the CHA; proprietor's statements were exculpatory.
Applicability of Regulation 12 CHALR, 2004: The Commissioner invoked Regulation 12 (no sale/transfer of CHA licence). The court found the appellant had not sold, sub-let or transferred the licence and held the invocation of Regulation 12 was not in order.
Commission-based procurement vs. sub-letting: Relying on Crown Shipping Agency, the court held that procuring work on commission does not amount to sub-letting or transfer of a CHA licence; thus the Commissioner's conclusion to the contrary was unsustainable.
Liability for mis-declaration detected on examination: The court cited KMS Cargo and other precedents to state that a CHA is not automatically responsible for mis-declaration revealed during customs examination; such detection does not by itself warrant suspension of a licence.
Aiding and abetting requires evidence of knowledge and benefit: The Commissioner had held the appellant aided and abetted by signing the Bill of Entry without verifying importer genuineness. The court reasoned that a CHA is not expected to verify importer genuineness when an IEC is produced and that CHAs file documents based on client-supplied material. Abetment requires proof of knowledge of the offence and benefit derived by the abettor. The court found no clinching evidence or inculpatory material to establish such knowledge or benefit.
Conclusion from evidence and law: Given factual inaccuracies in the impugned order, absence of evidence of conscious knowledge, and supporting case law, the court concluded the suspension was not justified and the appellant did not violate Regulations 12, 13(a) or 13(b) of CHALR, 2004.

Holding and Implications

The impugned order dated 1-5-2007 is set aside and the appeal is allowed.

Implications derived from the opinion (limited to what the opinion states):

The appellant is held not guilty of violating Regulations 12, 13(a) and 13(b) of the CHALR, 2004, as determined on the facts and law in this case.
The suspension of the appellant's CHA licence was found unjustified and therefore the impugned order confirming suspension was quashed; the appeal is allowed with consequential relief (as ordered by the court).
The court applied existing precedents to resolve the matter and did not purport to lay down any new legal principle beyond its application to the facts; no broader precedent-setting language is addressed in the opinion.

(Pronounced in Court)

Show all summary ...

[Order per : A.K. Srivastava, Member (T)]. - Heard both the sides and perused the documents.

2. This appeal is filed against the Order No. 05/2007-08 dated 1-5-2007 passed by the Commissioner of Customs (General), Mumbai Zone-1, whereby he has confirmed the suspension of the CHA Licence No. 11/106 held by the appellant and its continuation under CHALR, 2004.

3. The appellant states that he is holding the CHA licence since the last more than 50 years and is enjoying an excellent reputation. He has several employees, who have been rendered jobless due to the passing of the order.

4. He has contended that he had always obtained authorization letters in connection with the import-export consignments entrusted to him and he has’ maintained the statutory job register as prescribed under the Regulations. He has contended that unless the prescribed documents are filed with the respective Bill of Entry, the proper officer would not assess any such deficient Bill of Entry. He pointed out that the CIU authorities, in respect of the Bill of Entry filed on behalf of one importer, M/s. Scale International, started certain investigations. Statements of various persons came to be recorded and the goods have been seized and are in control of the CIU department. Four persons have been arrested and 14 days judicial custody under the initial remand application has been granted by the competent magistrate. It is the contention of the appellant that there is absolutely no allegation against the CHA. Nor any of the arrested persons have given any inculpatory statement against the CHA firm, imputing any knowledge of the alleged mis-declaration. The statements of the proprietor of the appellant have been recorded, which appear to be clearly exculpatory in nature. The appellant states that one Mr. Salim Lalani, through his concern M/s. Mahek Consulting Services, was bringing business on a commission basis, to him since the last so many years. Mr. Salim Lalani in the normal course, used to bring the relevant documents, which were to be filed in the Custom House, along with the authority letter.

5. The appellant’s CHA licence was suspended with immediate effect vide the ex-parte order dated 7-2-2007 passed by the Commissioner. On appeal, the Tribunal vide order No. A/222/212B/2007/CSTB/CI dated 16-3-2007 set aside the suspension order and remanded the case to the Commissioner for fresh decision after extending a reasonable opportunity to the appellant of being heard in their defence. It was ordered that fresh proceedings shall be initiated and completed within a period of one month from the date of receipt of the CESTAT’s order dated 16-3-2007. After following the necessary adjudication proceedings, the Commissioner has passed the impugned order dated 1-05-2007 as referred to above.

6. We have examined the case. We find that the impugned order is incorrect on facts. Shri Vinod Manjrekar and Shri Shiraz Lalani, both the employees of the CHA firm, were never arrested at all, contrary to the findings recorded in para 4 and 14 of the impugned order passed by the Commissioner. There is absolutely no allegation against the appellant nor any of the arrested person has given any inculpatory statement against the appellant imputing any knowledge of the alleged mis-declaration.

7. The Commissioner, inter alia, invoked Regulation 12 of the CHALR, 2004 which stipulates that no CHA licence shall be sold or otherwise transferred. In the instant case, we find that the appellant has not sold/sub-let or otherwise transferred his licence to any other person. The, invoking of the said regulation, is, therefore, not in order. The reliance placed by the Commissioner on the judgment of the Tribunal in the case of Noble Agency v. Commissioner of Customs, Mumbai - is misplaced as the appellants has not sub-let his licence. Procuring work on commission basis does not amount to sub-letting or otherwise transferring the CHA licence to other persons as per the decision of the Tribunal in the case of Crown Shipping Agency v. Commissioner of Customs - . The CHA is not responsible, if during the course of examination by the customs officers, any mis-declaration of the goods resulting in the loss of Revenue is detected. It does not warrant suspension of the licence of the CHA. In this connection, reliance is placed on the judgment of the Tribunal in the case of KMS Cargo Pvt. Ltd. v. Commissioner of Customs, New Delhi - .

8. The Commissioner has in para 11 of his order has observed that the appellant without verifying the genuineness of the importer signed the Bill of Entry for clearance and thereby he aided and abetted the conspiracy involving fraudulent methods. We find that the charge of aiding and abetting the illegal import cannot be fastened on the appellant, who, in the capacity of a CHA is not supposed to look into the details of genuineness of the importer when IEC number is produced by the importer. More over, it has been held that the CHA files shipping documents in the customs on the basis of the material given to him by his clients and if in the case of such exercise of his functioning, he believes in good faith that these documents were genuine, he is not liable to penal action. In this connection, reliance is placed on the following case laws :

(i) Nimesh Suchde v. Commissioner of Customs, Nhava Sheva, ;

(ii) Eagle Agency v. Commissioner of Customs, Mumbai, ;

(iii) Sushil Malik v. Commissioner of Customs, New Delhi, .

9. The charge of aiding and abetting against the appellant is based merely on assumptions and presumptions, which has not got any evidential value. The department has not tendered any clinching evidence to this effect. As per the settled case law, “abetment” pre-supposes knowledge of the proposed offence and pre-supposes benefit to be derived by the abettors therefrom. No evidence to this effect has been tendered by the department against the appellant. In the absence of conscious knowledge on the part of the appellant, the suspension of the appellant’s licence is not justified. The appellant has been regularly obtaining the authorizations from his clients and such authorizations, whenever required, were produced before the customs authorities.

10. We, therefore, hold that the appellant is not guilty of violation of Regulations 12, 13(a) and 13(b) of the CHALR, 2004. The impugned order passed by the Commissioner is not sustainable. The impugned order is set aside and the appeal is allowed with consequential relief.