Summary
Imported oil declared as Base Oil was classified by Customs as High Speed Diesel (a prohibited import) on the strength of three laboratory reports that tested only some of the 21 parameters of IS 1460:2005 and an expert who gave evasive answers on flash point. The Supreme Court held that classification under the Customs Tariff Act must follow the General Rules for Interpretation, in particular the 'most akin' test of Rule 4, and not a bare preponderance-of-probability standard; since neither the reports nor the expert ever said the samples were HSD, the evidence was inconclusive and the appellants were given the benefit of doubt.
Issues
- Whether the imported goods were Base Oil (CTH 27101960) as declared, or High Speed Diesel (CTH 27101930), importable only by State Trading Enterprises.
- Whether the Revenue can discharge its burden of proving classification as HSD on the preponderance of probability when the samples were tested on only some of the parameters prescribed by IS 1460:2005.
- What weight laboratory test reports and expert evidence carry when they do not categorically opine that the sample is the specified product.
- Whether the General Rules for Interpretation of the First Schedule to the Customs Tariff Act, 1975, particularly the 'most akin' test in Rule 4, govern the classification dispute.
Provisions considered
- Supplementary Note (e) to Chapter 27, First Schedule, Customs Tariff Act, 1975HSD is defined as any hydrocarbon oil conforming to IS 1460:2005. The Court read the note as requiring conformity with the 21 parameters of the Indian Standard; nothing in the note or the Rules deems a substance that complies with only some parameters to be HSD. (¶¶ 31, 32, 33, 54, 63)
- General Rules for the Interpretation of the First Schedule, Rules 1 to 4, Customs Tariff Act, 1975Rule 1 classifies by the terms of the headings and Section/Chapter Notes; Rule 4 directs that goods which cannot be so classified go under the heading of the goods to which they are 'most akin'. All three fora below had ignored the Rules. The Court held the 'most akin' test, not preponderance of probability, is the correct test where the goods do not fully meet the specification. (¶¶ 39, 40, 41, 42, 81, 82, 83, 85)
- Section 2(c), Petroleum Act, 1934Flash point is defined as the lowest temperature at which petroleum yields a vapour giving a momentary flash when ignited. Read with the Petroleum Act's Class A/B/C categories (Class C: 65 to below 93 degrees C) and the IS 1460:2005 minimum of 66 degrees C, the Court treated flash point as a significant parameter; samples with flash points well above 93 degrees C made the HSD classification doubtful. (¶¶ 34, 68, 69, 70)
- Section 45, Indian Evidence Act, 1872Expert opinion on a question of science is a relevant fact but is not binding; where the opinion suffers from ambiguity, lack of clarity or inadequacy it is subject to judicial scrutiny and cannot safely be relied on wholly. Applied to find the IOCL expert's evidence non-committal and the test reports inconclusive. (¶¶ 56, 57, 59, 60, 61, 71)
- Section 3 ('proved'), Indian Evidence Act, 1872The definition of 'proved' shows the Act does not insist on an absolute standard, but does not define preponderance of probability or proof beyond reasonable doubt. Within the civil standard there are degrees of probability depending on the subject-matter; where technical parameters with confiscatory and penal consequences are involved, a higher degree is required. (¶¶ 75, 76, 77, 78)
- Sections 111(d), 111(m), 112(a), 112(b), 114AA, 117, Customs Act, 1962These were the provisions under which the show cause notices proposed confiscation and penalties and under which the Adjudicating Authority ordered confiscation with redemption for re-export. The Court did not construe them; the orders fell with the classification finding. (¶¶ 9, 13)
Held
- The burden of proving the classification of imported goods lies on the Revenue, and the standard is not proof beyond reasonable doubt. But classification under the Customs Tariff Act must be determined in accordance with the General Rules for Interpretation of the First Schedule, which all three fora below had overlooked. (¶¶ 39, 40, 43)
- Where goods do not fully satisfy the specification of the heading claimed by the Revenue, the correct test is whether they are 'most akin' to the specified goods under Rule 4 of the General Rules, i.e. whether they bear the closest resemblance to that product and not merely some similarity. Preponderance of probability is not an accurate test for classification and may fall short of the heightened 'most akin' test. (¶¶ 42, 81, 82, 83, 85)
- Classification of an existing article against laid-down scientific criteria is not a fact to be established by a bundle of circumstantial evidence; conformity with the stated parameters is the requirement. Where only some parameters were tested, the question whether the product is HSD was left to subjective appraisal by the authorities, which the Rules do not contemplate. (¶¶ 54, 63, 80)
- A report that a sample 'has characteristics of' or 'conforms to certain parameters of' HSD is materially different from an opinion that the sample is HSD. None of the three laboratory reports (8, 12 and 14 parameters tested respectively) gave a categorical opinion that the samples were HSD, and the flash point results in all three fell outside the specification; such reports cannot be equated with proof that the goods are HSD. (¶¶ 45, 46, 47, 48, 50, 51, 52, 64, 65, 67, 72)
- Expert opinion, however weighty, is advisory and not binding; courts ordinarily accept scientific reports, but where the opinion is ambiguous, inadequate or unclear it must be scrutinised and cannot be wholly relied upon. The IOCL expert's evasive answers on the importance of the untested parameters and of flash point rendered his opinion and the test results inconclusive and not fully reliable. (¶¶ 57, 59, 60, 61, 62, 63, 68, 71)
- Within the civil standard of preponderance of probability there are degrees of probability depending on the subject-matter; in proceedings requiring fulfilment of technical or scientific parameters with confiscatory and penal consequences, the degree of probability required is of a higher order, not mere probability. (¶¶ 74, 77, 78)
- When the Department, with all its resources, could not have the samples tested on all 21 parameters, it is unreasonable to shift the onus to the assessee to show that the untested parameters would not be met; the burden was never on the assessees to demonstrate that non-conformity with the remaining parameters would vitiate the HSD conclusion. (¶ 80)
- Given inconclusive tests and expert evidence, and the lapse of time making a retest likely futile, the appellants were given the benefit of doubt as a one-time measure rather than ordering fresh testing. Since the authorities themselves prescribe IS 1460:2005 as the classification standard, they must ensure laboratory facilities exist to test all its parameters, or at least those essential to the 'most akin' test. (¶¶ 86, 87, 88)
Result
Appeals allowed; the High Court's common judgment dated 20.01.2022 in Revenue Tax Appeals 297-299 of 2021 set aside and the appellants given the benefit of doubt as a one-time measure. Respondents directed to take steps within six months to make facilities available for testing all parameters of IS 1460:2005 (or at least those essential to the 'most akin' test). Appeals disposed of accordingly.