Principle Of Preponderance Of Probability Doesn't Provide Accurate Test; "Most Akin" Test More Precise For Classification Under Customs Act: Supreme Court

The Supreme Court held that the application of the principle of preponderance of probability does not provide an accurate test and the more accurate and precise test will be whether the goods are “most akin” or most similar to the specified goods, under the Customs Act, 1962. 

The Court held thus in a batch of Civil Appeals in which the issue was whether the imported goods are to be treated as Base Oil as claimed or High-Speed Diesel (HSD) as determined by the Customs Authorities.

The two-Judge Bench of Justice B.V. Nagarathna and Justice N. Kotiswar Singh observed, "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." 

The Bench was 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 and that the genesis of the prolonged litigation lies in the non availability of adequate facilities for testing all the parameters provided under the Bureau of Indian Standard Specifications. It added that such a dispute could have been avoided had the testing facilities for all the parameters been available.

Senior Advocate Arvind P. Datar represented the Appellants while ASG N. Venkataraman represented the Respondents.

Case Background

The three Appellants imported the goods from UAE (United Arab Emirates) by sea per vessel 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, which is prohibited from being imported except only by State Trading Enterprises, seized the said cargo. The samples were sent to the Central Excise and Customs Laboratory at Vadodara for testing, which returned the report with the finding that the samples had characteristics of HSD/Automative Fuel Oil (AFO). The Appellants contested the said test report and requested the Customs authorities for retesting the samples at the Central Revenues Control Laboratory (CRCL), New Delhi or Indian Institute of Petroleum (IIP), Dehradun.

The samples were sent to CRCL, which also came to the conclusion that the samples conform to the specifications of HSD Oil. Still dissatisfied, the Appellants approached the Gujarat High Court, which directed the Department to send requisite quantity of samples to the Indian Oil Corporation Ltd. (IOCL), Mumbai. IOCL also confirmed the previous findings and thereafter, DRI issued show-cause notices to the Appellants, alleging improper classification. The Adjudicating Authority held that the goods were liable to confiscation and this was challenged before the Custom Excise Service Tax Appellate Tribunal (CESTAT). The CESTAT set aside the confiscation order and this was challenged by the Department before the High Court. The High Court allowed its Appeals and being aggrieved, the Appellants were before the Apex Court.

Reasoning

The Supreme Court in view of the facts and circumstances of the case, said, “… 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.”

The Court was of the opinion that there may be varying range in the degree of probabilities and where the proceedings involve requirement of fulfilment of technical/scientific parameters with confiscatory and penal consequences, the degree of probability would be of a higher order and not mere probability.

“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 relative Section or Chapter Notes under the Tariff Act, and not by applying the test of preponderance of probability”, it further noted.

The Court said that 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.

“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”, it added.

The Court also observed that 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.

“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”, it ordered.

The Court, therefore, directed the Respondents to ensure that proper facilities are made available in the appropriate laboratories for undertaking tests for all these 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, the Apex Court allowed the Appeals, set aside the impugned Judgment, and directed the authorities to take necessary steps within six months for proper testing in all the parameters in future.

Cause Title- Gastrade International v. Commissioner of Customs, Kandla (Neutral Citation: 2025 INSC 411)

Appearance:

Appellants: Senior Advocate Arvind P. Datar, AOR Rajesh Kumar Gautam, Advocates S. Jaikumar, Kartik Jindal, Anant Gautam, and Aashdeep Kaur.

Respondents: ASG N. Venkataraman, AORs Gurmeet Singh Makker, Mukesh Kumar Maroria, Advocates Rupesh Kumar, Adit Khorana, Aakanksha Kaul, Udai Khanna, and Navanjay Mahapatra.

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