2025 (4) TMI 23 - SC - Customs

SC favours importer where HSD tariff classification not proven, insists on scientific 'most akin' test, not probability

SC held that Revenue failed to discharge its burden to establish classification of the imported product as HSD. The laboratory reports were incomplete and ... Classification of imported goods - to be treated as Base Oil as claimed by the appellants or High Speed Diesel (HSD) as determined by the Customs Authorities? - burden of proof - HELD THAT:- There cannot be any dispute to the proposition of law as noted by the High Court that the burden of proof as regards the classification of any goods of importation is upon the Revenue/Customs authority and the standard of proof in proceedings under the Tariff Act is not “beyond reasonable doubt”. However, whether “preponderance of probability” can be the appropriate test for classification under the Customs Act would be required to be examined in the light of the “General Rules for the interpretation of this Schedule” as provided in the First Schedule – Import Tariff in Part 2 of the Tariff Act. In the present case, based on the three laboratory tests and evidence of the expert opinion, the High Court had concluded that the Customs Authority had been able to prove that the imported product is HSD by applying the test of preponderance of probability. The High Court had not referred to the aforesaid Rules in arriving at its conclusion by invoking the “most akin” test as contemplated under Rule 4. A careful perusal of the first report furnished by the Central Excise and Custom Laboratory at Vadodara on 11.05.2018 would show that the samples were tested in respect of only 8 parameters out of 21. Even in respect of the said 8 parameters, as regards the flash point, for which the specification is 66 (minimum) as per Pensky Martens Closed Cup (PMCC) test, the result mentions it to be above 66 C. Therefore, in respect of flash point it cannot be said that the sample conforms to this specification - The test report mentions that in view of the analytical parameter, “the sample has characteristics of High Speed Diesel/Automotive Fuel Oil” conforming to IS1460:2005 and that it is not Base Oil. However, 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. There is a sea of difference when the opinion says that a sample has characteristics of High Speed Diesel in contradistinction to the other possible opinion that the sample is or can be considered to be High Speed Diesel Oil. The expert who undertook the tests evaded answering the crucial question as to the importance of the 8 parameters for deciding whether the sample is of HSD or not. It is to be remembered that the Indian Specifications of Bureau of Indian Standard IS:1460:2005 specifically provides 21 parameters, which are the attributes of High Speed Oil and nothing is mentioned under the Rules as to whether compliance with only certain of the specifications would justify treating the article as HSD - he 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. As the results of the test are inconclusive, so being the opinion of the expert, it is unable to agree with the conclusion of the High Court. Under the circumstances, the option before this Court is, either to send the imported product again for further tests and obtain the expert opinion atleast to the effect that the imported product is ‘most akin’ to HSD even if it does not fulfil all the parameters under IS 1460:2005 or give a benefit of doubt to the appellants and close the proceedings against the appellants by quashing the impugned orders, since the Revenue/Customs Authority cannot take action against the appellants based on inconclusive evidence. The genesis of the prolonged litigation lies in the nonavailability of adequate facilities for testing all the parameters provided under Bureau of Indian Standard Specifications. Such a dispute could have been avoided had the testing facilities for all the parameters been available. Since the Authorities themselves had laid down the specific parameters for classification of goods, as in the present case by referring to classification under IS 1460:2005, it is incumbent upon the Authorities to ensure that necessary facilities are made available for testing of any disputed article on all these parameters as otherwise, laying down such parameters would be meaningless. Conclusion - The classification of goods under the Customs Tariff Act should be based on the 'most akin' test rather than preponderance of probability. Appeal disposed off. 1. ISSUES PRESENTED and CONSIDEREDThe core legal question considered was whether the imported goods should be classified as Base Oil, as claimed by the appellants, or as High-Speed Diesel (HSD), as determined by the Customs Authorities. The classification would determine the legality of the importation by private entities and the potential for confiscation and penalties.2. ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe classification issue revolves around the Customs Tariff Act, 1975, and the Import Policy ITC (HS), 2017, which restricts the import of HSD except by State Trading Enterprises. The classification under Chapter Heading 27101960 for Base Oil and 27101930 for HSD was central to the dispute. The Indian Standards Specification IS 1460:2005 was crucial for determining the characteristics of HSD.Court's Interpretation and ReasoningThe Court examined the test reports from three laboratories and the expert testimony of Dr. Gobind Singh. The High Court had relied on the principle of preponderance of probability to conclude that the goods were HSD. However, the Supreme Court questioned this approach, emphasizing the need for conclusive evidence and the application of the 'most akin' test under Rule 4 of the General Rules for Interpretation of the Schedule in the Tariff Act.Key Evidence and FindingsThe evidence comprised test reports from the Central Excise and Customs Laboratory, Vadodara; Central Revenues Control Laboratory, New Delhi; and Indian Oil Corporation Limited, Mumbai. These reports tested the samples against various parameters of IS 1460:2005 but did not conclusively determine the samples as HSD. The flash point parameter, in particular, did not conform to the specifications for HSD.Application of Law to FactsThe Supreme Court noted that the test results were inconclusive and did not fully comply with all 21 parameters of IS 1460:2005. The Court emphasized that classification should be based on whether the goods are 'most akin' to a specified category, rather than merely relying on the preponderance of probability.Treatment of Competing ArgumentsThe appellants argued that the goods were Base Oil, not HSD, and challenged the sufficiency of the test results. The Department contended that the goods were HSD based on the test results and expert testimony. The Supreme Court found the Department's evidence insufficiently conclusive to meet the 'most akin' test.ConclusionsThe Supreme Court concluded that the evidence was insufficient to classify the goods as HSD. The Court emphasized the need for complete testing against all parameters and directed the authorities to enhance testing facilities to avoid future disputes.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal ReasoningThe Court stated, 'The more accurate and precise test will be whether the goods in question are 'most akin' or most similar to the specified goods, as provided under Rule 4 referred to above.'Core Principles EstablishedThe Court established that the classification of goods under the Customs Tariff Act should be based on the 'most akin' test rather than preponderance of probability. The Court highlighted the necessity for comprehensive testing against all relevant parameters to ensure accurate classification.Final Determinations on Each IssueThe Supreme Court set aside the High Court's judgment, giving the benefit of doubt to the appellants due to inconclusive evidence. The Court directed the authorities to improve testing facilities to ensure all parameters can be assessed in future classification disputes.