“A Sample Having Characteristics of HSD Is Not the Same as Being HSD”: Supreme Court Sets Aside Customs Classification Based on Incomplete Testing
Kiran Raj
A Bench of the Supreme Court comprising Justice B.V. Nagarathna and Justice Nongmeikapam Kotiswar Singh allowed a batch of civil appeals and set aside the common judgment passed by the High Court of Gujarat in a customs classification dispute concerning imported petroleum products. The Court stated that laboratory reports based on partial conformity to IS:1460:2005 and the expert opinion presented were inconclusive for classifying the goods as High-Speed Diesel (HSD). It observed: “There is a sea of difference when the opinion says that a sample has characteristics of High-Speed Diesel in contradistinction to saying that the sample is or can be considered to be High-Speed Diesel.”
The appellants had imported goods declared as “Base Oil SN 50” under Chapter Heading 27101960 of the Customs Tariff Act, 1975. Based on intelligence reports, the Directorate of Revenue Intelligence suspected that the imported product was HSD, a restricted item under Heading 27101930, permissible only to State Trading Enterprises. Samples were drawn and sent to three laboratories for testing.
The Central Excise and Customs Laboratory, Vadodara, tested 8 of the 21 parameters under IS:1460:2005 and concluded that the sample had “characteristics of high-speed diesel oil/Automotive Fuel Oil confirming to IS:1460:2005.” The Central Revenues Control Laboratory (CRCL), New Delhi, tested 12 parameters and reported that the samples “conform to the specifications of High-Speed Diesel Oil (Automotive Diesel Fuel) as per IS:1460:2005.” The Indian Oil Corporation Ltd. (IOCL), Mumbai, tested 14 parameters and reported that the sample “meets the specification for only XIV parameters tested at our lab as per the specification IS:1460:2005 amended.”
Dr. Gobind Singh, Manager (Lab) at IOCL, was examined as an expert before the adjudicating authority. The adjudicating authority relied on these reports and imposed confiscation and penalties under Sections 111(d), 111(m), 112(a), 114AA, and 117 of the Customs Act. The Tribunal set aside the order, which was subsequently reversed by the High Court. The High Court held that the Department had established its case by “preponderance of probability.”
The Supreme Court examined the laboratory reports and stated that none of them definitively classified the sample as HSD. Regarding the Vadodara lab report, it recorded: “The said report does not specifically give the opinion that the sample is that of HSD or can be treated as that of HSD. The report merely says that the sample has characteristics of HSD Oil.”
It added: “If a questioned article bears only certain characteristics of a specified article, can the questioned article be treated to be or equated with the specified article? We are afraid, the answer has to be in the negative.”
On the CRCL report, the Court stated: “Under the circumstances… it would be speculative or assumptive to say on the basis of the aforesaid opinion that the sample is that of HSD.”
Addressing the IOCL findings, the Court recorded: “Such a statement can hardly be considered as a conclusive expert opinion for classifying the goods.”
The Court also considered the examination of Dr. Gobind Singh. It recorded: “Evasive answers and non-clarification on certain aspects of the flash point of the samples by the expert Dr. Gobind Singh certainly cast a serious doubt on the samples being identified as that of HSD. The expert himself also has not said that the samples are of HSD except for stating that the samples conform to certain specifications of the IS 1460:2005.”
It observed that none of the three laboratories had tested the sample against all 21 parameters of IS:1460:2005. It noted: “There are 21 parameters laid down under IS 1460:2005 and none of the tests have shown compliance with all these parameters. The last and third test have reported compliance with 14 parameters, though as discussed above in respect of 2 of the aforesaid 14 parameters, namely, flash point and distillation range, the same are not in conformity. Thus, it cannot be said there is substantial compliance with the parameters of IS 1460:2005.”
The Court further stated: “Flash point, though may not be the most important parameter, yet, its importance in determining the nature of the Automotive oil cannot be ignored. Flash point being a very important criteria to classify petroleum products, non-compliance of the samples on this parameter would make the classification doubtful.”
The Court addressed the shifting of onus onto the appellants. It recorded: “If the Department with all the resources at their command and access to various laboratory facilities could not get the samples tested in respect of all the 21 parameters, expecting the assesses/appellants to get the samples tested to show that these do not conform the specifications and are not HSD does not appear to be reasonable.”
It added: “The burden was not on the assessees to demonstrate that non-conformity with the remaining 8 parameters would vitiate the conclusion that the samples were of HSD.”
IThe Court referred to the concept of “preponderance of probability” as explained in M. Siddiq (Ram Janmabhumi Temple-5J) v. Suresh Das. The Court quoted:
“The court in a civil trial applies a standard of proof governed by a preponderance of probabilities. This standard is also described sometimes as a balance of probability or the preponderance of the evidence… If therefore, the evidence is such that the court can say ‘we think it more probable than not’, the burden is discharged, but if the probabilities are equal, it is not.”
It continued: “So also, in civil cases, the case must be proved by a preponderance of probability, but there may be degrees of probability within that standard. The degree depends on the subject-matter.”
The Court stated: “Certainly, where the proceedings involve requirement of fulfilment of technical/scientific parameters with confiscatory and penal consequences, the degree of probability would be of a higher order and not mere probability.”
The Court turned to the proper legal framework for classification. It stated: “The aforesaid difficulties in our opinion can be overcome, if we apply the test of ‘most akin’ as contemplated under Rule 4 of the General Rules for Interpretation referred to above.”
The court held: “The real test for classification, according to us, would be as to whether any goods or substance in question is ‘most akin’ or bears the closest resemblance or similarity to any of the specified goods mentioned under the Headings and relative Section or Chapter Notes under the Tariff Act, and not by applying the test of preponderance of probability.”
The Court stated: “If an importer classifies the imported goods as ‘X’, which is disputed by the Customs authority and classifies the same as ‘Y’, the test would be whether the goods imported are ‘most akin’ to ‘X’ or ‘Y’… In other words, the test will be whether the imported goods bear the closest resemblance or similarity with the specified good so that these can be considered to be ‘most akin’ to the specified good.”
The Court stated: “The finding of the High Court is based primarily on applying the test of preponderance of probability which may not necessarily fulfil the ‘most akin’ test. The High Court came to the conclusion based on the incomplete test reports and noncommittal opinion of the expert Dr. Gobind Singh who in categorical terms had not stated that the imported goods are HSD. There was no opinion that the imported goods are most similar to HSD to satisfy the test of ‘most akin’.”
It added: “The oil in question does not fully satisfy the specifications of HSD in terms of IS 1460:2005. Hence, the correct test will be whether the oil/article in issue is most akin to HSD or not for which appropriate scientific evidence in the form of laboratory test reports and opinion of the scientific experts will be of utmost relevance.”
The Court stated: “For the reasons discussed above, as the results of the test are inconclusive, so being the opinion of the expert, we are unable to agree with the conclusion of the High Court.”
The Court considered whether to direct fresh testing or to dispose of the matter. It stated: “We do not consider it appropriate to direct further testing of the imported product/oil at this point of time and such a retest may be rendered a futile exercise. In our opinion, in the facts and circumstances, it would be more appropriate to give the benefit of doubt to the appellants because of the inconclusive evidence, rather than directing for a fresh testing and seeking fresh expert opinion, as a one-time measure.”
The Court stated: “We are of the view that non-examination of any product/article/goods on all the parameters laid down by the customs authority will always lead to uncertainty and doubt, which are required to be removed when dealing with confiscatory proceedings.”
It continued: “The respondents are directed to ensure that proper facilities are made available in the appropriate laboratories for undertaking tests for all these parameters or at least for those parameters which the Authorities consider are of essential character to satisfy the ‘most akin’ test without which the article in issue cannot be properly classified. Accordingly, we direct the respondents to take necessary steps in this regard within a period of six months for proper testing in all the parameters in future.”
The final order of the Court is as follows:
“For the reasons discussed above, we allow these appeals by setting aside the impugned common judgment and order dated 20.01.2022 passed in Revenue Tax Appeal No. 297 of 2021, Revenue Tax Appeal No. 298 of 2021 and Revenue Tax Appeal No. 299 of 2021.”
“Appeals are accordingly disposed of in the aforesaid terms.”
Advocates Representing the Parties
For the Petitioners: Rajesh Kumar Gautam
For the Respondents: Gurmeet Singh Makker
Case Title: Gastrade International & Others v. Commissioner of Customs, Kandla and connected matters
Neutral Citation: 2025 INSC 411
Case Number: SLP (Civil) No. 6470 of 2022, 6472 of 2022 and Diary No. 32623 of 2024)
Bench: Justice B.V. Nagarathna, Justice Nongmeikapam Kotiswar Singh
[Read/Download order]
