Imposition of Penalty on Customs Broker/CHA under Customs Law

Imposition of Penalty on Customs Broker/CHA is something that warrants hands on expertise on those responsible for deciding. Wrong application might harm the interest of a vital pillar of country’s trade.

Customs Brokers are engaged by the importer/exporter for clearance of the goods from customs fold.  Customs  clearance  which are  given effect by CB includes , assessment , examination of export/import goods  and clearance thereof as per extant provisions of law. For aforementioned act, they are duly authorized by the importer/exporter under the provisions of CBLR, 2018. The liability of principal and agent has  been dealt in Section 147 of the Customs Act, 1962 , which reads as under;

Section 147 in the Customs Act, 1962

147. Liability of principal and agent.—

(1) Where this Act requires anything to be done by the owner, importer or exporter of any goods, it may be done on his behalf by his agent.

(2) Any such thing done by an agent of the owner, importer or exporter of any goods shall, unless the contrary is proved, be deemed to have been done with the knowledge and consent of such owner, importer or exporter, so that in any proceedings under this Act, the owner, importer or exporter of the goods shall also be liable as if the thing had been done by himself.

(3) When any person is expressly or impliedly authorized by the owner, importer or exporter of any goods to be his agent in respect of such goods for all or any of the purposes of this Act, such person shall, without prejudice to the liability of the owner, importer or exporter of such goods for such purposes: Provided that where any duty is not levied or is short-levied or erroneously refunded on account of any reason other than any wilful act, negligence or default of the agent, such duty shall not be recovered from the agent unless in the opinion of 1[Assistant Commissioner of Customs or Deputy Commissioner of Customs] the same cannot be recovered from the owner, importer or exporter.

Plain reading of the section revealed that under the authorization of owner importer or exporter, the Customs Broker may effect the   Customs transaction . Sub-section 147(2) provides that the liability would also be incurred by owner, importer or exporter when the act is done with their consent and knowledge by the CB.

 When Customs Clearances are not in Accordance with Law              

However, sometimes these clearance of cargo are found not in accordance with law  due to mis-declaration of cargo in description, quantity, classification, wrong availment of exemption notification etc.

 In such cases, for the omission or commission of act or rules made thereunder, penalty is imposed on importer/exporter/owner of the goods for abetting the act of exporter. Here question arises  whether penalty is  imposable on Customs Broker in each and every case of omission/commission or only in cases of prior knowledge of omission/commission.

Penalty under Section 112, 114 and 117 on CB (Customs Broker )

During investigation and at the time of issuance of SCN, often  investigating Officers and Adjudicating Authorities are seen grappling with the issue of proposal and imposition of penalty under Section 112, 114 or 117 of the Customs Act,1962 on the Customs Broker(CB). The vague understanding of penal provisions  leads to unnecessary imposition of penalty on CB/CHA and protracted litigation thereof and many times ends in dropping of penalty  in favour of CB.

In view of this , it is a matter of discussion whether only absolute liability will be fastened on CB or as to whether importer/exporter or owner is vicariously liable for the omission/commission, as CB is conducting business on their behalf in pursuance of  their business  interest under some authorization, as mandated by Regulation 10(a) of CBLR, 2018.

Customs Law is a Civil Law

To find out the answer  of the same, first it is required to be understand that the Customs law is a Civil Proceedings barring Chapter XVI which deals with “Offence and Prosecution”. In civil law any violation is punishable with corresponding penal provisions irrespective of the animus. In other words , even if the act is bereft of criminal intention, damage  has been caused, therefore imposing  penalty is equivalent to recovering compensation. Therefore, regardless of intention, penal clause is attracted for the act of  omission and commission by the principal offender i.e. the owner, exporter/importer.

 Absence of Mens-rea: The Guard against Imposition of penalty on Customs Broker

But with regard to imposition of penalty on Customs Broker, his omission/commission will not attract penalty as he acts in the capacity of facilitator of the customs transaction and he is bound to facilitate the authorized clearance work of importer/exporter.  Therefore, as the CB is only facilitating the customs transaction on behalf of principal,(importer/exporter) therefore in case of absence of mens-rea, penalty is not imposable, otherwise all the customs transaction will come to halt, if penalty is being imposed for the omission /commission of exporter/importer.

 Illustration

Example- A importer has imported certain goods and during assessment and clearance goods are found undervalued or mis-classified or mis-declared in terms of quantity, then on detection, question is whether CB will be punishable along with importer or importer alone or CB only. The answer lies in finding out whether CB has facilitated the transaction with any prior knowledge of any such mis-declaration as discussed above. If the answer is affirmative, penalty is imposable   on both CB and importer both by considering that the CB has facilitated the transaction with knowledge, means  as an agent he abetted the act of principal.

Act of Abetment

The act of CB is covered under definition of abetment given under General Clauses Act, 1897 and  IPC, 1860. The word abetment is not defined in the  Customs Act, therefore the meaning assigned to it in Section 3(1) of the General Clauses Act, 1897 and under Section 107 of the Indian Penal Code, would be taken .An abetment would include by definition intentional aiding (See Supreme Court decision in Shree Ram v. State of U.P.)

In other words  the imposition of penalty on CB is only warranted, when there is a case of collusion/connivance. The cases where fraudulent export/import is aided by CB with foreknowledge then for facilitation of such import/export, CB must be penalized. But not in the case of mere filing of documents without any knowledge  of offence or violation by CB  for clearance of export/import goods which subsequently resulted into detection of an offence. Mere facilitation without knowledge would not amount to abetting an offence. In such cases penal clause cannot be visited against CB. Charges of omission/commission will be restricted to importer/ exporter only.

Why mens- rea is sine-qua non for Imposition of Penalty on CB?

Why mens- rea is sine-qua non for imposition of penalty on CB , will become evident by analyzing penal section 112, 114 and 117 of the Customs Act, 1962.  By careful reading of penal section 112, 114 and 117 which lays down  that it penalizes any person who does or omits to do any act which render the goods liable to confiscation under 111 or under 113, this denotes that it penalizes the main offender. But simultaneously , it has also covered offences of facilitator by addition of word “abet”. Abetment’s main ingredient is knowledge. As rightly discussed, it penalizes the person who merely contravenes,  regardless of the fact that he was having knowledge. It means first part of section, talks about offence of principal offender who has direct involvement. And second part which starts from “or abets the doing ”is applicable for person/stakeholder who are facilitating the customs transaction of principal offender(importer/exporter/ owner) . However, for such facilitation of  the  customs transaction mens- rea is must, otherwise their act will not covered in offence of  abetment resulting into non-imposition of  penalty on CB.

However, the first portion of Section 112(a) of the Act is only to make person of first degree in relation to the act or omission strictly liable. Persons who are not directly involved in the act or omission to act, which has led the goods becoming liable to confiscation cannot be made liable unless some knowledge is attributed to them. Therefore, it is to cover such cases that Section 112 and 114 of the Act also includes a person who abets the act or omission to act which has rendered the goods liable to confiscation. Imposing penalty upon an abettor without any mens rea on his part would bring all business to a halt as even innocent facilitation provided by a person which has made possible the act or omission to act possible could result in imposing of penalty. This view was held in Amritlaksmi  Mchine Works Versus Commr . of  Cus . (IMPORT),  Mumbai 016 (335) E.L.T. 225 (Bom.)

In one recent case it was held that CHA is not require to investigate what is the correct classification or value of the goods.  Customs officer is proper officer to classify the goods correctly. Though, we are in era of self assessment , but it is said that self assessment is also not absolute as customs officer is authorized to conduct enquiry, verification , re-assessment under the sub clauses of Section 17  of the Act.

 Case Laws relating to Imposition of Penalty on Customs Broker

In following cases, Court/appellate tribunal has observed  that in absence of existence of guilty mind, penalty is not imposable.

1. In Yogesh Kumar versus Commissioner of Customs, New Delhi (ACC, Export)– Final Order No. C/A/51905/2016-CU(DB), dated 30-5-2016 in Appeal No. C/53071/2014-CU(DB), the CESTAT, Delhi has held that in the case of inadvertent error in mis-declaration of quantity of export goods, penalty on CHA is not imposable in view of the finding that CHA has not abetted the exporter to intentionally declare excess garments so as to claim excess drawback , therefore penalty imposed under Section 117 of Customs Act, 1962 on CHA was set aside.
2. In case of Prakash Poonia v CC(2010) 252 ELT 442(CESTAT), it was held that in absence of prior knowledge, CB cannot be penalized, if the bogus licenses have been produced by the importer.
3. In Union Clearing Service  Versus Commissioner of Customs (Export), Nhava Sheva,  it was held that penalty on Customs House Agent (CHA)  for abetting the act of exporter to mis-classify exported goods so as to avail inadmissible drawback is not justified  in absence of any evidence of omission or commission of the act on the part of CHA, hence penalty  not imposable on him under Section 114 of Customs Act, 1962 merely for wrong classification of exported goods .

        In view of the above, it is clear that for penalizing CB/CHA, subsistence of animus is must.

##More Worthwhile Reads on This Blog:

Is Imposition of Redemption Fine Justified for Imports Under DEEC, EPCG etc.

Offence by Companies -Section 140 of Customs Act

Unjust Enrichment Under Customs- The Both End Advantage

Arrest  Under Customs Act, 1962- An Analysis

Recovery of Drawback Amount Under Rule 18 of Drawback Rules 2017