Gujarat High Court Quashes Seizure of Distillate Oil Cargoes Citing Ambiguity in Test Reports

In a significant ruling for importers of petroleum products, the Gujarat High Court has quashed the seizure of bulk liquid cargo declared as Distillate Oil, emphasizing the ambiguity in laboratory test reports and applying the Supreme Court's "most akin" test for classification under the Customs Act, 1962. The bench, comprising Justice A.S. Supehia and Justice Pranav Trivedi, directed the release of the goods with conditions, highlighting inconsistencies in customs enforcement across ports.

Case Overview

The petitions, consolidated under Special Civil Application Nos. 12943, 14552, 14559, and 14562 of 2025, were filed by Noya Infrastructure LLP, Sweven Impex, and One Chemical Company against the Union of India, Ministry of Finance, and the Directorate of Revenue Intelligence (DRI). The petitioners, engaged in trading industrial oils, imported Distillate Oil from Chevron General Trading LLC via the vessel MT-Vayu at Pipavav Port, Amreli, in August 2025. Despite accompanying certificates of analysis confirming the product as Distillate Oil, the cargo was detained on September 1, 2025, under Section 110 of the Customs Act, 1962, on suspicion of misdeclaration. Samples drawn from Customs Bonded Storage Tank No. T-307 were tested, leading to a Test Report dated September 30, 2025, from the Central Revenues Control Laboratory (CRCL), which cited non-compliance with IS 16731:2019 standards, particularly the Cloud Point parameter. This prompted a Seizure Memo on October 1, 2025, alleging the cargo was actually Diesel or High Flash High Speed Diesel (HFHSD), restricted under Policy Condition No. 5, Chapter 27 of the Import Policy-ITC (HS) 2022.

The case timeline unfolded rapidly: imports cleared via Bills of Entry in late August 2025, detention amid discharge operations, sample testing in early September, and seizure following the CRCL report. The petitioners argued for release citing delays and prior releases of similar cargoes at other ports.

Arguments from the Petitioners

Represented by Senior Advocates S.N. Soparkar and Mihir Joshi, the petitioners contended that the Test Report was inconclusive, failing only on the Cloud Point (e.g., -6.2°C against the required -16°C) and vaguely noting "characteristics of diesel fraction with a small amount of heavier fraction of hydrocarbons." They highlighted that 13 of 14 parameters complied, and drew parallels to similar Distillate Oil cargoes released provisionally at Kandla Port after CRCL clarifications dated October 28 and November 4, 2025. These communications from CRCL's Director stated that "Diesel fraction" encompasses products like HFHSD (IS 16861), Automotive Diesel Fuel (IS 1460), and Distillate Marine Fuel (IS 16731), and deviations in parameters do not alter this categorization. The Cloud Point's relevance was argued as dependent on end-use in marine contexts, not a standalone disqualifier.

The petitioners also invoked the Supreme Court's ruling in Gastrade International vs. Commissioner of Customs, Kandla (2025) 8 SCC 342, urging that ambiguity in test results should favor importers under the "most akin" test, rather than preponderance of probability. They refuted respondent claims of misuse (e.g., supplying to transport agencies as diesel) by noting clean import histories: Noya with over 100 imports since 2023, Sweven with 30 since September 2023, and One Chemical's first import, all without prior issues beyond duty-paid releases.

Respondents' Counter-Arguments

Senior Standing Counsel Anurag Oza, assisted by CB Gupta, defended the seizure, asserting the Test Report's findings of non-compliance with IS 16731:2019 (Cloud Point) and IS 1460:2025 (distillation parameters) proved misdeclaration as Diesel/HFHSD, attracting restrictions and revenue loss via differential taxation and invalid GST credits. Key parameters like density (0.8203-0.8347 gm/cm³ at 15°C) were cited as aligning more with Diesel than Distillate Marine Fuel. The respondents distinguished the petitioners' case from Kandla releases, claiming material differences in test values and the petitioners' alleged end-use in non-marine applications (e.g., trucks and excavators), evidenced by past trade patterns. Reliance on Gastrade International was dismissed as inapplicable due to the report's "categorical" diesel-like findings.

An additional affidavit from December 8, 2025, detailed parameter comparisons, urging rejection of parity claims.

Key Precedents and Principles Applied

The court heavily relied on Gastrade International vs. Commissioner of Customs, Kandla (2025) 8 SCC 342, where the Supreme Court critiqued reliance on partial test compliance for classification, rejecting preponderance of probability in favor of the "most akin" test under Rule 4 of the General Rules for Interpretation of the Customs Tariff Act, 1975. Excerpt from the judgment: "The real test for classification... 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... and not by applying the test of preponderance of probability."

CRCL communications were pivotal: The November 4, 2025, letter clarified that products like Distillate Marine Fuel are inconsequential subsets of "Diesel fraction," with deviations not changing categorization. On Cloud Point, the October 28, 2025, clarification noted its significance only for cold-weather marine use, per IS 16731 and CIMAC Guidelines, and irrelevant otherwise: "The end use of the sample under reference may be ascertained at your end."

The court distinguished quashing here from mere compounding, focusing on classification ambiguity's societal impact (fair trade) versus severity (revenue protection), without shifting onus to importers amid departmental testing limitations.

Court's Reasoning and Excerpts

Analyzing the Test Reports across petitions, the bench noted only Cloud Point and vague "diesel fraction" observations as issues, with other parameters (density, viscosity, flash point) compliant. Pivotal excerpt: "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.'"

Rejecting discrimination, the court equated petitioners' Cloud Points (-5.4°C to -6.2°C) to Kandla's released cargo (-11°C), applying "most akin" to favor Distillate Oil classification. On end-use, it clarified Cloud Point's contextual relevance: "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."

The ruling overcame evidentiary ambiguities by not requiring full 21-parameter testing from petitioners, aligning with Gastrade 's burden allocation.

Final Decision and Implications

All petitions succeeded. The Seizure Memos were quashed, detention under Section 110 set aside, and respondents directed to release the cargo from Pipavav Port's bonded storage. Echoing Kandla practice, petitioners must file end-use certificates.

This decision reinforces importer protections against inconclusive tests, potentially standardizing customs approaches nationwide and reducing misdeclaration disputes in petroleum imports. It underscores the "most akin" test's role in resolving classification ambiguities, benefiting traders while prompting authorities to ascertain end-use proactively. The order, dated December 9, 2025, mandates communication to connected matters.