Custom Law | Goods Must Be Classified Under Heading To Which They Are 'Most Akin', Not On Mere Probability: Supreme Court

“Correct Test is Whether the Goods Are 'Most Akin' To High-Speed Diesel, Not Merely Probable” - In a landmark ruling Supreme Court, comprising Justice Nongmeikapam Kotiswar Singh and Justice B.V. Nagarathna, decisively clarified that classification of goods under the Customs Tariff Act, 1975 cannot be based merely on the "preponderance of probability". The Court ruled that the "most akin" test under Rule 4 of the General Rules for Interpretation is mandatory. It held that the customs department failed to prove conclusively that the imported hydrocarbon oil was High-Speed Diesel (HSD), thereby setting aside confiscation and penalty orders.

The dispute arose when M/s Gastrade International, M/s Rajkamal Industrial Pvt. Ltd., and M/s Divinity Impex imported hydrocarbon oil from UAE, declaring it as "Base Oil SN 50" under CTH 27101960. However, the Directorate of Revenue Intelligence (DRI) classified the imported oil as HSD under CTH 27101930, which is a prohibited import except for State Trading Enterprises.

Following seizure, confiscation, and penalty orders by the Adjudicating Authority under Sections 111(d), 111(m), 112(a), 112(b), 114AA, and 117 of the Customs Act, 1962, the matter reached the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) which held that classification as HSD was unsustainable due to incomplete testing. The Gujarat High Court, however, reversed the CESTAT decision, relying on the "preponderance of probability" principle and upheld confiscation. The importers challenged the High Court's order before the Supreme Court.

The central question before the Court was whether incomplete test reports and expert evidence that conformed only partially to the Indian Standard (IS) 1460:2005 could form the legal basis for treating the imported goods as HSD.

The Court authoritatively held that: “The issue is not about proving the fact by mere preponderance but proving that the goods are ‘most akin’ to HSD under Rule 4.” [Para 83]

The Bench clarified that Rule 4 of the General Rules for Interpretation provides the applicable test when a product does not satisfy all prescribed parameters. The classification must be based on which product the goods are most closely resembling.

“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.” [Para 84]

The Supreme Court found that all three laboratory reports (Vadodara Customs Laboratory, CRCL Delhi, and IOCL Mumbai) failed to test the samples against all 21 parameters prescribed by IS 1460:2005. The maximum tests were limited to 14 parameters.

The Court emphasized: “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.” [Para 54]

A critical parameter, the flash point, was particularly problematic. The Court noted: “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.” [Para 51]

Further, the Court disapproved of the evasive responses given by the IOCL expert during cross-examination: “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.” [Para 68]

Rejecting the approach of the High Court, the Supreme Court categorically held: “Proceedings involving requirement of fulfilment of technical/scientific parameters with confiscatory and penal consequences require a higher standard. The correct test is the ‘most akin’ test under Rule 4, not mere probability.” [Para 78]

The Court warned that relying on mere partial conformity leads to speculative classification: “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.” [Para 72]

The Court acknowledged that incomplete testing creates systemic problems in customs enforcement: “Non-examination of any product on all the parameters will always lead to uncertainty and doubt, which are required to be removed when dealing with confiscatory proceedings.” [Para 88]

Noting that further testing after a long passage of time would be futile, the Court concluded: “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.” [Para 87]

To avoid similar controversies in future, the Court issued a mandatory directive: “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.” [Para 88]
The Supreme Court decisively reinstated the CESTAT ruling, permitting the appellants to re-export the goods and set aside confiscation and penalties. The judgment elevates the standard of proof required for classification under Customs Tariff Act from mere probability to the more stringent “most akin” test and underlines the necessity of complete scientific testing.

The decision is poised to have significant implications for customs law practice, especially in classification and confiscation cases.

Date of Decision: 28th March, 2025