2026 (2) TMI 45 - AT - Customs

Classification of petroleum fractions by most-akin test rejects seizure based solely on cloud point; provisional release conditions altered and guarantees discharged

CESTAT examined classification of seized petroleum fractions using the 'most akin' test and found samples matched DMX-type distillate marine fuel on ... Validity of conditions for provisional release of seized goods - Application of the 'most akin' test for classification of petroleum fractions - Relevance of cloud point as a non-determinative parameter for classification and seizure - Provisional release u/s 110A - Seizure u/s - Confiscation provisions u/s 111 - HELD THAT:- It is pertinent to mention here that Ld. Commissioner vide impugned order has not agreed with the allegations of investigating agencies and he has observed that the finding of CRCL Visakhapatnam that samples failed to meet IS 16731 requirements on cloud point and water content for DMX grade are not sustainable. He further held that for the tested parameters, both samples match fully with DMX-type Distillate Marine Fuel (IS 16731) under Customs TI 2710 19 61, and only partially with HFHSD (IS 16861) under Customs TI 2710 19 49 and therefore, the balance of convenience lies in favour of the importer. Ld. Commissioner of customs also held that the sample of the subject goods is “most akin” to the DMX-type Distillate Marine Fuel (IS 16731) on the parameters tested by CRCL, Visakhapatnam. The only case of Investigating Agency for seizure of goods is that test reports dated 07.10.2025 and 09.10.2025, indicate that the cloud point of the samples is -6°C and -10°C, and does not meet the parameter of IS 16731- Distillate Marine Fuel, which is above -16 °C.I agree with submissions of the appellant that the purported basis for seizure is an alleged deviation under a single parameter, i.e., Cloud Point (Maximum) which, as per IS 16731:2019, is not a determinative or mandatory specification for the classification of goods as 'Distillate Marine Fuel.' The reliance on one non-essential specification while ignoring compliance with all other mandatory parameters appears improper. The conditions imposed for provisional release of goods vide impugned order are not sustainable. Two bank guarantees, furnished by appellant are liable to be discharged. Other conditions of provisional release are liable to be modified as per above decision of Hon’ble Gujarat High Court passed in Noya Infrastructure case [2025 (12) TMI 1026 - GUJARAT HIGH COURT]. Issues: Whether the conditions imposed by the Commissioner for provisional release of seized imported distillate marine oil under Section 110A of the Customs Act, 1962 are proper and sustainable.Analysis: The appeal challenges onerous conditions (including bank guarantees and end-use undertakings) imposed for provisional release despite the Commissioner finding that test reports did not definitively establish the goods as HFHSD and that the samples were most akin to DMX-type Distillate Marine Fuel. The Tribunal examined relevant judicial guidance including the Supreme Court's 'most akin' principle and recent Gujarat High Court decisions which held that where expert reports do not conclusively satisfy a single standard and where deviations on parameters such as cloud point are context-dependent, ambiguity operates in favour of the importer. The Tribunal noted that cloud point is not a determinative parameter for classification as Distillate Marine Fuel and its relevance depends on end-use, vessel and climatic conditions. The Commissioner had already leaned in favour of the importer on tested parameters; nevertheless, additional onerous release conditions were imposed. The Tribunal also observed that similarly placed importers had been released without such guarantees following the Gujarat High Court decisions.Conclusion: The conditions imposed for provisional release are not sustainable and are set aside or modified in accordance with the Gujarat High Court rulings; two bank guarantees furnished by the appellant are liable to be discharged and other onerous conditions are to be modified consistent with the cited High Court decisions. The appeal is allowed.Ratio Decidendi: For provisional release under Section 110A, where expert test reports are inconclusive or do not definitively satisfy a particular standard, the 'most akin' test applies and any ambiguity in expert opinion favours the importer; cloud point is a context-dependent, non-determinative parameter for classification and end-use considerations may be used instead of imposing onerous provisional release conditions.