2025 (12) TMI 1026 - HC - Customs

Customs, DRI cannot treat imported distillate oil as diesel for seizure when lab report is inconclusive

HC held that customs and DRI exceeded the scope of the laboratory Test Report in treating the imported bulk liquid cargo as non-conforming Distillate Oil ... Detention/seizure of imported bulk liquid cargo oil - sample of imported goods meet the requirements of Distillate Oil as per IS 16731: 2019 or not - HELD THAT:- The respondents have travelled beyond the reasons mentioned in the Test Report. The Test Report definitely concludes by holding that “Based on the above tested parameters, the sample under reference does not meet the requirement of Distillate Oil as per IS 16731: 2019 with respect to parameter at Sr. No. 14. ” In Special Civil Application Nos. 14552, 14559 and 14562/2025, the Test Report reveals cloud point as -5. 4°C. Thus, the first reason which disqualifies the cargoes of the petitioners from being declared as Distillate Oil is the parameter/characteristic at Sr. No. 14, i. e. Cloud Point. The Test Report indicates that the Cloud Point of the cargo of the petitioners is -6. 2°C, whereas the specified value of the same is -16°C. The Report of three importers i. e Noya, Sweven and One Chemical of three Special Civil Application No. 12943 of 2025 further reveals that the sample does not meet the requirement of Automotive Diesel Fuel as per IS 1460: 2025 with respect to the parameter at Sr. No. 8. This opinion is missing in Reports of other captioned writ petitions, hence the issue of Automotive diesel will not arise in their case. The Test Report is not definite that the Distillate Oil is in fact diesel, and the opinion in the report reflects that “it has characteristics of diesel fraction with a small amount of heavier fraction of hydrocarbons.” So far as the samples of Distillate Oil, which were collected by the Customs authority at Kandla, and sent to Vishakapatnam are concerned, on the opinion sought from the Assistant Commissioner, the Director of CRCL, it is opined that the sample if is akin to High Flame High Speed Diesel IS-16861 or Distillate Marine Fuel IS 16731 or any other Distillate Oil having the “diesel fraction” is of no consequence, as all these products can, in fact, be said to have a “diesel fraction. ” Thereafter, the authorities have arrived at the findings for this parameter of Distillate Oil, which were seized by Kandla Custom House and sent to Visakhapatnam Laboratory in the case of similarly situated importers. In view of the similar report indicating infringement of the parameters akin to the petitioners’, it was opined that it cannot be concluded with certainty that the aforesaid diesel fraction fulfills all parameters of Distillate Marine Fuel. In the present case, if the “most akin” test is applied, the same would, in fact, be in favour of the petitioners, as the respondents have not definitively concluded that the Distillate Oil imported by the petitioners is, in fact, High Flame High Speed Diesel or a Diesel to an extent that it would change the nature of classification from Distillate Oil to Diesel - it is clarified that if the Distillate Oil is a marine fuel used in ships operating in colder weather conditions, the cloud point becomes relevant, and for other usages, the Cloud Point is not a significant parameter, and hence, it is further informed that the end use of the sample under reference may be ascertained. There is no definite conclusion with regard to the cloud point, and it depends upon the vessel being operated in specific areas - the cargo imported by the petitioner cannot be ordered to be seized on the basis of the parameter of cloud point, as it will be relevant only at the place, vessel, and time of use, and will depend on the end user. The action of the respondent authorities in detaining the imported bulk liquid cargo of Distillate Oil through the respective vessels of the petitioners, which is presently stored in Customs Bonded Storage at Pipavav Port, Amreli (Gujarat) is hereby quashed and set aside - The impugned Seizure Memos issued by the Intelligence Officer of the DRI are hereby quashed and set aside - Petition allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the seizure of imported bulk liquid cargo declared as 'Distillate Oil' is justified on the basis of the CRCL Test Report vis-à-vis the requirements of IS 16731:2019 and IS 1460:2025. 1.2 Whether the petitioners are entitled to release or provisional release of the seized cargo on the ground of parity with other consignments of Distillate Oil released at Kandla, and on the basis of the interpretation adopted in the decision in Gastrade International. 1.3 Whether the respondents are justified in treating the imported goods as mis-declared diesel / HFHSD, taking into account the density and distillation characteristics and alleged end-use pattern of similar imports. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Justification of seizure based on CRCL Test Report and Indian Standards Legal framework (as discussed) 2.1.1 The seizure and detention were effected under Section 110 of the Customs Act, 1962 on the basis of alleged mis-declaration of the imported bulk liquid cargo declared as 'Distillate Oil'. 2.1.2 The parties proceeded on the basis of compliance or non-compliance with Indian Standards IS 16731:2019 (Distillate Oil / Distillate Marine Fuel) and IS 1460:2025 (Automotive Diesel Fuel), as reflected in the CRCL Test Report dated 30.09.2025. Interpretation and reasoning 2.1.3 The Court recorded that the entire case of the respondents 'hinges on' the CRCL Test Report dated 30.09.2025, which examined 14 specified characteristics/parameters of the sample drawn from the cargo. 2.1.4 The Test Report stated that, with respect to Cloud Point, the sample did not meet the requirement of Distillate Oil as per IS 16731:2019, and with respect to a distillation parameter, it did not meet the requirement of Automotive Diesel Fuel as per IS 1460:2025. It also recorded that the samples 'have the characteristics of diesel fraction with a small amount of a heavier fraction of hydrocarbons.' 2.1.5 The petitioners highlighted, and the Court noted, that out of 14 parameters, only specific parameters (including Cloud Point) were indicated to be non-compliant, while several others such as total acid number, ash content, carbon residue and cetane index were within the specified ranges, as reflected in the chart relied on in the Court's analysis. 2.1.6 The respondents stressed that, according to the Test Report, the imported goods did not conform to Indian Standards for Distillate Oil, and further relied on density values at 15°C (0.8203 g/cm³ and 0.8347 g/cm³) as being closer to typical diesel ranges rather than Distillate Marine Fuel under Indian Standards. 2.1.7 The Court observed that the sample had been collected under panchanama, sent to CRCL, and that the Test Report set out and evaluated 14 parameters/characteristics which 'the sample has to satisfy in order to declare whether the import by the petitioners is Distillate Oil or not.' The Court reproduced the parameter-wise chart as the central evidentiary basis for adjudging the nature of the product. Conclusions 2.1.8 The Court treated the CRCL Test Report dated 30.09.2025, and the 14-parameter chart derived therefrom, as the foundational material for assessing whether the seized goods were in fact 'Distillate Oil' or had been mis-declared, and proceeded to examine the legality of seizure by reference to conformity or otherwise with IS 16731:2019 and IS 1460:2025. 2.2 Claim of parity with consignments released at Kandla and reliance on Gastrade International Legal framework (as discussed) 2.2.1 The petitioners relied on Public Notice No. 76/2020 (New Customs House, Mumbai) and Public Notice No. 14/2017 (Commissioner of Customs, Kandla) concerning testing and release of such cargo, and on the Supreme Court's decision in Gastrade International, contending that similar products had been treated as Distillate Oil and released. Interpretation and reasoning 2.2.2 The petitioners asserted that in an identical consignment of Distillate Oil detained at Custom House, Kandla, CRCL had communicated that 'Distillate Oil or any other Distillate Oil in reference to fraction of hydrocarbons in the Distillate Marine Fuels or any other Distillate Oil is of no consequence, as all these products are diesel fraction,' and that on such opinion the Commissioner of Customs, Kandla directed provisional release. 2.2.3 On this basis, the petitioners argued that their cargo, having comparable parameter-compliance, could not be treated differently, and that the Test Report in the present case did not conclusively state that the product was not Distillate Oil; hence, seizure was arbitrary and discriminatory. 2.2.4 The respondents opposed parity, contending that the subject goods, as per the present Test Report, were diesel/HFHSD and not Distillate Oil, and that the case of the petitioners was 'materially different' from the consignment released at Kandla. They further submitted that the reliance placed on Gastrade International by the petitioners and by Kandla Customs for other consignments would not apply here because of failure of specific parameters and the clear diesel-like characteristics recorded in the current Test Report. Conclusions 2.2.5 The Court recognised the petitioners' plea of parity with Kandla consignments and their reliance on Gastrade International, but also noted the stand of the respondents that the present Test Report and parameter failures distinguished the petitioners' consignment from those previously released, necessitating a fact-specific scrutiny based on the 14-parameter analysis. 2.3 Characterisation of the product as diesel / HFHSD, policy restrictions, and end-use allegations Legal framework (as discussed) 2.3.1 The respondents referred to Policy Condition No. 5, Chapter 27 of Schedule-I of the Import Policy - ITC (HS) 2022, under which import of diesel / High Flash High Speed Diesel (HFHSD) is a restricted activity. Interpretation and reasoning 2.3.2 On the strength of the Test Report, the respondents argued that the imported goods did not meet IS 16731:2019 requirements for Distillate Oil and instead had characteristics of diesel fraction, thereby constituting mis-declaration as to the true nature of the goods. 2.3.3 They contended that mis-declaring diesel / HFHSD as Distillate Marine Fuel / Distillate Oil enabled circumvention of import restrictions and resulted in loss of revenue due to higher tax incidence on diesel and potential wrongful availment of input tax credit, since diesel is outside the GST regime. 2.3.4 The respondents further asserted that, on verification of past end-use, goods earlier imported and declared as Distillate Oil by similarly placed entities were supplied to goods transport agencies and construction companies and were used as diesel in trucks, excavators, and as light diesel oil in construction, which, according to them, reinforced the inference that the present goods were in substance diesel/HFHSD. 2.3.5 The petitioners, in rejoinder, disputed these allegations as 'bald' and 'ill-conceived,' pointing out that one of the petitioners was importing Distillate Oil for the first time with no pending inquiry; that another had around thirty past imports since September 2023 with only one earlier detention which ended in release on payment of duty; and that the third had over one hundred such imports since 2023 with only one earlier detention, also followed by release on duty payment. They contended that there was no established misuse or mis-declaration history justifying adverse inferences in the present case. Conclusions 2.3.6 The Court noted the respondents' reliance on policy restrictions applicable to diesel/HFHSD imports and on alleged end-use patterns, but also took on record the petitioners' detailed rebuttal that there was no proven history of misuse or mis-declaration in their past imports, thereby framing the controversy as one turning primarily on the scientific characterisation of the goods through the CRCL Test Report and the parameter-wise compliance with Indian Standards.