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P CAWASJI & CO v. COMMISSIONER OF CUSTOMS -MUMBAI - GENERAL
Factual and Procedural Background
M/s P Cawasji & Co, holder of customs broker licence no. 11/319 issued from Custom House, Mumbai (the appellant), challenged revocation of its customs broker licence, forfeiture of the security deposit and imposition of a penalty of ₹50,000 by the Principal Commissioner of Customs (General) by order no. 84/CAC/PCC(G)/PS/CBS(Adj) dated 26 February 2021. The impugned action arose from allegations of misuse of authorizations (DFRC and DEPB schemes) on removal of imported goods against 111 bills of entry between 2003-04 and 2005-06 by M/s Akshay Exports from a private bonded warehouse. Earlier adjudication proceedings (show cause notices dated 13 March 2009 and 11 March 2010) had led to penalties imposed on the customs broker; those penalties were the subject of a Tribunal decision (order no. A/87161-87164/2019 dated 30 September 2019) which allowed the broker's appeal in their entirety. Despite that Tribunal outcome, the licensing authority issued a notice dated 2 January 2020 initiating revocation proceedings (referring to provisions across multiple versions of the Customs Brokers/House Agents Regulations) and appointed an inquiry officer. The inquiry officer found breaches of regulation 11(d) and 11(m) (of the 2013 Regulations) but the licensing authority proceeded to impose detriments on the ground that all the charged breaches had been proved.
Legal Issues Presented
- Whether the revocation of the customs broker licence, forfeiture of the security deposit and imposition of penalty (order dated 26 February 2021) should be set aside and the licence restored.
- Whether initiation of revocation proceedings under the Customs Broker Licencing Regulations, 2018 required an antecedent "offence report" (as contemplated in regulation 17) and whether such an "offence report" existed at the time the notice under regulation 17 was issued.
- Whether the show cause notices of 2009 and 2010 (which were earlier the basis for the licensing action) continued to constitute valid "offence reports" after the Tribunal's order of 30 September 2019 that set aside the underlying adjudication penalties.
- Whether the licensing authority's invocation of provisions from multiple, superseded sets of regulations (2004, 2013 and 2018) affected the legality and regularity of the revocation proceedings.
Arguments of the Parties
Appellant's Arguments
- The licensing authority erred procedurally by invoking a mixture of provisions from the 2004, 2013 and 2018 Regulations instead of proceeding under the applicable (2018) Regulations, resulting in a cluttered notice and order.
- Under regulation 17 of the Customs Broker Licencing Regulations, 2018, initiation of revocation proceedings requires receipt of an "offence report"; the absence of such a report renders the proceedings invalid. The appellant conceded that timelines may be directory but maintained the "offence report" is an essential pre‑requisite, not a mere timing marker.
- The notice under regulation 17 was issued in January 2020 with reference to show cause notices of 2009 and 2010; however, those show cause notices were rendered of no effect as regards the appellant by the Tribunal's order dated 30 September 2019, and therefore there was no valid "offence report" when the revocation notice was issued.
- The inquiry officer found only breaches of regulation 11(d) and 11(m), yet the licensing authority proceeded as if all charged breaches were proved; this was disproportionate and indicated improper application of mind.
- Reliance was placed on Necko Freight Forwarders Ltd v. Commissioner of Customs (General) to support the contention on the role and nature of the "offence report", and on Commissioner of Customs (Preventive), West Bengal v. Over Land Agency to demonstrate that drawing attention away from responsible customs officials is frowned upon.
Respondent's Arguments
- The licensing authority's findings in the impugned order were reiterated. The respondent suggested that the fact the penalties in the adjudication were set aside may not have been brought to the attention of the licensing authority in time, implying possible lack of notice of the Tribunal outcome when the licensing action progressed.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Necko Freight Forwarders Ltd v. Commissioner of Customs (General) [2018 (360) ELT 879 (Del)] | Considered the nature and significance of an "offence report" — understood as a report indicating detection of an offence and serving as the trigger for prescribed timelines and commencement of licensing proceedings. | The Tribunal relied on Necko to emphasize that an "offence report" is foundational for initiation of revocation proceedings and for measuring timelines; the absence of such a report in the present case rendered the proceedings defective. |
| Commissioner of Customs (Preventive), West Bengal v. Over Land Agency [2006 (204) ELT 554 (Cal)] | Expressed disapproval of actions that divert attention from responsibility of customs officials; used to critique attempts to shift focus from official accountability. | The appellant invoked this authority to contend that the licensing authority's disagreement on dropped charges appeared intended to divert attention from customs officials' responsibilities; the Tribunal noted the citation in support of the appellant's argument. |
| Commissioner Of Customs v. M/s K.M. Ganatra & Co. [(2016) 4 SCC 697] | Approval by the Supreme Court of Tribunal observations recognizing the importance and regulated status of Customs House Agents and the need for strict procedural safeguards. | The Tribunal cited this approval to underscore the criticality of proper procedure before depriving a customs broker of licence and livelihood, reinforcing the requirement of adherence to prescribed procedure including the role of an "offence report". |
| Noble Agency v. Commissioner Of Customs, Mumbai [2002 (142) ELT 84 (Tri)] | Observations on the important position occupied by a Customs House Agent and that contraventions of obligations under the Regulations warrant serious view; emphasizes regulation-based obligations of brokers. | The Tribunal relied upon the Noble Agency observations (and the Supreme Court approval above) to stress that revocation of a broker's licence requires meticulous application of mind and adherence to the regulatory procedure. |
| Tribunal order A/87161-87164/2019 dated 30 September 2019 | Decision allowing the broker's appeal against adjudication orders that had imposed penalties arising from the 2009 and 2010 show cause notices. | The Tribunal noted that the earlier adjudication penalties against the customs broker were set aside by this order, and concluded that the show cause notices (which were the proximate basis for the licensing action) had been erased in relation to the appellant before the licensing authority issued the revocation notice. |
Court's Reasoning and Analysis
The Tribunal's analysis proceeded by first noting procedural and drafting defects in the licensing authority's notice and impugned order — specifically, the use of provisions drawn from multiple, superseded regulations (2004, 2013 and 2018), which, while not fatal per se, demonstrated lack of meticulousness and complicated judicial review.
The crucial legal question examined was the role of an "offence report" under regulation 17 of the Customs Broker Licencing Regulations, 2018. The Tribunal accepted the appellant's submission (supported by the Necko decision) that an "offence report" is not merely a timing device but a foundational pre‑requisite that marks commencement of licensing proceedings and anchors the timelines for subsequent actions. The Tribunal observed that, in the record before it, the earliest documents suggesting allegations against the broker were the show cause notices of 2009 and 2010, and in the absence of any other document styled as an "offence report", those notices would have constituted the "offence report".
However, the Tribunal noted that those very show cause notices — insofar as they related to the appellant — had been rendered of no effect by the Tribunal's earlier order dated 30 September 2019 which allowed the appellant's appeal in the adjudication. Consequently, by the time the licensing authority issued the notice under regulation 17 in January 2020, the underlying show cause notices could not function as "offence reports". The Tribunal reasoned that commencement of licensing proceedings in the absence of any valid "offence report" meant the subsequent inquiry and the impugned revocation order were without legal foundation (described as "stillborn" and "non est") and in excess of the licensing authority's powers.
The Tribunal also considered the broader policy and statutory context: customs brokers are recognized intermediaries under section 146 of the Customs Act, 1962, and the regulatory scheme grants and controls broker status; therefore, strict adherence to the procedural framework (including the requirement of an "offence report") is necessary to prevent arbitrary deprivation of livelihood and to preserve accountability in initiation of licensing actions.
Balancing these considerations, and having found that there was a manifest lack of any "offence report" when the revocation notice under regulation 17 was issued, the Tribunal concluded that the entire chain of proceedings that followed — inquiry, revocation, forfeiture and penalty — had to be negated.
Holding and Implications
Holding: The appeal is allowed and the impugned order (order no. 84/CAC/PCC(G)/PS/CBS(Adj) dated 26 February 2021) is set aside.
Implications and direct consequences:
- The Tribunal negated the proceedings that led to revocation of the customs broker licence, forfeiture of the security deposit and imposition of the penalty; those consequences were set aside by the Tribunal's order.
- The decision directly restores the position of the appellant as to the consequences imposed by the impugned order (as those consequences have been vacated by the Tribunal's ruling).
The opinion focuses on the legality and regularity of the process (specifically the requirement of an "offence report") and does not purport to articulate a broader, binding precedent beyond the facts and reasoning set out in this decision.
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
WEST ZONAL BENCH
CUSTOMS APPEAL NO: 85337 OF 2021
[Arising out of Order-in-Original CAO No: 84/CAC/PCC(G)/PS/CBS(Adj.) dated 26thFebruary 2021 passed by the Principal Commissioner of Customs(General), Mumbai.]
P Cawasji & Co
Ida Mansion, 18 Vaju Kotak Marg
Mumbai 400001 …Appellant
versus
Principal Commissioner of Customs (General)
New Custom House, Ballard Estate, Mumbai - 400001 …Respondent
APPEARANCE:
Shri Arun Mehta, Advocate for the appellant Shri KK Srivastava, Additional Commissioner (AR) for the respondent
CORAM:
HON'BLE MR C J MATHEW, MEMBER (TECHNICAL) HON'BLE MR AJAY SHARMA, MEMBER (JUDICIAL)
FINAL ORDER NO: A/ 86188 /2021
DATE OF HEARING: 06/04/2021
DATE OF DECISION: 06/04/2021
PER: C J MATHEW
M/s P Cawasji & Co, holder of customs broker licence no. 11/319 issued from Custom House, Mumbai, is before us seeking
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restoration of the licence that was revoked, along with the security deposit that was forfeited, under authority of regulation no. 14 and for setting aside the penalty of ₹ 50,000 imposed under authority of regulation no. 18 of Customs Brokers Licencing Regulations, 2018 by Principal Commissioner of Customs (General), Custom House Mumbai in order no. 84/CAC/PCC(G)/PS/CBS(Adj) dated 26th February 2021. The proceedings culminating in the impugned order had its genesis in the alleged misuse of authorizations (permitting clearance without payment of duty under 'duty free replenishment certificate (DFRC)' and 'duty entitlement pass book (DEPB)' schemes in the Foreign Trade Policy) on removal of imported goods, against 111 bills of entry between 2003-04 and 2005-06, by M/s Akshay Exports from the 'private bonded warehouse' in which these had been deposited. Considering the pleas made during the hearing, we do not propose to go into the details of the proceedings, involving the said importer and others including, as facilitating customs broker, the appellant before us, under Customs Act, 1962; more so, as the adjudication therein has been separately dealt with by the Tribunal vide order no. A/87161-87164/2019 dated 30thSeptember 2019 upon challenge mounted against order-in-original no. Belapur/02- 03/Taloja/R-V/SLM/Commr/2012-13/Bel/937 dated 11th June 2017 of Commissioner of Central Excise, Belapur. It suffices to merely take note that the appeal of the customs broker against imposition of
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penalty of ₹ 10,00,000 and of ₹ 25,00,000 by the authority adjudicating two notices dated 13thMarch 2009 and 11thMarch 2010 was allowed by the Tribunal in entirety.
2. Learned Counsel for appellant submits that, in the meanwhile, the licencing authority, taking note of the proceedings under Customs Act, 1962 commenced by the two notices supra, initiated the process for revocation as laid down in regulation no. 20 of Customs Brokers Licencing Regulations, 2013 vide notice dated 2ndJanuary 2020 in which the appointment of inquiry officer, as mandated in regulation 22 of Customs House Agents Licencing Regulations, 2004, was also intimated. It was informed by him that the charges enumerated therein involved breach of regulation no. 11(d), 11(e), 11(f), 11(m) and 11(n) of Customs Brokers Licencing Regulations, 2013 and that, despite the designated inquiry officer rendering a finding that regulation no. 11(d) and 11(m) alone had been breached, the licencing authority proceeded, after issue of notice of disagreement to the appellant herein, with the detriments on the ground of all the charges having been proved.
3. We do not wish to dilate overmuch on the invoking of several provisions from across different Regulations of 2004, 2013 and 2018 in the notice as well as in the impugned order; each of these having been superceded by the successor instrument, proceedings initiated in
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2020 should have been with reference to the provisions of last of the Regulations. Though the hotch potch of references is not fatal to the proceedings, it certainly does not commend itself as reflection of responsible administering of as important an issue as that of extinguishment of the professional existence of a 'custom broker licence' which is deserving of more meticulous scrutiny on the part of the licencing authority. It would also not be conducive to proceedings before the Tribunal as we have been compelled to go through each of these Regulations to assures ourselves that authority had been legally invoked. A cluttered notice and order reflects less than proper application of mind. Considering the difficulty before us, we shall, for the sake of regularity in this order, be drawing upon the relevant provisions of Customs Broker Licencing Regulations, 2018.
4. According to Learned Counsel, recourse to procedure in regulation no. 17 of Customs Broker Licencing Regulations, 2018 mandates receipt of offence report by the licencing authority. He contends, while conceding that the Hon'ble High Court of Bombay has held adherence to the timelines in the several stages to be directory, that this submission has nothing to do with non-adherence to timelines but that the metaphorical 'starter pistol' of 'offence report' is the essential pre-requisite for commencement of proceedings. He points out that the notice under regulation no. 17 of Customs Broker Licencing Regulations, 2018 having been issued in
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January 2020, with reference to the show cause notices of 2009 and 2010 pertaining to violations of Customs Act, 1962 in clearances effected between 2003-04 and 2005-06 that were adjudicated by common order dated 11thJune 2017, despite those very developments having been erased, in relation to the appellant herein, out of existence with effect from the order of the Tribunal dated 30thSeptember 2019. He informed that this plea made before the inquiry authority, as well as licencing authority, had been brushed aside as attempt at obstruction of process by imputing non-adherence to timelines that was attributable to difficulty in securing documents. Reliance was placed by Learned Counsel on the decision of the Hon'ble High Court of Delhi in Necko Freight Forwarders Ltd v. Commissioner of Customs (General) [2018 (360) ELT 879 (Del)] in support of this submission.
5. He further contends that the disagreement noted by the licencing authority on the dropping of three charges of breach of obligation was with intent to draw attention away from the responsibility of the customs officials concerned which was frowned upon by the Hon'ble High Court of Calcutta in Commissioner of Customs (Preventive), West Bengal v. Over Land Agency [2006 (204) ELT 554 (Cal)]. According to him, the detriment visited on the appellant is disproportionate even for the two charges that were held as proved in the inquiry report.
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6. Learned Authorized Representative, while reiterating the findings of the licencing authority in the impugned order, submits that the setting aside of the penalties proposed in the notices, and imposed in the adjudication under Customs Act, 1962,that were the basis for commencement of proceedings may not have been brought to the attention of the licencing authority in time.
7. It may not be untrue that the licencing authority was unaware of the proceedings before the Tribunal against the adjudication order that was the culmination of the process initiated in the show cause notices referred to for proposing revocation of customs broker licence. However, it was incumbent on such authority to ascertain the status before initiating proceedings on the assumption that the penalties imposed in adjudication had attained finality. Furthermore, the inquiry report, and the revocation order, failed to even acknowledge the claim of the customs broker that the proceedings could not have been initiated in the absence of 'offence report' envisaged in Customs Broker Licencing Regulations, 2018.
8. On perusal of the notice, and the impugned order, it is seen that the show cause notices of 2009 and 2010, being the earliest documentation of any allegation that the appellant may have been involved in misuse of authorizations, was the proximate cause of action for recourse to Customs Brokers Licencing Regulations, 2018.
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In the absence of any other document that claims to be the 'offence report', these notices must be taken to be the said reports for triggering proceedings thereafter. Leaving aside the issue of the elapse of time between the said show cause notices under Customs Act, 1962 and the notice under regulation no. 17 of Customs Brokers Licencing Regulations, 2018, the erasure of the proposals against the customs broker contained in those very show cause notices as early as September 2019 had wiped the 'offence reports' out of existence well before the notice for revocation was issued. In other words, the proceedings were commenced without the metaphorical 'starter pistol' and thus renders the subsequent inquiry and impugned order to be stillborn.
9. In re Necko Freight Forwarders Ltd, the nature of 'offence report' was considered at length and, though in the context of suspension of licence and its consequences, its relevance not only as the marker for prescribed deadlines in the process but also for the commencement of proceedings has been highlighted thus '15. The expression 'offence report' has not been defined. However, it is apparent that the same must mean a report indicating that an offence has been committed by the Customs Broker. This is also how the said term has been understood by the authorities. The expression 'offence report' was also used in Regulation 22(1) of CHALR, 2004. In terms of the said sub-regulation, the Commissioner of Customs was required to issue a notice within 90 days of the receipt of an
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offence report, indicating the grounds on which the License of a Customs House Agent was proposed to be
revoked/suspended. The Central Board of Excise and Customs had issued a circular (Circular No. 9/2010-Cus., dated 8-4-2010) in regard to certain issues that had arisen with regard to the implementation of CHALR, 2004. Paragraph 7.2 of the said circular is relevant and is quoted below :-
"7.2 In cases where immediate suspension action against a CHA is required to be taken by a Commissioner of Customs under Regulation 20(2), there is no need for following the procedure prescribed under Regulation 22 since such an action is taken immediately and only in justified cases depending upon the seriousness or gravity of offence. However, it has been decided by the Board that a 'post-decisional hearing' should be given in all such cases so that errors apparent, if any, can be corrected and an opportunity for personal hearing is given to the aggrieved party. Further Board has also prescribed certain time limits in cases warranting immediate suspension under Regulation 20(2). Accordingly, the investigating authority shall furnish its report to the Commissioner of Customs who had issued the CHA license (Licensing authority), within thirty days of the detection of an offence. The Licensing authority shall take necessary immediate suspension action within fifteen days of the receipt of the report of the investigating authority. A post-decisional hearing shall be granted to the party within fifteen days from the date of his suspension. The Commissioner of Customs concerned shall issue an Adjudication Order, where it is possible to do so, within fifteen days from the date of personal hearing so granted by him."
16. A plain reading of the aforesaid passage indicates that the expression 'offence report' as used in Regulation 20(2) of CHALR, 2004 was understood as a report regarding detection of an offence.'
Even if the deadlines for each stage leading to revocation of licence are directory and, as held by the Hon'ble High Court of Bombay, with each non-adherence to be adjudged on its facts as having vitiated the
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proceedings, the deadlines, measured with reference to 'offence report', are not deprived of sanctity. Furthermore, from its specific inclusion, without any attendant qualification, in regulation no. 17 of Customs Broker Licencing Regulations, 2018, it must be acknowledged to be the foundation for initiation of proceedings by the licencing authority. The erasure of the show cause notices, deemed as the 'offence report', renders the proceedings non est and in excess of the powers vested in the licencing authority.
10. We may do worse than dwelling awhile on the significance of the 'offence report' in the procedure for revocation of licences. Customs brokers are intermediaries established under, and recognized by, section 146 of Customs Act, 1962. Its criticality is manifest in the enactment of this special provision within the taxing statute for enabling the Central Board of Indirect Taxes & Customs to structure the framework for the existence and control of such brokers through Regulations. The citing of the approval accorded by the Hon'ble Supreme Court in Commissioner Of Customs v. M/S. K.M. Ganatra & Co. [(2016) 4 SCC 697]to the observation of the Tribunal in Noble Agency v. Commissioner of Customs [2012 (142) ELT 84 (Tri)] thus ''15. In this regard, Ms. Mohana, learned senior counsel for the appellant, has placed reliance on the decision in Noble Agency v. Commissioner Of Customs, Mumbai, Mumbai [2002
(142) ELT 84 (Tri. - Mumbai)] wherein a Division Bench of the CEGAT, West Zonal Bench, Mumbai has observed :-
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"The CHA occupies a very important position in the Customs House. The Customs procedures are complicated. The importers have to deal with a multiplicity of agencies viz. carriers, custodians like BPT as well as the Customs. The importer would find it impossible to clear his goods through these agencies without wasting valuable energy and time. The CHA is supposed to safeguard the interests of both the importers and the Customs. A lot of trust is kept in CHA by the importers/exporters as well as by the Government Agencies. To ensure appropriate discharge of such trust, the relevant regulations are framed. Regulation 14 of the CHA Licensing Regulations lists out obligations of the CHA. Any contravention of such obligations even without intent would be sufficient to invite upon the CHA the punishment listed in the Regulations...." We approve the aforesaid observations of the CEGAT, West Zonal Bench, Mumbai and unhesitatingly hold that this misconduct has to be seriously viewed.' in the impugned order serves not only as imprimatur for admonition of customs brokers but also to enunciate restrictions to the intervention powers of the licencing authority. That follows from the means to livelihood afforded to the customs broker as well as the standing accorded to the customs broker within the commercial world upon issue of licence; there is a concomitant responsibility to deprive a customs broker of both only after proper application of mind demonstrated by conformity with procedure enshrined in the Regulations. If the 'offence report' is but a trivial technicality, it would be permissible for the licencing authority, who, in the normal course of discharge of functions, does not oversee the functioning of customs brokers directly, to tie customs brokers down in penal proceedings even in the absence of a 'written report' that carries accountability for reporting of an offence. It could, in the absence of
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oversight, lead to whimsical action that fosters anarchy within the fraternity of customs brokers. The emplacement of 'offence report' within the scheme of revocation is not intended to be stultified under any circumstance and permitting of any dilution can only be at the cost of perverting the legislative intent of section 146 of Customs Act, 1962. Strict adherence to legislated empowerment cannot but be insisted upon even before merit of the detriment can be interfered with.
11. In the light of our above discussion, which takes note of the manifest lack of 'offence report' when notice under regulation no. 17 of Customs Broker Licencing Regulations, 2018 was issued, we are constrained to negate the very proceedings that followed along with the consequences thereon in the form of revocation of licence, forfeiture of security deposit and imposition of penalty. Appeal is allowed by setting aside the impugned order.
(Operative Part of the Order Pronounced in the open court on 6th April 2021)
(Ajay Sharma) (C J Mathew) Member (Judicial) Member (Technical)
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