[CESTAT - Hyderabad] Penalty Cannot Be Imposed on Custom Brokers Merely on the Basis of an Uncorroborated CBI Report

Introduction

The CESTAT, Hyderabad in the case of Lotus Integrated Logistics Private Limited v. Principal Commissioner of Customs, Hyderabad[i], quashed the Adjudicating Authority’s order and observed that the penalty cannot be imposed on the M/s Lotus Integrated Logistics Private Limited (‘Appellant’) solely on the basis of the Central Bureau of Investigation (‘CBI’) report which was based on an uncorroborated third person’s statement and lacked conclusive evidence.

Facts

• A joint search was conducted by the CBI at Calyx Container Terminals Private Limited, Chennai and M/s Southern Clearing and Forwarding Private Limited (‘SFPL’). During the course of the search, the CBI recovered cash from the possession of a Customs officer and a handwritten loose sheet document from an employee of another Customs Housing Agent (‘CHA’), SFPL detailing a list of bribes received from various CHAs, the list included the name of the Appellant at Sr. No. 14 for amount of Rs. 3600. In the loose sheet it was found that the Appellant being a custom broker had bribed the custom officers for custom clearance and the same was revealed in the CBI investigation.

• Consequently, the CBI forwarded the report to the commissioner of customs, Hyderabad who issued a notice to the Appellant seeking to revoke the licence of the Appellant (Custom Broker) under reg. 17 of the Customs Brokers Licensing Regulations (‘CBLR’), 2018 and to impose penalty under reg. 18 of the CBLR on the Appellant. Further, the Inquiry Officer imposed a penalty of Rs. 50,000 on the Appellant.

• Subsequently, the Appellant argued that the proceedings were initiated based on the CBI Report which was unproven, and the show cause notice also relied solely on the CBI report, lacking substantiative evidence as no reliance was placed on any other material, documents, or witness. The Appellant contended that due process of law was not followed, and relevant documents were not provided, relying solely on the unproven assertions of the CBI.

• Further, the Appellant contended that the inquiry conducted violated the principles of natural justice as the documents relied upon were not provided to the Appellant and no opportunity for cross-examination was given. Thus, the Appellant appealed before the CESTAT.

Held

• The CESTAT held in favour of the Appellant and observed as under:

• The CESTAT observed that while the Adjudicating Authority found violations on the part of the Appellant, it did not provide any clear reasoning for not deeming it fit to revoke the Appellant’s licence, yet instead imposed a maximum penalty under Regulation 18 of the CBLR

• Further, the CESTAT observed that the evidence available was only the CBI report and the allegations made by the CBI were pending adjudication before the competent court. Therefore, the allegations remained unproven. The CESTAT further observed that if the violations are not grave enough to warrant revocation of licence, such violations do not warrant maximum penalty under Regulation 18 of the CBLR.

• Hence, the CESTAT observed that the impugned order was not maintainable given the procedural inadequacies and the lack of conclusive evidence. The CESTAT allowed the appeal of the Appellant, setting aside the original order.

Conclusion

The case highlights the significance of procedural adequacies and clarifies that a penalty cannot be imposed solely on the basis of a CBI report, as in the present case the report was based only on the statements recorded by certain employees and thus, there was no concrete and sufficient evidence to revoke the Appellant’s licence or impose any penalty.

In this ruling, the investigation was conducted by CBI which was further transferred to another department (the commissioner of customs), The ruling affirms that the department which adjudicates the matter cannot solely rely on prima facie findings of other department’s investigations and provide the decision, it must conduct a separate and its own investigation also.

End Note

[i] (2024) 18 Centax 26 (Tribunal-Hyderabad).

Authored by Purvi Garg Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.