By TIOL News Service

BANGALORE, DEC 29, 2014: THE appellant is engaged in the activity of providing services of CHA, freight forwarding, transportation and warehousing, supply chain management etc. The licence for operating a CHA was issued by Bangalore Customs Commissionerate and they are operating as CHA in other ports based on the licence issued by Bangalore Customs.

One of the clients of the appellant, an EOU engaged in the business of export of granite slabs exported four containers which were cleared without any problem. This was in the year 2009. The fifth container sent for export to the customs house after being self-sealed and stuffed by the company was opened by the customs department and it was found that the container had Red Sanders instead of granite slabs as declared. Red Sanders is a prohibited item and cannot be exported and the same was seized and proceedings were initiated against the exporter as well as the appellants by the Customs Department in Kolkata and a show-cause notice has been issued which is yet to be adjudicated. In the meantime, the CBI also took up investigation and filed a charge sheet against one of the employees of the appellant.

In the meantime,the appellants filed application for renewal of their CHA licence on 14.02.2014 and the Commissioner of Customs called for a report from all the Custom houses where the appellants have conducted their business as CHA. Kolkata Commissionerate reported that the appellant had a blemished record. It was stated that one of the employees of the appellant had been charge sheeted and the prosecution is in progress. However the report also stated that the said firm or their employees has not been penalized till date in accordance with Customs Act and CHA is operating in Kolkata as a broker.

A show-cause notice was issued on 08.04.2014 proposing to reject the renewal application and later an order was passed whereby the renewal application was rejected on the ground that there is a complaint pending against the appellants.

Before the CESTAT, the appellant submitted -

+ if the appellant was at fault, action should have been taken immediately after the detection of Red Sanders in the container and on the ground that a show-cause notice has been issued to the appellant also, the renewal of licence could not have been rejected.

+ Order to reject renewal of licence is premature in nature and reliance is placed on the decision in the case of Freight AG (P) Ltd. Vs. CC, Tuticorin - 2006-TIOL-38-CESTAT-MAD; that the provisions of Regulation 9(2) wherein it has been provided that while analyzing the performance, instances of any complaints of misconduct have to be considered &cannot be read literally; such complaints about misconduct should be proven one and mere complaint should not be considered sufficient.

+ although this is not a case of revocation of licence, yet the consequences of non-renewal, revocation and suspension of CHA licences are same; the customs activity conducted by the appellant have come to a standstill and more than 400 employees and 2000 contract labourers are idle and appellants have no revenue generation to foot the salary bill and other expenses in respect of the employees.

+ Commissioners observation about non-disclosure of pending show-cause notice or charge sheetwas a bona fide action on the part of the appellant and not an intentional act as they believed that since the application was submitted by their Bangalore office, they were required to disclose only pending proceedings at Bangalore.

The AR submitted that the complaint is sufficient for non-renewal and there is no need that it should be proved.

The Bench observed -

++ There is no statement implicating the appellants by any of the persons involved about their knowledge of the contents of the container. In the absence of any evidence to show that there was some deliberate attempt or knowledge or there was an element of negligence emerging from the facts, merely because the name of the transporter was given wrongly, it cannot be said that appellants have committed a grave offence which is how the Commissioner has described their offence.

++ No statement has been recorded by CBI of the employee against whom charge sheet has been filed. When the main allegation is related to second bottle seal, it is seen that the process of obtaining second bottle seal and how far it was a deliberate action and would reflect adversely is not emerging clearly from the evidences available on record. There is no indication that there was any misdeclaration while obtaining the bottle seal. No question has been asked of the appellants or their employees as to why second bottle seal was obtained.

++ Prosecution of an employee would not result in closing down of the appellants business but non-renewal of the licence does. Prosecution of an employee has a consequence to him and his family alone. Non-renewal of licence has a consequence for not only the appellant but a large number of employees. Therefore, this aspect should have been considered in greater detail.

++ The appellant explained that the second bottle seal was obtained because the container had been self-sealed by the exporter and when the containers are self-sealed, there is a possibility of examination of the container by customs and when such examination takes place the bottle seal is broken and a new bottle seal will have to be put in place. For this process as a precaution, the Assistant Manager had obtained a second bottle seal; that this bottle seal is still available with the appellant. Further only a charge sheet has been filed in the court against an employee but AR could not confirm as to whether the Court has framed charges or not.

++ Until the court frames charges, it cannot be said that a prima facie case has been made out against the employee who is being prosecuted and in this case even the prosecution is against an employee of the appellant.

++ It cannot be said that there is conclusive evidence or the offence is so grave that it would be risky to allow the broker to continue their operations. Kolkata Commissionerate where the event took place has not initiated action at all.

++ In our opinion the paragraphs of charge sheet reproduced (by Commissioner in his order) does not lead to the conclusion that there is conclusive evidence of knowledge of red sanders in the container leave alone connivance. There is definitely need for more detailed examination of all the evidences and documents and records.

++ The regulation (No. 9 clause 2) speaks of only complaints of misconduct. We agree with the view taken by the Commissioner that the complaint need not be a proven complaint.

++ Commissioner also has relied upon Regulation 5(d) and seems to have come to the conclusion that vicarious responsibilities is on the appellant. No doubt it is so. But can it lead to a conclusion that there is a criminal case pending against the firm when a prosecution has been launched only against an employee is also a question which may have to be considered. This issue requires a more detailed consideration in view of the fact that it appears that prosecution is only against the employee and prima facie we have not found evidence to show the involvement of the appellants in loading/stuffing of red sanders. Therefore, at this stage, it may not be necessary to take cognizance of this issue.

++ In the present case if we allow the appeal on a permanent basis, the department cannot issue a show-cause notice for revocation of licence in view of the fact that no show-cause notice has been issued for revocation of licence and the regulations require that if there is a complaint of a misconduct licence should not be renewed.

++ Under these circumstances, we consider it appropriate that the appeal has to be allowed with a condition that this decision would be purely temporary in nature subject to completion of the proceedings as a result of show-cause notice issued to the appellants. As regards charge sheet filed against the employee also, as and when the charge sheet gets completed and charges are framed by the court, based on the nature of charges framed and considering the issue of vicarious responsibility and the liability of the appellants as per the principles of vicarious responsibility, department will be free to reopen the issue relating to renewal of licence.

++ To sum up, we are only setting aside the order of non-renewal and not the proceedings for non-renewal. Department will have liberty to start proceedings at an appropriate time in line with our observations above if and when matter reached to a certain stage in the court of law, or after the show cause notice issued under Customs Act reaches finality, the show-cause notice can be proceeded further.

++ The net result is that the impugned order is set aside and the show-cause notice is kept alive to be taken up as and when a certain stage is reached and needless to say appellant shall be given opportunity to present their case before further orders are passed and principles of nature justice are observed.

In the result the appeal was allowed and it is held that the appellants are entitled to get their licence renewed with immediate effect.

(See 2014-TIOL-2631-CESTAT-BANG)