The classification of imported goods hinges on the 'most akin' test, requiring clear evidence of conformity to specified parameters, rather than mere preponderance of probabilities.

Headnote:(A) Customs Act, 1962 - Sections 111(d), 111(m), 112(a), 112(b), 114AA, and 117 - Classification of imported goods - Dispute over whether goods are Base Oil or High Speed Diesel (HSD) - Adjudicating Authority classified goods as HSD, leading to confiscation and penalties - Appellate Tribunal reversed this decision, classifying goods as Base Oil - High Court reinstated the Adjudicating Authority's decision, affirming classification as HSD. (Paras 2-20)

(B) Burden of Proof - The burden lies on the Revenue to establish the classification of goods, which must be proven with a degree of preponderance of probabilities, not mathematical precision. (Paras 24-26)

(C) Expert Evidence - The court emphasized the importance of expert testimony and laboratory results in determining the classification of goods, noting that inconclusive evidence cannot support confiscation. (Paras 56-72)

(D) Most Akin Test - The court introduced the 'most akin' test for classification, suggesting that goods should be classified based on their closest resemblance to specified goods under the Tariff Act. (Paras 82-84) (E) Final Decision - Appeals allowed, setting aside the High Court's judgment and restoring the Appellate Tribunal's classification of goods as Base Oil. (Paras 89-90)

Judgement Key Points

Based on the provided legal document, here are the key points regarding the classification of imported goods:

Subject Matter: The case concerns the classification of imported goods as either Base Oil or High Speed Diesel (HSD), which determines whether they are a prohibited item liable for confiscation and penalties. (!) (!)
Procedural History: The Adjudicating Authority classified the goods as HSD, leading to confiscation. The Appellate Tribunal (CESTAT) reversed this, classifying them as Base Oil. The High Court reinstated the Adjudicating Authority's decision. The Supreme Court allowed the appeals, setting aside the High Court's judgment and restoring the Tribunal's classification of the goods as Base Oil. (!) (!) (!)
Burden of Proof: The burden lies on the Revenue to establish the classification of goods. While the standard is generally the preponderance of probabilities, in cases involving technical/scientific parameters with confiscatory consequences, the degree of probability required is higher, and mere probability is insufficient. (!) (!) (!)
Most Akin Test: The court introduced the "most akin" test for classification under Rule 4 of the General Rules for Interpretation of the Tariff Act. Goods should be classified based on their closest resemblance to specified goods, not merely based on a preponderance of probabilities or partial conformity to specifications. (!) (!)
Expert Evidence and Laboratory Reports: The court found the laboratory test reports (from Vadodara, CRCL, and IOCL) and the expert opinion of Dr. Gobind Singh to be inconclusive. The reports confirmed conformity to only 14 out of 21/22 parameters of IS 1460:2005, and the expert evaded answering crucial questions regarding the importance of the untested parameters and the significance of the flash point. (!) (!) (!) (!) (!) (!)
Flash Point Issue: A critical finding was that the flash point of the samples (ranging from 78°C to 115°C) exceeded the minimum requirement for HSD (66°C) and fell into the range of Petroleum Class C (65°C to 93°C) or higher, raising doubts about the classification as HSD. The expert failed to clarify the significance of this deviation. (!) (!) (!) (!)
Conclusion on Evidence: Due to the ambiguity, lack of clarity in the expert opinion, and incomplete test results, the evidence was deemed insufficient to prove the goods were HSD. The court could not safely draw an inference that the goods were HSD based on partial conformity. (!) (!) (!)
Final Decision: The appeals were allowed, the impugned orders of the High Court were set aside, and the classification of the goods as Base Oil (as per the Appellate Tribunal) was restored. (!)

JUDGMENT :

NONGMEIKAPAM KOTISWAR SINGH, J.

Delay condoned in Special Leave Petition arising out of Diary No.32623 of 2024. Leave granted in all the Special Leave Petitions.

2. The issue involved in this batch of appeals is, whether, the imported goods is to be treated as Base Oil as claimed by the appellants or High Speed Diesel (HSD) as determined by the Customs Authorities, which is contested by the appellants. If the product is treated as HSD, it would be a prohibited item that could not have been imported by a private entity other than a State Trading Enterprise, in which event it would be liable to be confiscated and penalty be imposed on the appellant importers.

3. The Commissioner of Customs, the Adjudicating Authority held vide order dated 03.12.2019 that the said product is not Base Oil, but HSD and accordingly, ordered confiscation of the same apart from levying penalties. On the other hand, the appellate authority, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held the same to be Base Oil and not HSD, thus reversing the decision of the Adjudicating Authority. On being challenged before the High Court of Gujarat, by the Customs Authorities, the High Court reversed the decision of the Appellate Tribunal and affirmed the decision of the Adjudicating Authority holding the imported goods to be HSD.

4. In order to appreciate the issues in proper perspective, a brief reference of the relevant facts may be necessary.

Facts in brief

5. The three appellants, M/s Gastrade International, M/s Rajkamal Industrial Pvt Ltd and M/s Divinity lmpex imported the goods from UAE by sea per vessel ''Al Heera" which was docked at Kandla Port. The importers declared the goods as “Base Oil SN 50” seeking clearance of the same under Chapter Heading 27101960, which is for Base Oil. On the basis of the Intelligence Report, the Directorate of Revenue Intelligence (“DRI”), classifying the said cargo as HSD under Chapter Heading 27101930, which is prohibited from being imported except only by State Trading Enterprises, seized the said cargo. As per Import Policy ITC (HS), 2017, High Speed Diesel (HSD) and Low Diesel Oil (LDO) are covered under the EXIM Code 27101930 and 27101940 and in terms of policy as notified under Notification dated 20.05.2015 issued by the DGFT Department of Commerce, these items could be imported only by the State Trading Enterprises and thus, not by appellants. The samples of the seized goods were sent to Central Excise and Customs Laboratory at Vadodara for testing which returned the report on 11.05.2018 with the finding that the samples drawn from the seized goods had characteristics of High Speed Diesel Oil/Automative Fuel Oil conforming to IS 1460: 2005 in respect of 8 parameters and that the samples were “other than Base Oil”. The appellant- importers contested the said test report and the requested the Customs authorities for retesting the samples at the Central Revenues Control Laboratory (CRCL), New Delhi or Indian Institute of Petroleum, Dehradun. Accordingly, the samples were sent to CRCL.

6. The Central Revenues Control Laboratory to which the samples were again sent also submitted a report dated 03.07.2018 with the finding that the samples conform to the specifications of HSD Oil (Automotive Diesel Fuel) as per IS 1460: 2005 in respect of 10 parameters and each of the samples is “other than Base Oil”.

7. Not satisfied with the aforesaid results, one of the appellants, M/s Rajkamal Industrial Pvt. Ltd. approached the High Court of Gujarat by filing a Special Civil Application No. 10882 of 2018 in which the High Court passed an interim order on 30.07.2018 directing the Department to send requisite quantity of samples to the Indian Oil Corporation Ltd. (IOCL), Mumbai which is one of the notified laboratories as per the Department's circular dated 16.11.2017.

8. The samples were accordingly sent to the Central Laboratory, Indian Oil Corporation Limited in Mumbai which submitted the report dated 14.08.2018

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2025 Supreme(SC) 553

The classification of imported goods hinges on the 'most akin' test, requiring clear evidence of conformity to specified parameters, rather than mere preponderance of probabilities.

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