The Commissioner Of Customs vs M/S Sri Manjunatha Cargo Pvt Ltd
2022 Latest Caselaw 477 Kant

                                                            R
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  IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 12TH DAY OF JANUARY, 2022

                          PRESENT
         THE HON'BLE MRS. JUSTICE S.SUJATHA
                             AND
   THE HON'BLE MR. JUSTICE S.VISHWAJITH SHETTY

                    C.S.T.A.No.10/2020

BETWEEN:

The Commissioner of Customs,
Bangalore Division,
C.R.Building,
Queens Road,
Bangalore-560001.                         ... APPELLANT

(By Sri Deshpande Amit Anand, Adv.)

AND:

M/s. Sri Manjunatha Cargo Pvt. Ltd.
No.416, Pai Layout 14 C Cross,
1st Main Road, Old Madras Road,
Bangalore-560016.                        ... RESPONDENT

(By Sri H.Y.Harish, Adv. and
     Sri Hari Radhakrishnan, Adv.)

      This CSTA is filed under Section 130 of the Customs
Act, praying to set aside the final order No.20356/2020
dated 05.06.2020 passed by the CESTAT, South Zone
Bench, Bengaluru in Customs Appeal No.21036/2019 vide
Annexure-A.

       This CSTA having been heard and reserved for
Judgment       on    17.12.2021 and   coming     on   for
'Pronouncement of Judgment' this day, through Video
Conferencing, sitting at Dharwad Bench, Vishwajith Shetty
J., delivered the following:
                              2

                    JUDGMENT

This appeal is filed under Section 130 of the

Customs Act, 1962 (hereinafter referred to as "the Act of

1962"), challenging the Final Order No.A/20356/2020

dated 05.06.2020 passed by the Customs, Excise and

Service Tax Appellate Tribunal ("CESTAT" for brevity),

South Zonal Bench, Bangalore, in Customs Appeal

No.21036/2019.

2. Brief facts of the case, which would be

necessary for the purpose of disposal of this appeal as

revealed from the records, are:

The respondent is a Customs Broker operating in

Mumbai and also in Nhava Sheva. The Commissioner of

Customs (General), Mumbai had issued three prohibition

orders dated 03.01.2019, 16.01.2019 and 16.01.2019

against the respondent on the ground that the

respondent had filed certain shipping bills on behalf of

M/s.A.R.K.Enterprises, M/s.Y.K.Trends and M/s.Otex

Overseas in collusion with the said exporters with an

intention to over value the goods for obtaining excess

duty drawback. The principal allegation against the

respondent was that he had not complied the obligations

arising under the Regulations 11(b), 11(d), 11(e) and

11(n) of the Customs Brokers Licensing Regulations,

2013 (hereinafter referred to as "the C.B.L.R., 2013").

3. Pursuant to the prohibition orders, the

appellant herein suspended the licence of the respondent

vide order dated 06.02.2019 and granted post-decisional

hearing on 19.02.2019 and thereafterwards on

16.04.2019, a show cause notice was issued to the

respondent proposing to revoke the licence and forfeit

the security deposit and impose penalty in terms of

Regulation 14 of the C.B.L.R., 2013. In the meanwhile,

the order of suspension of licence of the respondent was

continued. After receiving reply to the show cause

notice from the respondent, an Inquiry Officer was

appointed by the appellant, who thereafterwards

submitted a Inquiry report on 15.07.2019. In his report,

the Inquiry Officer dropped the charge of violation of

Regulations 11(b) and 11(e) of the C.B.L.R., 2013.

However, the charges in respect of the remaining

regulations i.e., 11(d) and 11(n) of the C.B.L.R., 2013

were sustained. Subsequently, the appellant after

hearing the respondent vide his order dated 29.10.2019

revoked the licence of the respondent and forfeited the

security and also imposed penalty of Rs.50,000/- acting

under Regulations 14, 17 and 18 of C.B.L.R., 2018.

Being aggrieved by the same, the respondent had filed an

appeal before the CESTAT, South Zonal Bench,

Bangalore and the said appeal was allowed by the

CESTAT by its Final Order No.A/20356/2020 dated

05.06.2020. Being aggrieved by the same, the instant

appeal is filed before this court.

4. This court had admitted the appeal on

29.06.2021 to consider the following substantial

questions of law:

"1. Whether the Tribunal is justified in holding that time limit to pass the order in original within 90 days of the receipt of inquiry report is correct and justified?

2. Whether the regulation 17 which prescribes the time limit of 90 days for passing the order in original is mandatory or directory?

3. Whether the Tribunal was justified in holding against the Appellant on the ground

of limitation when respondent adopted dilatory tactics so as to claim the mileage of limitation under the regulation 17 of CBLR?

4. Whether the Tribunal was justified in holding that letting of IEC is not an offence under the Customs Act 1962?"

5. Learned counsel for the appellant refers to

Regulation-17 of the C.B.L.R.2018 and submits that

the said regulation is required to be considered as

directory and not mandatory. He submits that it is

due to the non-cooperation of the respondent, the

report could not be filed within the prescribed time as

provided under Regulation 17 and therefore, no fault

can be attributed against the competent officer, who

has filed the report. He submits that the inquiry

report was filed on 15.07.2019 and thereafterwards

the report has been filed by the competent officer on

15.10.2019 and therefore, it cannot be said that there

is non-compliance of Regulation 17(7) of the C.B.L.R.

2018. In support of his arguments, he has relied upon

the judgment of the Bombay High Court reported in

2018(361) E.L.T. 321 (Bom.) in the case of Principal

Commissioner of Customs (General), Mumbai -vs-

Unison Clearing P.Ltd. and 2019 (370) E.L.T. 1750

(Tri.-Del.) in the case of Leo Cargo Services Pvt.Ltd. -

vs- Commissioner of Customs, New Delhi. He also

placed reliance on the judgment of the High Court of

Calcutta reported in 2020 (373) E.L.T. 323 (Cal.) in

the case of Asian Freight -vs- Principal

Commissioner of Customs (Airport and

Administration). He further submits that the

CESTAT has erred in holding that lending of IEC is not

an offence under the Customs Act, 1962. He submits

that lending of IEC is an offence under the Foreign

Trade (Development and Regulation) Act, 1962 and

therefore, the CESTAT was not justified in holding that

it was not an offence under the Customs Act. He

submits that a clear case of impersonation is made out

and therefore, the Tribunal was not justified in giving

a finding that lending of IEC will not amount to an

offence under the Customs Act.

6. Per contra, learned counsel appearing for the

respondent argued in support of the impugned order

passed by the Tribunal and submits that having

regard to the wordings used in Regulation 17 of the

C.B.L.R. 2018, it has to be held that the time

prescribed for completion of the inquiry and filing of

report, etc., are mandatory in nature. He submits that

the word used in the Regulation is "shall" and

therefore, the time prescribed under the said

regulation ought to be mandatory and cannot be

directory. He submits that a liberal interpretation

cannot be given to this regulation, which is mandatory

in nature. He also submits that insofar as the

substantial question of law No.4 is concerned, the

finding given by the Tribunal is a factual finding and it

is clearly recorded that there is no evidence to show

that there has been lending of IEC in the case on

hand. Therefore, he submits that the substantial

question of law no.4 does not arise for consideration in

the present case and accordingly prays to dismiss the

appeal.

7. We have bestowed our attention to the

arguments addressed on both sides and also

appreciated the material evidence available on record.

8. Regulation 17 of the C.B.L.R., 2018 reads as

follows:

"17. Procedure for revoking license or imposing penalty. -- (1) The Principal Commissioner or Commissioner of Customs shall issue a notice in writing to the Customs Broker within a period of ninety days from the date of receipt of an offence report, stating the grounds on which it is proposed to revoke the license or impose penalty requiring the said Customs Broker to submit within thirty days to the Deputy Commissioner of Customs or Assistant Commissioner of Customs nominated by him, a written statement of defense and also to specify in the said statement whether the Customs Broker desires to be heard in person by the said Deputy Commissioner of Customs or Assistant Commissioner of Customs.

(2) The Commissioner of Customs may, on receipt of the written statement from the Customs Broker, or where no such statement has been received within the time-limit specified in the notice referred to in sub-

      regulation (1),     direct     the    Deputy
      Commissioner    of   Customs     or Assistant

Commissioner of Customs, as the case may be, to inquire into the grounds which are not admitted by the Customs Broker.

(3) The Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, shall, in the course of inquiry, consider such documentary evidence and take such oral evidence as may be relevant or material to the inquiry in regard to the grounds forming the basis of the proceedings, and he may also put any question to any person tendering evidence for or against the Customs Broker, for the purpose of ascertaining the correct position.

(4) The Customs Broker shall be entitled to cross-examine the persons examined in support of the grounds forming the basis of the proceedings, and where the Deputy Commissioner of Customs or Assistant Commissioner of Customs declines permission to examine any person on the grounds that his evidence is not relevant or material, he shall record his reasons in writing for so doing.

(5) At the conclusion of the inquiry, the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, shall prepare a report of the inquiry and after recording his findings thereon submit the report within a period of ninety days from the date of issue of a notice under sub- regulation (1).

(6) The Principal Commissioner or Commissioner of Customs shall furnish to the Customs Broker a copy of the report of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, and shall require the Customs Broker to submit, within the specified period not being

less than thirty days, any representation that he may wish to make against the said report.

(7)     The     Principal    Commissioner       or
Commissioner       of   Customs    shall,    after

considering the report of the inquiry and the representation thereon, if any, made by the Customs Broker, pass such orders as he deems fit either revoking the suspension of the license or revoking the license of the Customs Broker within ninety days from the date of submission of the report by the Deputy Commissioner of Customs or Assistant Commissioner of Customs, under sub-regulation (5) :

Provided that no order for revoking the license shall be passed unless an opportunity is given to the Customs Broker to be heard in person by the Principal Commissioner of Customs or Commissioner of Customs, as the case may be.

(8) Where in the proceedings under these regulations, the Principal Commissioner of Customs or Commissioner of Customs, as the case may be, comes to a conclusion that the F card holder is guilty of grounds specified in regulation 14 or incapacitated in the meaning of the said regulation, then the Principal Commissioner of Customs or Commissioner of Customs may pass an order imposing penalty as provided in regulation 18:

Provided that where an order is passed against an F card holder, he shall surrender the photo identity card issued in Form F forthwith to the Deputy Commissioner of Customs or Assistant Commissioner of Customs.

(9) Where in an offence report, charges have been framed against an F cardholder in addition to the Customs Broker who has been issued a

license under regulation 7, then procedure prescribed in regulations 16 and 17 shall be followed mutatis mutandis in so far as the prescribed procedure is relevant to the F card holder:

Provided that where any action is contemplated against a G card holder alone under these regulations, then instead of authority referred to in sub-regulation (8), a Deputy Commissioner or Assistant Commissioner rank officer shall pass such order as mentioned in the said sub-

regulation along with debarring such G card holder from transacting the business under these regulations for a period of six months from such order.

Provided further that where an order is passed against a G card holder, then he shall surrender the photo identity card issued in Form G forthwith to the Deputy Commissioner of Customs or Assistant Commissioner of Customs.

Explanation.--Offence report for the purposes of this regulation means a summary of investigation and prima facie framing of charges into the allegation of acts of commission or omission of the Customs Broker or a F card holder or a G card holder, as the case may be, under these regulations there under which would render him unfit to transact business under these regulations."

9. A reading of the said Regulation would make it

very clear that within a period of 90 days from the date

of receipt of an offence report, a show cause notice is

required to be issued to the Customs Broker stating

the grounds on which it is proposed to revoke the

licence or impose penalty and on receipt of such notice

within 30 days, the Customs broker is required to

submit a report making it very clear whether he

desires to be heard in person by the officer appointed

under the said provision of law. After receipt of such a

reply, an Inquiry Officer would be appointed under

Regulation 17(2) of the C.B.L.R., 2018, who shall hold

an inquiry as provided under Regulation 17(3) of the

C.B.L.R., 2018. A reading of Regulation 17(3) and

17(4) would go to show that during the course of

inquiry, the competent officer may not only record the

statement of the parties, but also permit the parties to

cross-examine and produce necessary oral and

documentary evidence in support of their case. After

conclusion of the inquiry, a report is required to be

filed by the Inquiry Officer and such a report is

required to be filed within 90 days from the date of

issuing notice under Regulation 17(1) of the C.B.L.R.,

2018. Regulation 17(7) provides that the Principal

Commissioner or the Commissioner of Customs after

considering the inquiry report filed under Regulation

17(5) and the representation thereon, if any, made by

the Customs broker, pass such other orders as he

deems fit including revocation of licence or levying

penalty and such order is required to be passed within

90 days from the date of submission of report under

Regulation 17 of C.B.L.R., 2018. In the case on hand,

the inquiry report is filed on 15.07.2019 and the order

of revocation of licence and levying of penalty as

provided under Regulation 17(7) and 17(8) has been

passed on 15.10.2019. It cannot be disputed that the

order under Regulation 17(7) and 17(8) has been

passed beyond the period of 90 days. To be precise,

the order has been passed on the 92nd day after receipt

of the inquiry report.

10. The question whether the time limit for

issuing the show cause notice and for completion of

the inquiry report and passing of orders after receipt of

the inquiry report are mandatory or directory has been

considered by the Division Bench of the Bombay High

Court in the case of Unison Clearing P.Ltd.(supra).

In the case on hand, the court had considered the

provisions of Customs Brokers Licensing Regulations

2013 and in paragraphs-6, 11 and 15, it has been

observed as follows:

"6. A perusal of the aforesaid regulations would reveal that a procedure is prescribed for revocation of a licence of a customs broker and for imposition of penalty on the grounds set out in Regulation 18. Regulation 19 provides for suspension of a licence in contemplation of an inquiry against a broker or pending an inquiry, which authorizes the Commissioner of Customs to suspend the licence of the customs broker forthwith, where immediate action is necessary. Sub-section 2 of Regulation 19 contemplates a post decisional hearing where the licence is suspended in sub- clause (1) and after affording an opportunity of hearing to the customs broker, whose licence is suspended, the Commissioner of Customs is authorised to pass such order as he deems fit either revoking the suspension or continuing it, as the case may be. However, when the Commissioner passes an order for continuing the suspension, it is imperative for him to follow the procedure under Regulation 20.

The procedure for revocation of licence is provided in Regulation 20 and the issue involved before us in the present set of appeals is whether the time frame prescribed in the said Regulation is mandatory or directory. If the time frame is mandatory then the necessary consequences of

not completing the inquiry within the time stipulated would result into restoration of a licence and declaring the action to revoke the licence as being invalid. If it is construed as directory, then even on expiry of period of 90 days, the procedure for revocation of licence which is initiated would continue and mere failure to adhere to the time line prescribed in the Regulation would not confer a positive benefit in favour of the Customs Broker.

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11. While construing the provision contained in Regulation 20 of the regulations whether it is mandatory or directory and whether the word "shall" used in the said regulation be construed as mandatory, it would be necessary to ascertain the real intention of the legislature by carefully evaluating the whole concept of the statute. The question whether the statute is mandatory or directory, would depend on the intention of the legislature and not necessarily merely by looking at the language in which it is clothed. It is mandatory for the Court to look into the nature of the statute and the consequences which would follow from construing it in one way or the other, the ambit of the other provisions, the necessity of compliance of the provisions in question. The circumstance, namely, the statute provides a contingency of the non-compliance of the provisions, the fact that the non- compliance of the provision is or is not visited with some penalty, the consequences flowing therefrom and above all whether the object of the enactment is defeated by holding it to be directory and whether the object would be achieved by construing it to be mandatory. If the provisions are construed as mandatory, the act done in breach thereof necessarily will be invalid, but if the provision is held to be directory then even though there is no strict compliance with the

provision, the act will be valid, though it may give rise to some consequences, if provided by the statute. It is no doubt true that the purpose of Regulation 20, which governs the Customs House agents is to inculcate discipline and a pattern in discharge of their duties and working. The regulation ensures to safe-guard the right conferred on the customs house agent by conferring the minimum protection by prescribing a period of licence and once such licence is granted unless and until there is a default on part of the customs house agent, its renewal is assured. However, the default on part of the Customs House Agent needs to be inquired into before depriving the Customs House Agent of his licence. At the same time the interest of revenue is also sought to be protected by the regulation which authorises the Commissioner of Customs to revoke the licence and forfeit the part of or whole of the security or even to impose a penalty in the circumstances identified by the regulation. In order to maintain the regime of discipline, the Commissioner is also authorised to initiate an action in form of suspension of licence with immediate effect contemplating or pending an inquiry. The imminence of the action, postponement of the opportunity of hearing that Regulation 19 provides for post decisional hearing when an action is taken to suspend the licence. Thus, the regulation aims at securing interest of the customs house agent and also the revenue. Thus, the urgency and expediency of the action permits the Authority to step in immediately or with promptitude. A balancing of interests is achieved by ensuring prompt action and avoiding undue delay in taking it to its logical conclusion.

The question therefore is whether non- adherence to the time frame as mentioned in regulation 20 would be so strictly construed so as to result in declaring initiation of action itself invalid, if that is not adhered to. There might be

circumstances and situations which are not within the control either of the customs house agent or the Revenue. It is possible that a customs house agent is unable to attend the proceedings on account of his ill-health or any other unforeseen contingency, resultantly, the proceedings are required to be postponed by extending the date for submitting his written statement or submitting evidence, resultantly postponing the final time limit prescribed. In such a situation, can the provision be construed to be mandatory to the detriment of the customs house agent, since it was beyond his control to respond to the allegations made against him. Another contingency may occur, when the hearing in the proceedings is completed, but on account of administrative exigency, the Commissioner of Customs is transferred, can it be still said that the time line was so mandatory that when the order was not passed on 16th day, the entire action becomes invalid. It is also possible that the customs house agent avoids to adhere to the time limit and does not file his reply under Regulation 19 (2) and then takes advantage of the fact that the suspension was not revoked on the 16th day, irrespective of the fact that the alleged action is detrimental to the interest of the revenue or the allegations levelled against him are of serious nature. In such circumstances, can it be permissible that the customs house agent is entitled to take benefit of his own wrong, on the ground that the process is not completed within the stipulated period. In such circumstances, if the provision is construed in such a rigid form and no flexibility is allowed, though it results into declaration of the entire action of the revenue as illegal, would it ensure justice or defeats it?

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15. In view of the aforesaid discussion, the time-limit contained in Regulation 20 cannot be

construed to be mandatory and is held to be directory. As it is already observed above that though the time line framed in the Regulation need to be rigidly applied, fairness would demand that when such time limit is crossed, the period subsequently consumed for completing the inquiry should be justified by giving reasons and the causes on account of which the time- limit was not adhered to. This would ensure that the inquiry proceedings which are initiated are completed expeditiously, are not prolonged and some checks and balances must be ensured. One step by which the unnecessary delays can be curbed is recording of reasons for the delay or non-adherence to this time-limit by the Officer conducting the inquiry and making him accountable for not adhering to the time schedule. These reasons can then be tested to derive a conclusion whether the deviation from the time line prescribed in the Regulation, is "reasonable". This is the only way by which the provisions contained in Regulation 20 can be effectively implemented in the interest of both parties, namely, the Revenue and the Customs House Agent."

11. The High Court of Calcutta in the case of

Asian Freight (supra) at para-43 has observed as

follows:

"43. Looking to the object of the statute in question (the 2013 Regulations read with the Customs Act) and its broad purpose, and on weighing the consequence that would ensue if the time-limit in regulation 20(1) for issuance of show notice were held mandatory instead of holding it to be directory, it is well-nigh difficult to conclude that unless revocation proceedings are initiated within ninety days of receipt of an

offence report, the principal commissioner or the commissioner of customs, as the case may be, would stand denuded of the power to proceed in that direction. This Bench is of the opinion that the time-limit that has been prescribed serves a dual purpose. First, it acts as a check on the public functionary vested with the power to initiate revocation proceedings not to keep the issue pending ad infinitum; if proceedings are not initiated within the stipulated time, that might expose such functionary empowered to initiate proceedings to disciplinary action. On the other hand, initiation of proceedings within ninety days or immediately thereafter is intended to guarantee protection to a customs broker of not being proceeded against on the basis of stale charges. But to hold that in every case where revocation proceedings are not initiated within the time-limit in regulation 20(1) a customs broker may get away, is too far-fetched a construction and is unacceptable. What is important is that regulation 20 does not provide for any consequence, should proceedings be not initiated within ninety days of receipt of an offence report. One may in this connection note section 110(2) of the Customs Act ordaining that where any goods are seized under sub-

section (1) and no notice in respect thereof is given under clause (a) of section 124 within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized. It is axiomatic that upon a failure to give notice as contemplated in section 124(a) within six months of seizure, the consequence would follow i.e. the seized goods have to be returned. If any authority is required on the point, reference may usefully be made to the decision reported in 100 C.W.N. 429 (India Sales International v. Collector of Customs). Similar such consequence being clearly absent in

regulation 20(1), the time-limit has to be construed as directory and not mandatory."

12. It is a settled position of law that whenever a

statute prescribes or provides that a particular act has

to be done within a time frame in a particular manner

and also further provides that failure to comply with

the requirements of the provision, would lead to a

specific consequence then while interpreting such a

provision of law, it has to be held that the compliance

of the said provision of law is mandatory and not

directory and this interpretation is required to be given

for the simple reason that the specified consequence

would follow if there is no compliance of the provision

of law.

13. A reading of Regulation 17 of the C.B.L.R.,

2018 makes it very clear that though there is a time

limit stipulated in the Regulations to complete a

particular act, non-compliance of the same would not

lead to any specific consequence.

14. A reading of the Regulation 17 would also go

to show that the Inquiry Officer during the course of

his inquiry is not only required to record the statement

of the parties but also to give them an opportunity to

cross-examine and produce oral and documentary

evidence. In the event of the respondents not co-

operating, it would be difficult for the Inquiry Officer to

complete the inquiry within the prescribed period of 90

days, as provided under Regulation 17(5). Therefore,

we find force in the argument of the learned counsel

for the appellant that the Regulation No.17 is required

to be considered as directory and not mandatory.

Though the word "shall" has been used in Regulation

17, an overall reading of the said provision of law

makes it very clear that the said provision is

procedural in nature and non-compliance of the same

does not have any effect. If there is no consequence

stated in the Regulation for non-adherence of time

period for conducting the inquiry or passing an order

thereafterwards, the time line provided under the

statute cannot be considered as fatal to the outcome of

inquiry.

15. Under the circumstances, we are of the

considered view that the provisions of Regulation 17 of

the C.B.L.R., 2018 is required to be considered as

directory and not mandatory and accordingly, we

answer the substantial questions of law Nos.1 to 3 in

favour of the appellant and against the respondent.

16. Insofar as the substantial question of law

No.4 is concerned, the Tribunal has given a finding

that there is no evidence on record placed by the

department to show that the respondent had the

knowledge regarding lending of IEC and that the

respondent has not obtained the copies of Pan Card,

Aadhar Card, GST registration certificate, IEC

Certificate from the three exporters concerned.

Therefore, a finding of fact has been recorded by the

Tribunal that for want of evidence, it cannot be held

that the respondent is guilty of violating Regulation

11(d) of the C.B.L.R., 2013. Learned Counsel

appearing for the appellant has failed to demonstrate

before this Court by producing the records relating to

the case that such a fact finding recorded by the

Tribunal is bad in law.

17. Having regard to the finding of fact recorded

by the Tribunal to the effect that the department has

failed to provide sufficient evidence to show that the

respondent had lent the IEC without proper

verification and thereby he had violated Regulation

11(d) of C.B.L.R., 2013, the substantial question of law

No.4 becomes only academical in the present case,

because the respondent cannot be held guilty on the

merits of the case for want of sufficient evidence as

recorded by the Tribunal.

18. Under the circumstances, though we have

answered substantial questions of law Nos.1 to 3 in

favour of the appellant, the finding of fact recorded by

the Tribunal on the merits of the case cannot be

interfered with for want of sufficient evidence on

record and therefore, the appeal has to fail.

Accordingly the following order:

The appeal stands dismissed.

Sd/-

JUDGE

Sd/-

JUDGE

KNM/-