Gastrade International vs Commissioner Of Customs, Kandla

REPORTABLE 2025 INSC 411 IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. OF 2025 (@ SPECIAL LEAVE PETITION (CIVIL) NO. 6470 OF 2022)

GASTRADE INTERNATIONAL ...APPELLANT (S)

VERSUS

COMMISSIONER OF CUSTOMS, KANDLA …RESPONDENT(S)

With

CIVIL APPEAL NO. OF 2025 (@ SPECIAL LEAVE PETITION (CIVIL) NO. 6472 OF 2022)

CIVIL APPEAL NO. OF 2025 (@ SPECIAL LEAVE PETITION (CIVIL) NO. OF 2025) (@ Diary No. 32623 OF 2024)

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, Signature Not Verified

whether, the imported goods is to be treated as Base Oil as Digitally signed by ARJUN BISHT Date: 2025.03.28 14:55:06 IST Reason:

claimed by the appellants or High Speed Diesel (HSD) as

Page 1 of 76 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.

Page 2 of 76 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

Page 3 of 76 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

Page 4 of 76 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 stating that the

sample had been tested as per Indian Standard 1460: 2005

and the sample met 14 parameters as per the laboratory

capability out of prescribed 21 parameters in terms of the

specification IS: 1460: 2005.

9. The DRI, thereafter, issued show cause notices to the

appellants on 24.04.2019 alleging improper classification. In

the said show cause notices, it was stated that the imported

goods are classifiable as HSD under CTH 27101930, that the

imported goods were liable to be confiscated under Sections

111(d) and (m) of the Customs Act, 1962 ( for short, “Act”)

and that penalties are liable to the imposed under Sections

112(a) and (b) of the Act and the Directors of the appellant-

companies were also liable to be imposed penalties under

Sections 112(a) and (b), Section 114AA and the Section 117

of the Act.

Page 5 of 76 The show cause notices also stated that the earlier

imports were liable to be classified as Light Diesel Oil under

CTH 27101940 and these were also liable to be confiscated

under Sections 111(d) and (m) of the Act and penalty be

imposed under Sections 112 (a) and (b) and Section 114AA

of the Act.

Show cause notice was also issued to the buyer, in

respect of the appellant – Gastrade International Pvt. Ltd., of

the earlier imported goods stating that the earlier imports

were LDO under CTH 27101940 and were liable to be

confiscated under Sections 111(d) and (m) of the Act and

penalties were liable to be imposed under Section 112(b).

Show cause notice was also issued to the exporters of the

said goods as to why penalty should not be imposed on them

under Sections 112(a) and (b), 114AA and 117 of the Act.

Finding by the Adjudicating Authority

10. After considering the replies furnished by the parties

and considering the evidence, both oral and documentary,

relied upon, and hearing the parties, the Adjudicating

Authority, the Principal Commissioner of Customs, Custom

Page 6 of 76 House, Kandla passed the Orders-in-Original No. KND-

CUSTM-000-COM-12-2019-20 dated 05.12.2019, KND-

CUSTM-000-COM-13-2019-20 dated 05.12.2019, and KND-

CUSTM-000-COM-14-2019-20 dated 05.12.2019, rejecting

the claim of the appellants and upholding the departmental

findings. In the course of the enquiry and hearing conducted

by the Adjudicating Authority, one of the experts, namely Dr.

Gobind Singh, Manager (Lab), IOCL Central Laboratory,

Mumbai was also examined.

11. The Adjudicating Authority concluded that as per the

findings of the three independent laboratories of repute, the

samples meet the parameters specified under IS 1460:2005

prescribed for High-Speed Diesel, a hydrocarbon oil and the

importers could not produce any authentic or authoritative

literature about what is Base Oil SN 50 and thus failed to

prove that the goods imported were Base Oil falling under

Chapter 27101960 of Customs Tariff Act, 1975 (for short,

“Tariff Act”).

12. The Adjudicating Authority also repelled the

contention of the appellants that since IOCL had tested only

14 out of 22 parameters for IS 1460:2005, and thus, all the

Page 7 of 76 parameters had not been tested, it cannot be said that the

sample is of HSD. It was also held that the appellants could

not point out which of these remaining eight parameters will

not be satisfied if tested.

13. Accordingly, the Adjudicating Authority held that the

goods were liable to confiscation under Sections 111 (d) and

(m) of the Act. The Directors of the appellants were held

liable for penalty under Sections 112(a) and 114AA of the

Act. However, granting permission to the appellants to

redeem the confiscated goods for re-export on payment of

fine.

14. Being aggrieved by the aforesaid orders in original

passed by the Adjudicating Authority, the appellants

preferred appeals before the Custom Excise Service Tax

Appellate Tribunal (CESTAT).

Finding by the Appellate Authority (CESTAT)

15. According to the CESTAT, as per the statutory

definition provided in the Tariff Act which needs to be

construed strictly, only such hydrocarbon oil that conforms

to the Indian Standard Specification IS1460:2005 can be

classified as HSD. As per the said specification, 21/22

Page 8 of 76 parameters have been mentioned and no exception has been

provided to the effect that if any or some of the parameters

out of 21/22 parameters are not met, even then the product

will be determined as HSD. According to CESTAT, only such

product that meets all the 21/22 parameters as specified in

IS 1460:2005 can be qualified as HSD. The CESTAT held

that in the present case, since eight parameters were not

tested, it cannot be said that the product is conforming to IS

1460:2005, and if it is not conforming to IS 1460:2005, it

does not fall within the definition of HSD as provided under

Supplementary Note of Chapter 27.

The CESTAT also held that the burden is on the

Department to establish the classification of goods as HSD,

which conforms to IS 1460:2005, and in the absence of

testing of all the parameters, it can be only an assumption

of the Department that on the basis of 14 parameters, a

product can be classified as HSD.

16. The CESTAT also took the view that the test report of

IOCL Laboratory is not conclusive. The CESTAT was of the

opinion that the expert, Dr. Gobind Singh who was examined

had not considered that the flash point is an important

Page 9 of 76 parameter for testing the goods and he could not give any

firm opinion as regards the parameter of flash point. The

CESTAT held that the test conducted by Dr. Gobind Singh

of IOCL cannot be considered to be conclusive to determine

that the product is HSD. The CESTAT was of the view that

in the present case as the flash point tested was above 93°C,

the goods cannot be classified as HSD. The CESTAT also

held that the Department had with a predetermined mind

got the goods tested for HSD, whereas the said goods should

have been tested as to whether these are Base Oil or not,

and only when the parameters are not met for Base Oil then

the Department could have resorted to carrying out the test

for classifying the goods either under HSD or any other

classification.

17. The CESTAT held that even if the product is not Base

oil, since it was not proved by the Department beyond doubt

that the impugned goods are HSD, the case of the

Department would fail.

18. Accordingly, the CESTAT held that the goods are not

classifiable as HSD under CTH 27101930. Consequently,

the claim of the appellants for classification of goods as Base

Page 10 of 76 Oil under CTH 271019160 was maintained and in view of

the submission made by the appellants that irrespective of

the decision of the classification, they would seek permission

to re-export, the appellants were allowed to re-export the

goods and the CESTAT set aside the order of confiscation,

imposition of penalty and the redemption fine by the

Department vide a common order dated 28.09.2021 passed

in the aforesaid Customs Appeal No.10240 of 2020, Customs

Appeal No.10291 of 2020 and Customs Appeal No.10298 of

2020.

19. Being aggrieved by the aforesaid decision of the

CESTAT, the Department preferred three appeals before the

High Court of Gujarat, which were registered as Revenue Tax

Appeal No.297 of 2021, Revenue Tax Appeal No. 298 of 2021

and Revenue Tax Appeal No.299 of 2021, which were allowed

by a common judgement and order dated 20.01.2022 passed

by the High Court, which is the subject matter of challenge

in this batch of appeals.

Page 11 of 76 Finding by the High Court

20. Before the High Court, the issue of maintainability of

the appeals under Section 130 of the Act was raised, which

was decided in favour of the Department. However, the

appellants have not pressed this issue before us and as such

we make no observation about the decision, and we confine

our consideration only on the issue as to whether the High

Court was correct in concluding that the imported oil is not

Base Oil as claimed by the appellant-importers and is HSD

as classified by the Department.

21. The High Court noted that though it would appear

that what had been decided by the Tribunal could be termed

as a question of fact, and whether the subject goods fall

within one category or the other would essentially be a

question of fact, yet while deciding the same, if the Tribunal

overlooks certain basic principles of law applicable to the

case on hand and records findings which could be termed as

perverse, then definitely such a decision of the Tribunal

would give rise to a question of law and hence maintainable.

Page 12 of 76 The High Court thereafter proceeded to examine the

materials on record.

22. Coming to the evidence of Shri Gobind Singh,

Manager (Lab), IOCL Central Laboratory, Mumbai, the High

Court observed that a plain reading of the statement and

cross-examination of Dr. Gobind Singh would indicate that

the expert in no uncertain terms had made himself clear that

all the 14 tests which were carried out revealed only one

thing that the sample was of High-Speed Diesel, and not

Base Oil as asserted by the assessees.

The High Court also noted that the expert was honest

enough to admit that the IOC laboratory was equipped to

conduct only 14 tests and it had no facility or means to

conduct the remaining seven tests. The High Court then

considered whether the analysis could be said to be complete

or conclusive as regards the nature of the sample only if all

the 21 tests were undertaken, more particularly when the

expert had asserted that all the 14 tests carried out indicated

only one thing that the sample analysed was that of High

Speed Diesel.

Page 13 of 76

23. The High Court went on to observe that it is not in

dispute that the onus of establishing that the sample meets

the specification IS1460:2005 lay upon the Customs

Authority, and the burden of proof is on the Authority to

show that the particular goods or item in question is taxable

in the manner claimed by them. According to the High Court,

there should be material to enter an appropriate finding in

that regard and the material may be either oral or

documentary, and it is for the Authority to lay evidence on

that behalf even before the Adjudicating Authority.

24. The High Court went on to observe relying on the

decisions of this Court in Collector of Customs, Madras

and others Vs. D Bhoormall, AIR 1974 SC 859; A.N. Guha

& Co Vs. Collector [1996 (86) ELT 333]; R.V.E

Venkatachala Gounder Vs. Arulmigu Viswesaraswami

& V.P. [Order dated 08.10.2003 in Civil Appeal number

10585 of 1996] that the Department is not required to prove

its case with mathematical precision to a demonstrable

degree and legal proof is not necessarily a perfect proof.

25. It was observed by the High Court that so long as the

Department has been able to establish its case with such a

Page 14 of 76 degree of preponderance, the existence of fact could be said

to have been proved. The High Court observed that the only

ground on which the Tribunal interfered with the findings

recorded by the Adjudicating Authority was that the

laboratories were not in a position to conduct all 21 tests.

According to the High Court, the Tribunal ignored the fact

that all the tests carried out in three different laboratories

revealed only one thing that the sample showed the

characteristics of HSD. The High Court then observed that if

the Department was able to lead evidence to this extent, the

onus thereafter shifted upon the assessee to establish that

these tests cannot be said to be conclusive of the fact that

the subject good is HSD. However, no such attempt had

been made by the assessees.

26. The High Court further went on to observe that it was

not at all convinced with the findings recorded by the

Tribunal. The High Court held that the Tribunal could be

said to have ignored the material evidence in the form of the

three test reports of three different laboratories, certifying

the samples to meet the specification IS1460:2005 and

assessees have not been able to show anything based on

Page 15 of 76 which the High Court can take the view that if all the

prescribed 22 tests are not carried out, the report would

remain incomplete and would not be admissible in evidence

or would not be conclusive of the nature of the sample.

27. The High Court observed that if these 14 tests indicate

the sample to be one of the HSD, this evidence could not

have been discarded, ignored or overlooked only on the

ground that seven other tests could not be undertaken by

the laboratories because of lack of adequate facility to

conduct these seven tests. According to the High Court, to

say so would require the Department to prove its case with

mathematical accuracy and beyond reasonable doubt.

Accordingly, the High Court allowed the appeals preferred by

the Department and set aside the order of the CESTAT.

Consideration by this Court

28. From the above three decisions of the Adjudicating

Authority, the Appellate Authority (CESTAT), and the High

Court, it is quite evident that their decisions primarily

hinged upon the reports of the three laboratories, namely,

Central Excise and Customs Laboratory at Vadodara,

Central Revenues Control Laboratory (CRCL), New Delhi and

Page 16 of 76 Central Laboratory, Indian Oil Corporation Limited, Mumbai

where the samples of the questioned goods were sent for

testing as to whether these conformed to the Indian

Standards Specification of Bureau of Indian Standards IS:

1460:2005. All three fora also referred to the expert evidence

of Dr Gobind Singh.

29. Considering the different conclusions arrived at by

the three fora on the same set of the results of the tests

conducted by three different laboratories, it would be

necessary to examine these tests to understand how these

fora had arrived at their conclusions.

30. Since the reference point of these tests is Indian

Standard Specification of the Bureau of Indian Standards,

IS1460:2005, which prescribes the specifications for HSD

under the Tariff Act, it would be necessary to refer to these

parameters before we proceed to examine the implications of

the results of the three tests and arrive at the correct

conclusion.

31. Section 2 of the Tariff Act provides the rates at which

duties of customs shall be levied under the Customs Act as

specified in the First and Second Schedules to the Tariff Act.

Page 17 of 76 Chapter 27 of the First Schedule to the Tariff Act deals

with the rate of duties leviable in respect of mineral fuels,

mineral oils, and products of their distillation; bituminous

substances; mineral waxes.

Supplementary Note to Chapter 27 defines various

kinds of oils specifying the attributes to these, including that

of HSD. Accordingly, relevant portions of this

Supplementary Note are reproduced hereunder for easy

reference.

“SUPPLEMENTARY NOTES:

In this Chapter the following expressions have the meanings hereby assigned to them:

a) Motor Spirit means any hydrocarbon oil (excluding crude mineral oil) which has its flashpoint below 250C and which either by itself or in admixture with any other substance, is suitable for use as fuel in spark ignition engines. “Special boiling point spirits (subheadings 2710 12 11, 2710 12 12 and 2710 12

13) means light oils, as defined in Chapter Note 4, not containing any anti-knock preparations, and with a difference of not more than 600C between the temperature at which 5% and 90% by volume (including losses) distil;

b) “Natural gasoline liquid (NGL)” is a low–boiling liquid petroleum product extracted from Natural Gas;

c) “Superior kerosine Oil (SKO)” means any hydrocarbon oil conforming to the Indian Standards Specification of Bureau of Indian Standards IS:1459-

1974 (Reaffirmed 1996);

d) “Aviation turbine fuel (ATF)” means any hydrocarbon oil conforming to the Indian Standards

Page 18 of 76 Specification of Bureau of Indian Standards IS:1571:1992:2000;

e) “High-speed diesel (HSD)” means any hydrocarbon oil conforming to the Indian Standards Specification of Bureau of Indian Standards IS: 1460:2005;

f) “Light diesel oil (LDO)” means any hydrocarbon oil conforming to the Indian Standards Specification of Bureau of Indian Standards IS: 15770:2008;

g) “Fuel oil means any hydrocarbon oils conforming to the Indian Standards Specification of Bureau of Indian Standards IS:1593:1982 (Reaffirmed in the year 1997);

h) “Lubricating oil” means any oil, which is ordinarily used, for lubrication, excluding any hydrocarbon oil, which has its flash point below 93.30 Centigrade;

i) “Jute batching oil” and “textile oil” are hydrocarbon oils which have their flash point at or above 93.30C, and is ordinarily used for the batching of jute or other textile fibres;

j) The expression “petroleum jelly crude” (subheading 2712 10 10) by the ASTM D 1500 method

k) For the purposes of these additional notes, the tests prescribed have the meaning hereby assigned to them

1) “Flash Point” shall be determined in accordance with the test prescribed in this behalf in the rules made under the Petroleum Act, 1934 (30 of 1934);

2) …………………………………………………..

………………………………………………………

5) …………………………………………………..

32. Thus, High Speed Diesel (HSD) has been defined as

any hydrocarbon oil conforming to the Indian Standards

Specification of Bureau of Indian Standards IS: 1460:2005.

Page 19 of 76

33. As regards the Indian Standards Specification of

Bureau of Indian Standards IS1460:2005 relating to High

Speed Diesel, the specifications provided are as follows:

EURO IV/BHARAT STAGE IV EMISSION NORMS COMPLAINT – SPECIFICATION FOR AUTOMOTIVE DIESEL FUEL

Sl No. Characteristics Requirements Test Method [P:] of IS 1448/ISO/ASTM (1) (2) (3) (4) Acidity, inorganic Nil [P : 2]

i) Acidity, total, mg of To Report [P : 2]

ii) KOH/g, Max Ash, percent by mass, Max 0.01 [P : 4]/ISO 6245

iii) Carbon residue 0.30 [P : 8]/ISO

iv) (Ramsbottom) on 10 10370 percent residue1), percent by mass, Max Cetane number, Min 512) [P : 9]/ISO 5165

v) Cetane index, Min 462) D 4737/ISO

vi) 4264 Pour point3), Max: [P : 10]/D 5949

vii) or D 5950 or D 5985

a) Winter 3° C

b) Summer 15 C Copper strip corrosion for Not worse [P : 15]/ISO

viii) 3 h at 50°C than No. 1 2160 Distillation, percent v/v, 95 [P : 18]/ISO

ix) recovered at 360°C, Min 3405 Flash point* :

x) a) Abel, °C, Min 35 [P : 20] b) Pensky Martens closed 66 [P : 21] cup4), °C, Min Kinematic viscosity, cSt, at 2.0 to 4.5 [P : 25]/ISO xi) 40°C 3104 Sediment, percent by - [P : 30] xii) mass, Max Total contamination, 24 EN 12662 xiii) mg/kg, Max Density at 15°C5), kg/m3 820-845 [P : 16] or [P : xiv) 32]6)/D 4052/ ISO 3675 or ISO 12185 Total sulphur7), mg/kg, 50 ISO 20846 or xv) Max ISO 20847 or ISO 20884/ [P : 83]/D 5453/ D

Page 20 of 76 2622/D 4294/[P : 34]8) Water content, mg/kg, 200 ISO 12937 xvi) Cold Filter Plugging Point [P : 110]/D xvii) (CFPP)3), Max: 6371 a) Winter 6°C b) Summer 18°C Oxidation stability9), g/m3 25 ISO 12205 or xviii) , Max ASTM D 22749) Polycyclic Aromatic 11 IP 391 or EN xix) Hydrocarbon (PAH), 12916 percent by mass, Max Lubricity corrected wear 460 ISO 12156- xx) scar diameter (wsd 1.4) at 1/Cor 1 60°C, microns, Max Oxygen content10), percent 0.6 Annex B xxi) by mass, Max

1) This limit is applicable prior to addition of ignition improvers, if used. In case a value exceeding the limit is obtained on finished fuels in the market, ASTM D 4046/ISO 13759 shall be used to establish the presence of nitrate containing compound. In such case the present limit for carbon residue cannot be applied.

However, the use of ignition improver does not exempt the manufacturer from meeting this requirement prior to the addition of additives.

2) For Fuel processed from Assam crude, Cetane number and Cetane index is relaxed by 3 units.

3) Winter shall be the period from November to February in central and northern plains of India (both months inclusive) and rest of the months of the year shall be called as summer.

4) Applicable for Naval applications and fishing vessels requiring High Flash Automotive Diesel Fuel.

5) For fuel processed from Assam crude, the density range is relaxed to 820-855.

6) In case of dispute, IS 1448 [P : 32] shall be the referee test method.

7) For Automotive Diesel Fuel supplied to Indian Navy, the limit of sulphur shall be in agreement between the buyer and the supplier.

8) In case of dispute, IS 1448 [P : 34] shall be the referee test method.

9) This test shall be carried out only at the refinery or manufacturer's end. In case of dispute, ASTM D 2274 shall be the referee method.

10) Shall be applicable only for Automotive Diesel Fuel blended with 5 percent (v/v) Bio-diesel conforming to IS 15607 and the limit shall proportionately vary as and when the different blending percent of Bio-diesel is permitted.

…..

…..

Page 21 of 76

34. It may be relevant herein to mention that flash point

has been defined under Section 2 (c) of the Petroleum Act,

1934 as follows:

“2 (c) ‘Flash-point’ of any petroleum means the lowest temperature at which it yields a vapour which will give a momentary flash when ignited, determined in accordance with the provisions of Chapter II and the rules made thereunder;”

35. We will now examine the results of the three tests

conducted by the three laboratories, which are reproduced

as follows:-

1. Central Excise and Customs Laboratory at Vadodara.

Report dated 11.05.2018.

Lab No. RCL/AH/DRI/216/07.05.2018 TANK NO. 1 Report

The sample is in the form of light pale yellow colored liquid. It is composed of mineral hydrocarbon oil having following characteristics:-

1. Flash point (PMCC) = Above 66°

2. ASH Content = Nil

3. Acidity= NIL

4. Water Content= NIL

5. Densi1y at 15° = 0,8301 g/ml

6. Distillation recovery a. At 350° = more than 85% b. At 360° = more than 95%

7. Kinetic viscosity at 40° = 3.80 CST

8. Sediment = N1L

In view of the above analytical parameter the sample has characteristics of high speed diesel oil/Automotive Fuel Oil confirming to IS: 1460:2005 &

Page 22 of 76 amended thereafter in terms of parameters 1 to 8 mentioned above.

It is other than base oil

Sealed remnant returned

Dispatch No. 177 Sd/-

Date:11.05.2018 11 .05.2018 Pradeep Maroo Chemical Examiner Grade-II Seen Deepali 02/07/2018

2. Central Revenues Control Laboratory (CRCL), New Delhi.

Report dated 03.07.2018.

Government of India Ministry of Finance, Department of Revenue Central Board of Indirect Taxes & Customs Central Revenues Control Laboratory Hillside Road, Pusa, New Delhi-110012 Tel.:011-21520123/25843494, Fax: 011-25843495 Email: dir.crcl-cbec@nic.in Website: http://crcl.gov.in _______________________________________________________ F.No.-27-Cus/C-05 to 14/2018-19 Dated: 03.07.2018

To

The Additional Director, Directorate of Revenue Intelligence, Ahmedabad Zoal Unit, No. 15, Magnet Corporate Park, 100 ft Thaltej-Hebatpur Road.

Near Sola Flyover, Thaltej, Ahmedabad-380054

Sub. : Testing of samples declared as Base Oil SN 50- reg.

Please refer to your letter F. No. DRIAZU/CI/ENQ- l2/2018 dated 06.06.2018 on the subject cited above

Page 23 of 76 forwarding therewith 10 samples described as Base Oil SN 50 pertaining to B/E No. 6252179, 6251273, 6251276. 6251277, 6251258. 6251267. 6251268, 6252184, 6251270 and 6251278 all dated 04.05.2018 and TM No. 1A to 1OA dated 06.06.2018 for retesting.

The samples u/r have been registered here under Lab Nos. CLR-05 to CLR 14 dated 14.06.2018 respectively.

The samples have been analyzed and Test reports are as under:-

Report:-

Each of the ten samples is in the form of pale yellow colored liquid. Each is composed of mineral hydrocarbon oil, having more than 70% mineral hydrocarbon oil and possesses following characteristics:-

Test Results of the samples

Page 24 of 76 Lab No. CLR-05 CLR-06 CLR-07 CLR-08 CLR-09 CLR-10 CLR-- CLR-- CLR-- CLR--

11 12 13 14

TM Mo. 1A 2A 3A 4A 5A 6A 7A 8A 9A 10A

Characteris Limit as tic per IS 1460:200 5 and amended

Acidity. Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Inorganic

Acidity, To report 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 total mg of KOH/g

Ash 0.01 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil percent by mass (max.)

Carbon 0.30 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 residue (Ramx (mat.) bottom) on 10% resdue percent by mass

Density at 0.8200 .8287 .8316 .8310 .8288 .8284 .8286 .8286 .8282 .8284 .8281 15°C 0.8450

Flash Point 66° (min.) 113°C 115°C 93°C 88°C 98°C 100°C 95°C 78°C 106°C 111°C (PMCC)

Kinematic 2.0 to 4.5 3.7 4.4 4.4 4.4 4.0 3.9 3.5 4.1 4.0 4.0 40°C, cSI

Kinematic - 4.3 4.9 4.8 4.7 4.7 4.3 4.3 4.3 4.3 4.3 Viscosity 37.8°C

Distillation 95 238- 234- 234- 238- 240- 238- 240- 240- 240- 238- range, °C 356 358 352 354 356 344 354 350 342 325

Percent v/v Recovered ot 360°C 356°C 358°C 352°C 354°C 356°C 344°C 354°C 350°C 342°C 325°C

95% volume recovered at

Pour Point, 3°C 8°C 8°C 8°C 8°C 8°C 8°C 8°C 8°C 8°C 8°C Max 15°C a) Winter

b) Summer

Cetaile 46 (min.) 65.7 66.0 65.6 66.2 66.0 66.5 66.6 66.6 67.0 67.7 Index

Water 200 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil content, (max.) percent v/v mg/kg

Page 25 of 76

On the basis of above analytical parameters, each of the ten samples conforms to the specifications of High Speed Diesel Oil/ (Automotive Diesel Fuel as per IS 1460:2005 and further amended).

Each is other than Base Oil.

Sealed remnants are returned separately.

Sd/-

03.07:2018 (K. C. Agrawal) Joint Director

Copy to: The Chemical Examiner Gr-I (I/e) Central Excise & Customs Laboratory, Vadodara.

3. Central Laboratory, Indian Oil Corporation Limited, Mumbai.

Report dated 14.08.2018

Indian Oil Corporation Limited Central Laboratory “K” Oil H Installation. Sewri (East), Mumbai-400 015 Telefax 0222416 3062 (D). 022 2292 4761 Marketing Division

QUALITY CONTROL TEST REPOT FOR HIGH SPEED DIESEL SPECIFICATION NO. IS:1460-2005 AMENDED NO.2 MARCH 2010 Test Required High Speed Diesel Analysis Test Report No. & Date LSE/3791/2018 dated 14/08/2013 Name of Customer Directorate 01 Revenue Intelligence, Ahmedabad Source of Sample 7S (Composite), Vessel MT. AL HEERA Sample Drawn By Jointly by Representative of DRI, Ahmedabad

Page 26 of 76 Seal No. Glass bottle sealed with Lead Seal (Yellow tag with Panchas signature) Date of Sampling 05/05/2018 Date of Sample Received 09/08/2018 Reason for Testing AS per letter ref.

DRI/AZU/CI/ENQ-12(INT 02/2018/2018: dated 08/08/2018. Goods declared as “Base Oil SN 50-IN Bulk” to be tested as per High Speed Diesel Specification IS 1460:2005 amended.

SL.No CHARACTERIST REQUIREMENTS TEST METHOD (P) RESULTS ICS of IS:1448/ISO/ASTM I. Acidity, Nil P:2 Mil inorganic II Acidity, total, To report P:2 0.06 mg of KOH/g, Max III Ash, percent by 0.01 P:4 0.002 mass, Max IV Carbon residue 0.30 P:8 0.03 (Rams bottom) on 10 percent residue, percent by mass, Max V Cetane Number, 51 P:9 FNA Min. VI Cetane index, 46 D-4737 66.9 Min VII Pour Point, Max: 3°C/15°C P:10 3 (a) Winter/(b) Summer VIII Copper strip Not worse than P:15 1a corrosion for 3 No.1 hrs at 50°C IX Distillation, % 95 P:18 95 v/v, recovered at 360”C, Min X Flash Point: 35 P:20 --112 a) Abel°C Min 66 P:21 b) Pensky martens closed cup, °C, Min XI Kinematic 2.0 to 4.5 P:25 3.997 viscosity, cSt, at 40 C XII Sediment, - P:30 0.02 percent by mass, Max

Page 27 of 76 XIII Total 24 EN 12662 FNA Contamination, mg/Kg, Max XIV Density at 15°C, 820-845 P:16 829.5 kg/m3 XV Total Sulphur, 50 D-4294 37 mg/kg, Max XVI Water content, 200 ISO-12937 75 mg/kg, Max XVII Cold Filter 6°C/18”C P:110 FNA Plugging Point °C (CFPP), Max, (a) Winter/(b) Summer XVIII Oxidation 25 ISO:12205 FNA Stability, g/ m3 XIX Policyclic 11 IP-391 FNA Aromatic Hydrocarbon (PAH), % m, Max XX Lubricity 460 ISO:12156-1 FNA Corrected Wear Scar Dia @ 60°C, microns, Max XXI Oxygen Content, 0.6 Annex. B- FNA % m, Max

REMARKS:

I. FNA: Stands for "Facility Not Available"

2. Flash point test was first done by Abel apparatus but, since it was more than 66°C, it was done by PMCC.

3. As stated in Point no. 6 of your letter No. DR1/AZU/CI/ENQ-l2(INT-02/2018)/20l8 dated 08/08/2018 stating as per the order of the Hon'ble High Court of Gujarat. this sample has been tested as per Indian Standard 15: 1460:2005 as amended & under this specification there are total XXI tests covered out of which we have tested only XIV parameters as per our lab capability.

4. This sample meet the specification for only XIV parameters tested at our lab as per the specification IS:l460:2005 amended.

NOTE

1. This test report refers only to the particular sample submitted for testing. Results relate to sample as received.

2. This test report shall not be reproduced except in full, without the written approval of the laboratory.

3. Form No: QF/OPN/07

Page 28 of 76

4. The test results reported are valid at the time of & under stated conditions of the test.

--- - End of test report------

Tested by

Sd/-

Dr. Gobind Singh Manager (Lab).

Indian Oil Corporation Limited.

14.08.2018 Reviewed by Sd/-

14.08.2018

36. Apart from the aforesaid three test results, all three

forums had also referred to the evidence of the expert,

namely, Dr. Gobind Singh, Manager (Lab), IOCL Central

Laboratory, Mumbai, more specifically to his cross-

examination, while arriving at the respective conclusions.

Hence, it may be apposite to reproduce the same as below:

(i)The cross-examination of Shri Singh at the instance of M/s. Rajkamal Industrial Pvt.

Ltd., is as under:

“(Before the Principal Commissioner of Customs, Custom House, Kandla) Cross Examination of Shri Gobind Singh, Manager (Lab), IOCL, Central Laboratory, Mumbai in the matter of SCN F. No.DRI/AZU/CI/INQ-12(INT-2/2018 dated 22.04.2019 issued to M/s. Rajkamal Industrial Pvt Ltd & Others by Shri Hardik Modh, Advocate.

Q: What is your name?

A: Dr. Gobind Singh.

Page 29 of 76 Q: Where have you been working and for how long? A: I have been working in IOCL at Sewree at Mumabi since 2012.

Q: How many samples have you tested in respect of petroleum products?

A: I have tested large number of samples running into hundreds of samples.

Q: Are you aware of letter dated 04.08.2018 written by the Assistant Director of DRI whereby it was requested to Mr. Vivek W. Sawant, DGM, IOCL to test the samples as requested under test memo in accordance with the parameters prescribed under IS 1460:2005 for “High Speed Diesel” and to categorize the identity of the goods. Had you tested these good only to ascertain whether the parameters prescribed under Indian Standard IS 1460:2005 for High Speed Diesel? A: Yes.

Q: As per the letter dated 04.08.2018, you were requested to verify whether the samples were HSD as per IS 1460:2005. Have you followed these instructions?

A: Yes.

Q: Have you signed the test reports annexed with “Relied upon Documents” as Sr. No.25 to the Show Cause Notice dated 22.04.2019?

A: Yes.

Q: What does it mean ‘reviewed by’?

A: The samples were tested by me and checked, supervised and signed by my senior at the lab. Q: Table I of IS 1460:2005 provides total 22 parameters are to be tested for ascertaining whether the sample meets with the criteria of HSD?

A: The Sample meets with the specification IS 1460:2005 for the parameters tested at our laboratory which are 14 parameters tested as per our lab capabilities.

Q: Does it mean that the other 8 parameters are not important for ascertaining or deciding whether the sample meets with the criteria of HSD?

A: Already provided in the report that in the lab the samples were tested as per IS 1406:2005 and there is facility available only for testing of 14 parameters and

Page 30 of 76 for the remaining 8 parameters, the facility is not available for which I can’t comment.

Q: Do you know the function/characteristics of the 8 parameters provided under IS 1406:2005 that have not been tested?

A: As the 8 parameters have not been tested, I can’t comment in respect of these parameters. Q:On perusal of report, have you concluded that it meets with the criteria of high speed diesel of IS 1460:2005?

A: Again, it is submitted in the report that the samples tested for 14 parameters as per IS 1406:2005, at the lab which itself is for high speed diesel?

Q: In respect of Flash Point, two methods are prescribed, Abel as well as PMCC. Remark No.2 of test report provides that flash point was tested by Abel apparatus method but since it was more than 66°C, sample was tested by PMCC. In which situation, sample of HSD is required to be tested at Abel method and PMCC method?

A: If the temperature is above 66°C then PMCC is required and if the temperature is below 66°C than it is required to do with Able method.

Q: Do you think so one of the ingredients for considering HSD is flashpoint?

A: Can’t comment on ingredients. The minimum temperature for Flash Point 35°C as prescribed in standard. We have submitted the report. Q: What is the maximum and minimum flashpoint for considering the sample as HSD?

A: Only the minimum limit is talked about that is 35°C and there is no maximum limit prescribed in the standard.

Q: If case, the Flash Point exceeds above 100°C, 150°C, 200°C etc., then does it still pertains to HSD standard? A: Can’t comment as above 35°C whatever the Flash Point is, it does not matter.

Q: Point No.1 of supplementary note of Chapter 27 of Customs Tariff Act provides that “Jute Batching Oil”, “Textile Oil” are Hydrocarbon Oils, which have their flash points on and above 93°C. In case flash point exceeds 93°C, what you call it?

Page 31 of 76 A: Can’t comment. As flashpoint isn’t the only parameter. We have tested the samples that were submitted to us as per IS 1460:2005.

Q: IOCL supplies HSD to various parties. Have you ever come across any situation in which you have found the Flash Point of all these test reports above 93°C and considered as a HSD?

A: Flash Point is not the only parameter which is used to measuring the sample as per IS 1460:2005. Q: Can you Say it is an automotive diesel? A: Already written in the lab report and we have tested the samples as per the parameters as per IS 1460:2005.”

(ii)The cross-examination of Shri Singh at the instance of M/s. Gastrade International is as under:

“(Before the Principal Commissioner of Customs, Custom House, Kandla) Cross Examination of Shri Gobind Singh, Manager (Lab), IOCL, Central Laboratory, Mumbai in the matter of SCN F. No. DRI/AZU/CI/ENQ-11(INT-2/2018 dated 24.04.2019 issued to M/s. Gastrade International & Others by Shri Hardik Modh, Advocate.

Q: What is your name·?

A: Dr. Gobind Singh.

Q: Where have you been working and for how long? A: I have been working in IOCL at Sewree at Mumbai since 2012.

Q: How many samples have you tested in respect of petroleum products?

A: I have tested large number of samples running into hundreds of samples.

Q; Are you aware of letter dated 04.08.2018 written by the Assistant Director of DRI whereby it was requested to Mr Vivek W. Sawant, DGM, IOCL to test the samples as requested under test memo in accordance with the parameters prescribed under IS 1460:2005 for "High Speed Diesel" and to categorize the identity of the

Page 32 of 76 goods. Had you tested these good only to ascertain whether the parameters prescribed under Indian Standard IS 1460:2005 for High Speed Diesel? A. Yes.

Q: As per the letter dated 04.08.2018, you were requested to verify whether the samples were HSD as per IS : 1460:2005. Have you followed these instructions?

A: Yes.

Q: Have you signed the test reports annexed with 'Relied upon Documents at Sr. No.14 to the Show Cause Notice dated 24.04 2019?

A. Yes.

Q: What does it mean 'reviewed by'?

A: The samples were tested by me and checked, supervised and signed by my senior at the lab. Q: Table I of IS 1480:2005 provides total 22 parameters are to be tested for ascertaining whether the sample meets with the criteria of HSD?

A: The Sample meets with the specification IS 1460:2005 for the parameters tested at our laboratory which are 14 parameters tested as per our lab capabilities.

Q: Does it mean that the other a parameters are not important for ascertaining or deciding whether the sample meets with the criteria of HSD?

A: Already provided In the report that in the lab the samples were tested as per IS 1406:2005 and there is facility available only for testing of 14 parameters and for the remaining 8 parameters, the facility is not available for which I can't comment.

Q: Do you know the function/characteristics of the 8 parameters provided under IS 1406:2005 that have not been tested?

A; As the 8 parameters have not been tested, I can’t comment in respect of these Parameters. Q: On perusal of report, have you concluded that it meets with the criteria of high speed diesel Of IS 1460:2005?

A: Again, it is submitted in the report that the samples tested for 14 parameters as per IS 1406;2005, at the lab which itself is for high speed diesel.

Page 33 of 76 Q: In respect of Flash Point, two methods are prescribed, Abel as well as PMCC. Remark No. 2 of test report provides that flash point was tested by Abel apparatus method but since it was more than 66°C, sample was tested by PMCC. In which situation, sample of HSD is required to be tested at Abel method and PMCC method?

A: If the temperature is above 66°C then PMCC is required and If the temperature is below 66°C than it is required to do with Able method.

Q: Do you think so one of the Ingredients for considering HSD is flashpoint?

A: Can't comment on ingredients. The minimum temperature for Flash Point 35°C as prescribed in standard. We have submitted the report. Q: What is the maximum and minimum flashpoint for ·considering the sample as HSD?

A: Only the minimum limit Is talked about that is 35°C and there is no maximum limit prescribed in the standard.

Q. If case, the Flash Point exceeds above 100 •c, 150 •c, 200 •c etc., then does it still pertains 10 HSD standard? A: Can't comment as above 35°C whatever the Flash Point is, it does not matter.

Q: Point No. I of supplementary note of Chapter 27 of Customs Tariff Act provides that "Jute Batching Oil, "Textile Oil” are Hydrocarbon oils, which have their flash points on and above 93°C. In case flash point exceeds 93°C, what you call It?

A: Can't comment. As flashpoint isn't the only parameter. We have tested the samples that were submitted to us as per IS 1460:2005.

Q: IOCL supplies HSD to various parties. Have you ever come across any situation in which you have found the Flash Point of all these test reports above 93°C and considered as a HSD?

A: Flash Point is not the only parameter which is used to measuring the sample as per IS 1460:2005. Q: Can you say it is an automotive diesel? A: Already written in the lab report and we have tested the samples as per the parameters as per IS 1460:2005.

Page 34 of 76

(iii)The cross-examination of Shri Singh at the instance of Divinity Impex is as under:

Cross-examination of Shri Gobind Singh, Manager (Lab), IOCL, Central Laboratory, Mumbai in the matter of SCN F.No.DRI/AXU/CI/ENQ-13(INT-02/2018)/2018 dated 24.04.2019 issued to M/s. Divinity Impex & Others by Shri Kumar Pal Mehta, Practising Company Secretary and Authorized representative of M/s Divinity Impex.

Q: What is your name?

A: Shri (Dr.) Gobind Singh.

Q: What is your qualification?

A: P.hd Chemistry.

Q: How many years of experience do you have? A: 7 years.

Q: How many samples have you tested till now? A: Whatever the samples that are submitted to me, I have tested them.

Q: What are the exact numbers of samples you have tested?

A: whatever the number of samples that are submitted to me by DRI, I have tested them.

Q: Have you personally examined the samples? A: Yes.

Q: When did you receive the samples from DRI? A: 09.08.2018.

Q: Have you yourself prepared the report? A: There is a procedure for that. The samples were received by concerned authority, after that I have tested and prepared the report and my senior has reviewed the report thereafter.

Q: After how many days of the seizure of the sample by the DRI, the sample was received by you? Adjudicating Authority intervened and said that this is a matter of record and it is a sheer wastage of time of Adjudicating Authority and the person whose cross examination is being done.

Q: What is the standard specification for testing the samples of HSD?

A: IS 1460:2005.

Q: How many parameters were tested for the samples?

Page 35 of 76 A: A total of 14 parameters were tested as prescribed in the standard as per the Lab capabilities. Q: Did certain parameters were not tested due to the testing facility of other parameters not being available at the lab?

A: Yes, as the lab is a marketing lab and it is not a refining lab.

Q: Have your tested the sample as per IS 1460:2005? A: This sample has been tested as per the standard IS 1460:2005 and under this specification there are total 22 tests covered out of which we have tested only 14 parameters as per our Lab capability.” (emphasis added)

37. Since the findings and conclusions reached by the

Adjudicating Authority and Appellate Tribunal merged with

the High Court's decision, we will focus our attention on the

High Court’s analysis and conclusion.

38. The conclusion of the High Court that the questioned

imported good is HSD was based on the following premise:

(i) Though it is the settled position of law that the burden of showing the correct classification lies on the Revenue, it would suffice if the Revenue is able to establish its case with such a degree of preponderance that the existence of a fact could be said to have been proved, and it is not necessary to establish on a part of the Revenue to prove the fact with mathematical precision.

Page 36 of 76 (ii) Once the Revenue has been able to prove the classification on the basis of preponderance of probabilities, the burden would then shift to the assessee to prove its claim.

(iii) In the present case, the High Court was satisfied that in respect of the sample, in the third test since 14 out of 21 parameters laid down under the Indian Standards Specification of Bureau of Indian Standards IS1460:2005 relating to HSD were satisfied the sample would be of High Speed Diesel and not Base Oil.

(iv) Though the High Court was conscious of the fact that all the tests in respect of the 21 parameters laid down under IS1460:2005 relating to High Speed Diesel were not conducted but only in respect of the 14 parameters in the third test, and since the IOCL laboratory was equipped to conduct only 14 tests as it had no facility to conduct remaining seven tests, by applying the principle of proof on preponderance of probability, the High Court took the view that the Revenue had been able to discharge its burden of the fact that the imported goods was High Speed Diesel and not Base Oil.

(v) In holding so, the High Court was impressed by the evidence of the expert Dr. Gobind Singh of the IOCL laboratory who had conducted the test

Page 37 of 76 and the High Court was of the view that such expert evidence could not have been ignored.

(vi) The High Court took the view that the Tribunal had ignored the fact that all the tests carried out in three different laboratories reveal only one thing that the sample showed the characteristics of HSD.

(vii) The High Court also held that the assessees have not been able to show anything on the basis of which it could be said that if all the prescribed 21/22 tests are not carried out, the report would remain incomplete and would not be admissible in evidence or would not be conclusive of the nature of the sample.

(viii) The High Court also took the view that since the 14 tests indicate the sample to be one of High Speed Diesel, merely on the ground that 7 other test could not be undertaken by the laboratories because of lack of adequate facility to conduct these test, such an evidence could not have been ignored in view of the legal position that the Revenue need not prove its case with mathematical accuracy and beyond reasonable doubt.

39. There cannot be any dispute to the proposition of law

as noted by the High Court that the burden of proof as

Page 38 of 76 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 (hereinafter referred to as the “Rules”)

40. The aforesaid Rules provide the principles on the basis

of which the goods in the First Schedule to the Tariff Act are

to be classified, which had escaped the attention of all the

three forums below and each forum had adopted its own

methodology to determine the proper classification of the

goods/substance in issue as discussed above dehors the

aforesaid rules for interpretation.

41. Rule 1 of the aforesaid Rules lays down that the

classification shall be determined on the basis of the terms

of the headings and relative Section or Chapter Notes.

Page 39 of 76 Rule 2 is to be invoked when it relates to an

incomplete or unfinished article or a mixture of substances,

with which we are not concerned.

Rule 3 is attracted when for certain reasons, the goods

are prima facie classifiable under two or more headings. This

situation also does not arise in the present case.

Rule 4 further provides that goods which cannot be

classified in accordance with the above rules shall be

classified under the heading appropriate to the goods to

which they are “most akin”.

For better appreciation, relevant portions of the

aforesaid Rules are reproduced herein below.

General Rules for the interpretation of this Schedule Classification of goods in this Schedule shall be governed by the following principles:

1. The titles of Sections, Chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions:

2. (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished articles has the essential character of the

Page 40 of 76 complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled.

(b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of rule 3.

3. When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:

(a) The heading which provides the most specific description shall be preferred providing a more general description. However, when two or more headings each to headings refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise Description of the goods.(b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable.

(c) When goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

4. Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin.

Page 41 of 76

5. In addition to the foregoing provisions, the following rules shall apply in respect of the goods referred to therein:

(a) Camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and presented with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This rule does not, however, apply to containers which give the whole its essential character;

(b) Subject to the provisions of (a) above, packing materials and packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods.

However, this provisions does not apply when such packing materials or packing containers are clearly suitable for repetitive use.

6. For legal purposes, the classification of goods in the sub-headings of a heading shall be determined according to the terms of those sub headings and any related sub headings Notes and, mutatis mutandis, to the above rules, on the understanding that only sub headings at the same level are comparable. For the purposes of this rule the relative Section and Chapter Notes also apply, unless the context otherwise requires.

xxxxxxxxxxx” (emphasis added)

42. The aforesaid Rule 4 abundantly makes it clear that

goods which cannot be classified in accordance with the

preceding rules shall be classified under the heading

appropriate to the goods to which they are “most akin.”

Page 42 of 76 There may be situations where, because of scientific

advancements, innovations and discoveries, there may be

new imported products that may not exactly fit the

specifications mentioned under the Chapters, Headings, or

Notes under the Tariff Act. In such events, if the attributes

of these articles show close resemblance, thus, “most akin”

to those articles/goods which are already specified in the

First Schedule to the Tariff Act, these new products will be

classified accordingly with which these imported goods are

“most akin” or bear closest resemblance or similarity.

43. In the present case as discussed above, 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.

44. Before we proceed further, it would be apposite to

critically examine the aforesaid test reports and the evidence

of the expert.

Page 43 of 76

45. 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. If a questioned

article bears only certain characteristics of a specified

Page 44 of 76 article, can the questioned article be treated to be or equated

with the specified article? We are afraid, the answer has to

be in the negative, unless the opinion clearly states that

because of the salient features in the questioned article

(samples), the questioned article and the specified article

(HSD in the present case) are substantially similar so as to

identify the questioned article with the specified article.

46. The first report of the Central Excise and Custom

Laboratory at Vadodara, however, neither says that because

of the characteristics ascertained, the tested sample can be

treated as that of HSD. In other words, no clear opinion has

been given in the first test result by the expert that the

samples are indeed that of HSD or can be treated to be that

of HSD.

47. Therefore, in our opinion, the first test based on

examination of 8 parameters against 21/22 prescribed

cannot be considered to be a definitive opinion to take the

view that the sample is indeed that of HSD. It would be

speculative or assumptive to say on the basis of the aforesaid

opinion that the sample is that of HSD.

Page 45 of 76

48. Coming to the second test report furnished by the

Central Revenues Control Laboratory, CRCL, New Delhi on

03.07.2018, the said report indicates that the sample was

tested in respect of 12 out of 21/22 prescribed parameters

and we find that of the aforesaid 12 parameters, at least on

2 parameters, the sample does not appear to fulfil the

requirements of IS 1460:2005.

49. As per IS 1460:2005, the flash point is 66 C

(minimum), whereas the test result in respect of the said

sample is shown as 113C which is far above the prescribed

minimum specification.

Further, in respect of the Distillation Range of which

the IS 1460:2005 has prescribed as 85 (minimum) at 350C

and 95 (minimum) at 370 C, the result of the test of the

samples shows it to be 238 at 356 C, 234 at 358C, 234 at

352C, 238 at 354C, 240 at 356C, 238 at 344C, 240 at

354C, 240 at 350C, 240 at 342C and 238 at 325C. These

figures reflected in the test result are far above the

prescribed figure of 85 (minimum) and 95 (minimum) as per

IS 1460:2005.

Page 46 of 76 Under the circumstances, though the second test was

conducted in respect of 12 out of 21 parameters as per IS

1460:2005, in respect of 2 parameters, of flash point and

distillation range, the samples did not match the IS

1460:2005 specifications. Thus, it can be said that the

samples conform to only 10 parameters. If that is so, can it

be said that the samples are of High Speed Diesel? We doubt

so.

50. It has been noticed as in the case of the opinion given

in the first test report, the second report also merely

mentions that each of the ten samples conforms (though not

so in respect of two parameters as mentioned above) to the

specifications of High Speed Diesel/Automotive Diesel Fuel

as per IS 1460:2005. The second test report does not

specifically state that because of the characteristics

ascertained, the samples can be treated as that of HSD. The

second report also avoids giving any such categorical finding

or opinion that the samples are of HSD except for stating

that these samples conform to the IS specification (though

only in respect of 10 out of 21 specifications).

Page 47 of 76

51. Coming to the third test report prepared by the Indian

Oil Corporation Limited dated 14.08.2018 upon which much

reliance has been placed by the High Court, similar

inconclusive opinion has been given.

Interestingly, we have also noted that in respect of a

parameter namely, flashpoint, the third report mentions that

the flash point of the sample is 112 C which is far above the

minimum flashpoint mentioned under the IS specification

which is 66C. It may be noted that in the first report, the

flashpoint of the sample has been shown as above 66C,

which itself is quite vague unlike in the second and third

reports, which mention very high flash points. Therefore, it

cannot be said that as far as the parameter of flashpoint is

concerned, the samples truly conform to the Indian

Standard Bureau of Specification IS 1460:2005.

What troubles us is whether on the basis of tests

conducted only in respect of 14 out of 21 parameters in the

third test, can it be said that the samples are that of HSD?

52. It is noteworthy that as in the case of earlier two

laboratory test reports, the third report prepared by the

Central Laboratory of Indian Oil Corporation Limited also

Page 48 of 76 does not give a clear and categorical opinion that the

samples tested indeed are of HSD.

In the REMARKS in the third report, it is mentioned

under paragraph 4 that,

“This sample meet the specification for only XIV parameters tested at our lab as per specification IS:1460:2005 a mended”.

No other remark or observation or opinion is given to

the effect that in view of the conformity to 14 out of 21

parameters, the sample qualifies to be treated as High Speed

Diesel.

53. It was left to the Adjudicating Authority/ High Court

to draw the inference that the samples are of HSD in absence

of such opinion by the experts.

54. One noticeable aspect in the present case is that the

Adjudicating Authority/Tribunal/High Court had been

called upon to decide this issue, when there are clearly laid

down scientific criteria to determine whether the oil in issue

is HSD or not. The fact to be proved herein is not an incident,

situation, phenomenon or happening that may require a

bundle of evidence to prove its existence based on the

Page 49 of 76 standard of preponderance of probability. The issue involved

is about the proper classification of an existing

material/article based on certain specified specifications.

For this one only needs to refer to the specifications

mentioned under IS 1460:2005 and once the sample

conforms to the specifications, it would be accordingly

identified/classified as HSD which would not require any

analysis or appreciation of evidence. The rules do not provide

that any substance that partly complies with the aforesaid

parameters will be considered or deemed to be that specified

substance. If tests had been done in respect of all the 21

parameters as per IS 1460:2005, and if the results conform

to all these parameters, there will be no difficulty in

concluding that the samples are indeed that of HSD. The

problem has arisen because the tests were done only with

respect of a few parameters and not all, leaving it to the

discretion of the Adjudicating Authorities/Tribunal/High

Court to determine whether it has been proved based on

these tests that the samples are indeed that of the HSD.

Thus, this exercise has introduced an element of subjective

appraisal and evaluation of the pieces of evidence.

Page 50 of 76

55. In the present case, the evidence/materials on which

the High Court based its conclusion are the test reports and

the evidence of the expert, Dr. Gobind Singh. Since the test

reports are not conclusive as regards all the 21 stipulated

parameters under IS 1460:2005 and the evidence of Dr.

Gobind Singh is also not definitive, the test report and expert

opinion would be required to be assessed properly.

56. Section 45 of the Evidence Act of 1872 deals with

expert opinion, which reads as follows:

“Section 45.

Opinions of experts.

When the Court has to form an opinion upon a point of foreign law, or of science or art, or as to identity of handwriting or finger impressions, the opinions upon that point of persons specially skilled in such foreign law, science or art, or in questions as to identity of handwriting or finger-impressions are relevant facts.

Such persons are called experts.”

57. The opinion of the experts, however weighty they may

be, are not binding on the court and is only relevant for the

court to consider it to come to a final decision on any fact in

issue. However, since courts are not experts in the discipline

of science, they ordinarily accept the scientific report and act

upon it. But where the expert opinion suffers from certain

shortcomings or ambiguities, lack of clarity, or inadequacy,

Page 51 of 76 it would be subject to judicial scrutiny and it would not be

safe to rely wholly on the same under such circumstances.

58. We may briefly recapitulate the views of this Court

relating to expert witnesses.

59. This Court in State of H.P. v. Jai Lal, (1999) 7 SCC

280 observed that the credibility of expert witness depends

on the reasons stated in support of his conclusions and the

data and material furnished which form the basis of his

conclusions. It was thus observed as follows:

“18. An expert is not a witness of fact. His evidence is really of an advisory character. The duty of an expert witness is to furnish the Judge with the necessary scientific criteria for testing the accuracy of the conclusions so as to enable the Judge to form his independent judgment by the application of this criteria to the facts proved by the evidence of the case. The scientific opinion evidence, if intelligible, convincing and tested becomes a factor and often an important factor for consideration along with the other evidence of the case. The credibility of such a witness depends on the reasons stated in support of his conclusions and the data and material furnished which form the basis of his conclusions”

(emphasis added)

60. This Court in Dayal Singh v. State of Uttaranchal,

(2012) 8 SCC 263 reiterated the aforesaid view.

It was also observed that the essential principle

governing expert evidence is that the expert is not only to

Page 52 of 76 provide reasons to support his opinion but the result should

be directly demonstrable. Thus, if the report of an expert is

slipshod, inadequate or cryptic and the information of

similarities or dissimilarities is not available in his report

and his evidence in the case, then his opinion is of no use.

It was reiterated that the purpose of an expert opinion

is primarily to assist the court in arriving at the final

conclusion. Such report is not binding upon the court. The

court is expected to analyse the report, read it in conjunction

with the other evidence on record, and then form its final

opinion as to whether such report is worthy of reliance or

not.

It was thus observed as follows:

“35. This brings us to an ancillary issue as to how the Court would appreciate the evidence in such cases………………. The courts, normally, look at expert evidence with a greater sense of acceptability, but it is equally true that the courts are not absolutely guided by the report of the experts, especially if such reports are perfunctory, unsustainable and are the result of a deliberate attempt to misdirect the prosecution…………

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

39. The Indian law on expert evidence does not proceed on any significantly different footing. The skill and experience of an expert is the ethos of his opinion, which itself should be reasoned and convincing. Not to say that no other view would be possible, but if the view of

Page 53 of 76 the expert has to find due weightage in the mind of the court, it has to be well authored and convincing.

………………..

40. We really need not reiterate various judgments which have taken the view that the purpose of an expert opinion is primarily to assist the court in arriving at a final conclusion. Such report is not binding upon the court. The court is expected to analyse the report, read it in conjunction with the other evidence on record and then form its final opinion as to whether such report is worthy of reliance or not………………….”

61. Though these observations were made in the context

of criminal trials, keeping in mind the basic principles

underlying the relevance and assessment of expert opinion,

in our view, would be beneficial in the present case as well.

62. In the light of the above, we will examine the test

results and evidence of the expert witness, Dr. Gobind

Singh, Manager (Lab) of the IOCL, Mumbai on which the

High Court relied heavily to come to the conclusion that the

Revenue/Department had been able to establish their case

that the imported goods were HSD.

During the cross examination of the expert witness,

the following questions were asked about 8 parameters on

which the samples were not tested:

Page 54 of 76

“Q: Does it mean that the other 8 parameters are not important for ascertaining or deciding whether the sample meets with the criteria of HSD? A: Already provided in the report that in the lab the samples were tested as per IS 1406:2005 and there is a facility available only for testing of 14 parameters and for the remaining 8 parameters, the facility is not available for which I can’t comment. Q: Do you know the function/characteristics of the 8 parameters provided under IS 1460:2005 that have not been tested?

A: As the 8 parameters have not been tested, I can’t comment in respect of these parameters.

63. From the above, it is clearly noticeable that 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.

64. As regards the third test, only 13 specifications

conformed to the specifications (and not 14 as mentioned in

the report since in respect of the flash point, the sample did

not meet the specification). In the absence of fulfilment of

Page 55 of 76 the remaining of specifications, can it be said authoritatively

that the samples will still qualify as HSD?

Interestingly as discussed above, neither the expert

nor the test results stated categorically that these samples

are indeed that of HSD on fulfilment of some of the

parameters.

The expert was specifically asked as to whether the

sample was automotive diesel, which the expert evaded and

did not give a clear answer except for saying that it is

already written in the report and the sample has been

tested as per the IS 1460: 2005 as evident from the

following question and answer.

“Q: Can you say it is an automotive diesel?

A: Already written in the lab report and we have tested the samples as per the parameters as per IS 1460:2005.”

65. It may be noted that in the written report, it was not

mentioned that the sample is that of HSD though it

mentions that it was tested as per the parameters of IS

1460:2005 and has characteristics of some of the

parameters.

Page 56 of 76 The Adjudicating Authority as well as the High Court,

without there being any such categorical opinion in the

report or by the expert, nevertheless, went on to conclude

that the samples were indeed of HSD by applying the test

of preponderance of probability, which we feel is

problematic.

66. Apart from this lack of clarity of opinion by the expert

and in the test reports to the effect that the samples are of

HSD, there is one aspect which we consider is also

important.

67. As noted above, all three test results show that the

samples do not meet the specification relating to flash

point. Unfortunately, the expert has avoided giving

satisfactory answers to the searching questions put to him

relating to the flash point during the cross-examination,

though as an expert in the field, he was expected to know

and clarify the legitimate doubts about the significance of

flash point in determining the nature of the fuel as evident

from the following questions and answers.

“Q: Do you think so one of the ingredients for considering HSD is flashpoint?

Page 57 of 76 A: Can't comment on ingredients. The minimum temperature for Flash Point 35°C as prescribed in standard. We have submitted the report.

Q: What is the maximum and minimum flashpoint for considering the sample as HSD?

A: Only the minimum limit is talked about that is 35°C and there is no maximum limit prescribed in the standard.

Q: If case, the Flash Point exceeds above 100°C, 150°C, 200°C etc., then does it still pertains to HSD standard? A: Can’t comment as above 35°C whatever the Flash Point is, it does not matter.

Q: Point No. I of supplementary note of Chapter 27 of Customs Tariff Act provides that "Jute Batching Oil", "Textile Oil” are Hydrocarbon oils, which have their flash points on and above 93°C. In case flash point exceeds 93°C, what you call it?

A: Can’t comment. As flashpoint isn’t the only parameter. We have tested the samples that were submitted to us as per IS 1460:2005.

Q: IOCL supplies HSD to various parties. Have you ever come across any situation in which you have found the Flash Point of all these test reports above 93°C and considered as a HSD?

A: Flash Point is not the only parameter which is used to measuring the sample as per IS 1460:2005

Q: Can you say it is an automotive diesel? A: Already written in the lab report and we have tested the samples as per the parameters as per IS 1460:2005.”

68. We are quite befuddled by the answers given by the

expert about flash point, as if he was not aware of the

importance of flash point in petroleum products. He was

Page 58 of 76 evasive as regards nonconformity on this parameter in

determining whether the samples are those of HSD.

Flash point has been mentioned in the Supplementary

Note to Chapter 27 in Appendix-2 to the Customs Tariff Act

by stating that it shall be determined following the test

prescribed in this behalf in the rules made under the

Petroleum Act, 1934.

Under Section 2(c) of the Petroleum Act, 1934 flash-

point of any petroleum has been defined as the lowest

temperature at which it yields a vapour which will give a

momentary flash when ignited, determined in accordance

with the provisions of Chapter II and the rules made

thereunder.

69. The Petroleum Act classifies petroleum products

under three categories, depending on the quantum of flash

point, namely,

(i) “Petroleum Class A” which means petroleum having a flash-point below twenty-three degrees Centigrade;

(ii) “Petroleum Class B” which means petroleum having a flash-point of twenty-three degrees Centigrade and above but below sixty-five degrees Centigrade;

Page 59 of 76

(iii) “Petroleum Class C” which means petroleum having a flash-point of sixty-five degrees Centigrade and above but below ninety-three degree Centigrade.

70. Specification regarding flash point is accordingly of

some significance, even if it may not be the most important

parameter in determining whether a petroleum product is

HSD or not. From the specification provided under

IS:1460:2005, HSD will have flash point of minimum 66 C.

Thus, it will be treated as Petroleum Class C in terms of the

Petroleum Act. It is not anyone’s case that HSD is not a

hydrocarbon and not an automotive fuel. If that is so, it will

be classifiable under the Petroleum Act as a Class C

Petroleum product, if not Class B or Class A product. As

mentioned above, the range of the flash point of Petroleum

Class C is between 65 C and 93C whereas the test results

show a higher flash point.

It has been submitted on behalf of the appellants,

relying on the decision of this Court in Durga Oil Company

Vs State of U.P., (1998) 6 SCC 299, that HSD is petroleum

Class B product. Thus, by implication, if the flash point of

the sample goes above 93 C, it is questionable whether the

Page 60 of 76 imported oil can be considered to be HSD, even though the

maximum flash point for HSD has not been specifically

mentioned in the IS: 1460:2005, but only the minimum.

71. Because of the evasive and non-committal answers

given by the expert Dr. Gobind Singh, the legitimate

conclusion that can be drawn is that his opinion and also

the test results are inconclusive, unclear and cannot be said

to be fully reliable to determine the oil as HSD.

72. We would however, like to clarify that we are not

stepping into the shoes of the scientific expert relating to the

determination of the nature of the oil, as to whether it is HSD

or Base Oil. Nevertheless, we are satisfied that there is a very

germane and relevant factor on which the expert had failed

to clarify, and in respect of which the test reports have also

remained silent, that is, relating to flash point, making the

classification of the imported oil as HSD by the Customs

authority highly doubtful. If the expert or the test reports

had clearly mentioned that in spite of the high degree of flash

point shown by the samples, and non-examination in

respect of all the parameters, these samples can still be

Page 61 of 76 considered to be that of HSD, we would have accorded due

deference to such opinion.

But as noted above, neither the expert nor the test

results categorically and in clearly terms mention that these

samples are that of HSD, except for making an ambiguous

remark that these samples conform to certain parameters of

HSD as per IS 1460:2005. As discussed above, by mere

conformation to certain parameters of HSD, the samples

cannot be equated with HSD. The expert opinion and the test

results are as vague as these can be qua classification of the

oil as HSD.

73. However, as noted above, the High Court, by applying

the test of preponderance of probability concluded that the

substance in question is HSD.

74. At this juncture it may be apposite to dwell briefly

upon the meaning of the expression “preponderance of

probability” in contradistinction to “proof beyond reasonable

doubt”.

75. Under Section 3 of the Evidence Act, 1872, a fact is

said to be proved when, after considering the matters before

Page 62 of 76 it, the court either believes it to exist, or considers its

existence so probable that a prudent man ought, under the

circumstances of the particular case, to act upon the

supposition that it exists, which clearly indicates that the

Evidence Act does not insist upon absolute standard of

proof. Evidence Act also nowhere defines as to the meaning

of proof based on “preponderance of probability” and “beyond

reasonable doubt” which are different standards of proof.

76. Different standards of proof have evolved in criminal

and civil jurisdictions in course of time considering the

differential stakes involved in these proceedings. In a

criminal proceeding, the stakes are higher for a defendant as

it involves precious rights and liberties of the person with a

potential to lose the same if convicted of the offence charged.

On the other hand, civil liability is less blameworthy, and

penalty, if any, is less severe.

77. The expression “preponderance of probability” has

been explained by this Court in M. Siddiq (Ram

Janmabhumi Temple-5 J) v. Suresh Das, (2020) 1 SCC 1.

In the aforesaid case, this Court applied the test of a prudent

man who upon weighing the various probabilities finds that

Page 63 of 76 the preponderance is in favour of the existence of the

particular fact. It was observed that even in the case of proof

by preponderance of probability, there may be degrees of

probability within that standard and “the degree depends on

the subject-matter.”

It was held that,

“720. The court in a civil trial applies a standard of proof governed by a preponderance of probabilities. This standard is also described sometimes as a balance of probability or the preponderance of the evidence. Phipson on Evidence formulates the standard succinctly : If therefore, the evidence is such that the court can say “we think it more probable than not”, the burden is discharged, but if the probabilities are equal, it is not. [Phipson on Evidence] In Miller v. Minister of Pensions [Miller v. Minister of Pensions, (1947) 2 All ER 372.] , Lord Denning, J. (as the Master of Rolls then was) defined the doctrine of the balance or preponderance of probabilities in the following terms : (All ER p. 373 H) “(1) … It need not reach certainty, but it must carry a high degree of probability. Proof beyond reasonable doubt does not mean proof beyond the shadow of doubt. The law would fail to protect the community if it admitted fanciful possibilities to deflect the course of justice. If the evidence is so strong against a man as to leave only a remote possibility in his favour which can be dismissed with the sentence, “of course it is possible, but not in the least probable” the case is proved beyond reasonable doubt, but nothing short of that will suffice.” (emphasis supplied)

721. The law recognises that within the standard of preponderance of probabilities, there could be different degrees of probability. This was succinctly summarised by Denning, LJ in Bater v. Bater [Bater v. Bater, [1951] P. 35 (CA).] , where he formulated the principle thus : (p. 37)

Page 64 of 76 “… So also, in civil cases, the case must be proved by a preponderance of probability, but there may be degrees of probability within that standard. The degree depends on the subject-matter.”

722. The definition of the expression “proved” in Section 3 of the Evidence Act is in the following terms:

“3. … “Proved”. — A fact is said to be proved when, after considering the matters before it, the court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists.”

723. Proof of a fact depends upon the probability of its existence. The finding of the court must be based on:

723.1 The test of a prudent person, who acts under the supposition that a fact exists.

723.2 In the context and circumstances of a particular case.

724. Analysing this, Y.V. Chandrachud, J. (as the learned Chief Justice then was) in N.G. Dastane v. S. Dastane [N.G. Dastane v. S. Dastane, (1975) 2 SCC

326.] held : (SCC pp. 335-36, para 24) “The belief regarding the existence of a fact may, thus, be founded on a balance of probabilities. A prudent man faced with conflicting probabilities concerning a fact situation will act on the supposition that the fact exists, if on weighing the various probabilities he finds that the preponderance is in favour of the existence of the particular fact. As a prudent man, so the court applies this test for finding whether a fact in issue can be said to be proved. The first step in this process is to fix the probabilities, the second to weigh them, though the two may often intermingle. The impossible is weeded out at the first stage, the improbable at the second. Within the wide range of probabilities the court has often a difficult choice to make but it is this choice which ultimately determines where the preponderance of probabilities lies. Important issues like those

Page 65 of 76 which affect the status of parties demand a closer scrutiny than those like the loan on a promissory note: “the nature and gravity of an issue necessarily determines the manner of attaining reasonable satisfaction of the truth of the issue [ Per Dixon, J, in Wright v. Wright, (1948) 77 CLR 191 (Aust).] , CLR at p. 210”; or as said by Lord Denning, “the degree of probability depends on the subject-matter”. In proportion as the offence is grave, so ought the proof to be clear [Blyth v. Blyth, [1966] A.C. 643 : [1966] 2 WLR 634 : (1966) 1 All ER 524 (HL).] , All ER at p. 536’. But whether the issue is one of cruelty or of a loan on a pronote, the test to apply is whether on a preponderance of probabilities the relevant fact is proved. In civil cases this, normally, is the standard of proof to apply for finding whether the burden of proof is discharged.” (emphasis supplied)

725. The court recognised that within the standard of preponderance of probabilities, the degree of probability is based on the subject-matter involved.

726. In State of U.P. v. Krishna Gopal [State of U.P. v. Krishna Gopal, (1988) 4 SCC 302 : 1988 SCC (Crl.).] , this court observed : (SCC p. 314, para 26) “26. The concepts of probability, and the degrees of it, cannot obviously be expressed in terms of units to be mathematically enumerated as to how many of such units constitute proof beyond reasonable doubt.

There is an unmistakable subjective element in the evaluation of the degrees of probability and the quantum of proof. Forensic probability must, in the last analysis, rest on a robust common sense and, ultimately, on the trained intuitions of the Judge.”

78. What the aforesaid decisions postulate is that there

may be varying range in the degree of probabilities.

Certainly, where the proceedings involve requirement of

fulfilment of technical/scientific parameters with

Page 66 of 76 confiscatory and penal consequences, the degree of

probability would be of a higher order and not mere

probability.

79. In the present case, what we have observed is that the

High Court, on the basis of the laboratory tests, more

particularly the third test conducted by IOCL, Mumbai

Laboratory and the opinion of the expert, namely Dr. Gobind

Singh, and by observing that it is not necessary to establish

on the part of the Revenue to prove the fact with

mathematical precision, held that the Department has been

able to establish its case on the basis of preponderance of

probability that the imported oil was not Base Oil but HSD,

which could not have been imported by the appellants and

upheld the order of the Adjudicating Authority.

80. However, this analysis and conclusions arrived at by

the High Court are problematic for the following reasons:

(i) There was no expert opinion at all that the

samples which were tested were indeed of HSD.

(ii) The opinion as contained in the test results was

merely mentioning about conformity of the

samples with certain specifications of IS

Page 67 of 76 1460:2005 and not about conformity with all

the specifications.

(iii) Once the rule making authority had clearly

delineated the requisite parameters for

ascertaining the nature of the goods/substance,

compliance/conformity with the stated

parameters would be the requirement.

(iv) There are 21 parameters laid down under IS

1460:2005 and none of the tests have shown

compliance with all these parameters. The last

and third test have reported compliance with 14

parameters, though as discussed above in

respect of 2 of the aforesaid 14 parameters,

namely, flash point and distillation range, the

same are not in conformity. Thus, it cannot be

said there is substantial compliance with the

parameters of IS 1460:2005.

(v) Flash point, though may not be the most

important parameter, yet, its importance in

determining the nature of the Automotive oil

cannot be ignored. Flash point being a very

Page 68 of 76 important criteria to classify petroleum

products, non-compliance of the samples on

this parameter would make the classification

doubtful.

(vi) Evasive answers and non-clarification on

certain aspects of the flash point of the samples

by the expert Dr. Gobind Singh certainly cast a

serious doubt on the samples being identified as

that of HSD. The expert himself also has not

said that the samples are of HSD except for

stating that the samples conform to certain

specifications of the IS 1460:2005.

(vii) In view of the ambiguity and lack of clarity in

the expert opinion/laboratory test results, it

would be unsafe to draw the inference that the

Department had been able to prove their case

even by applying the test of preponderance of

probability merely because the samples

conform to certain parameters.

(viii) If the Department with all the resources at their

command and access to various laboratory

Page 69 of 76 facilities could not get the samples tested in

respect of all the 21 parameters, expecting the

assesses/appellants to get the samples tested to

show that these do not conform the

specifications and are not HSD does not appear

to be reasonable. Thus, shifting of onus to the

assesses to prove otherwise appears to be

unreasonable and meaningless.

(ix) The burden was not on the assessees to

demonstrate that non-conformity with the

remaining 8 parameters would vitiate the

conclusion that the samples were of HSD.

81. The aforesaid difficulties in our opinion can be

overcome, if we apply the test of “most akin” as contemplated

under Rule 4 of the General Rules for Interpretation referred

to above.

82. The real test for classification, according to us, 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 mentioned under the Headings and

Page 70 of 76 relative Section or Chapter Notes under the Tariff Act, and

not by applying the test of preponderance of probability.

83. By way of illustration, we may explain the position. If

an importer classifies the imported goods as “X”, which is

disputed by the Customs authority and classifies the same

as “Y”, the test would be whether the goods imported are

“most akin” to “X” or “Y” in terms of Rule 4 of the aforesaid

Rules. The importer may also claim if he so wishes, that the

goods are most akin to “Z”, though it may be akin to “Y” also,

if such claim is more beneficial to him. Thus, it has to be

shown by the Customs Authority that the imported goods

bear the most affinity or resemblance or similarity to be

“most akin” to the specified goods and not mere similarity or

akinness. In other words, the test will be whether the

imported goods bear the closest resemblance or similarity

with the specified good so that these can be considered to be

“most akin” to the specified good. Certainly, the principle of

preponderance of probability may fall short of the more

heightened test of “most akin” for proper classification. The

imported goods may bear resemblance to more than one

specified goods, in which event, unless the high degree in

Page 71 of 76 the test of preponderance of probability is applied, there may

be difficulties in the proper classification. However, the said

difficulty may be overcome if the test of “most akin” is

applied. If the attributes of the imported goods show that

the goods are “most akin” to the specified goods amongst an

array of other specified goods, these imported goods have to

be classified as the specified goods with which these goods

bear the most resemblance or most akinness. Thus, in our

view, application of the principle of preponderance of

probability does not provide an accurate test. 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.

84. In the present case, as noticed above, the finding of

the High Court is based primarily on applying the test of

preponderance of probability which may not necessarily

fulfil the “most akin” test. The High Court came to the

conclusion based on the incomplete test reports and

noncommittal opinion of the expert Dr. Gobind Singh who in

categorical terms had not stated that the imported goods are

HSD. There was no opinion that the imported goods are most

Page 72 of 76 similar to HSD to satisfy the test of “most akin”. The

definitive opinion and finding that the imported goods are

“most akin” to HSD is missing in the reports and opinion for

classifying the imported goods as HSD.

85. The 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.

86. For the reasons discussed above, as the results of the

test are inconclusive, so being the opinion of the expert, we

are 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

Page 73 of 76 Revenue/Customs Authority cannot take action against the

appellants based on inconclusive evidence.

87. As far as the first option is concerned, as noted above,

though the questioned product was sent for laboratory test

in three premier laboratories, these laboratories did not give

conclusive finding that the product is indeed HSD and the

expert also could not give a definitive opinion. Further after

such a long passage of time we are doubtful whether the oil

in question would still retain many of the characteristics and

properties which were present at the time of import for an

effective testing as aforesaid. Hence, we do not consider it

appropriate to direct further testing of the imported

product/oil at this point of time and such a retest may be

rendered a futile exercise. In our opinion, in the facts and

circumstances, it would be more appropriate to give the

benefit of doubt to the appellants because of the inconclusive

evidence, rather than directing for a fresh testing and

seeking fresh expert opinion, as a one-time measure.

88. Before parting with these appeals, we deem it necessary

to issue certain ancillary directions.

Page 74 of 76 We are of the view that non-examination of any

product/article/goods on all the parameters laid down by

the customs authority will always lead to uncertainty and

doubt, which are required to be removed when dealing with

confiscatory proceedings.

The genesis of the prolonged litigation lies in the non-

availability 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.

Hence, to avoid these difficulties, doubts and

uncertainties in future, the respondents are directed to

ensure that proper facilities are made available in the

appropriate laboratories for undertaking tests for all these

Page 75 of 76 parameters or at least for those parameters which the

Authorities consider are of essential character to satisfy the

“most akin” test without which the article in issue cannot be

properly classified. Accordingly, we direct the respondents

to take necessary steps in this regard within a period of six

months for proper testing in all the parameters in future.

89. For the reasons discussed above, we allow these

appeals by setting aside the impugned common judgment

and order dated 20.01.2022 passed in Revenue Tax Appeal

No. 297 of 2021, Revenue Tax Appeal No. 298 of 2021 and

Revenue Tax Appeal No. 299 of 2021.

90. Appeals are accordingly disposed of in the aforesaid

terms.

……………………………J. (B.V. NAGARATHNA)

……………….…………………………J. (NONGMEIKAPAM KOTISWAR SINGH)

New Delhi;

March 28, 2025.

Page 76 of 76