Supreme Court Sets Aside HSD Classification Due to Inconclusive Testing and Emphasizes "Most Akin" Test

Ms Gastrade International and other importers filed an appeal against the Commissioner of Customs, Kandla, challenging the classification of imported goods declared as “Base Oil SN 50” under Chapter Heading 27101960 but seized by the Directorate of Revenue Intelligence (DRI) as High Speed Diesel (HSD) under Chapter Heading 27101930. HSD import was restricted to State Trading Enterprises.

The adjudicating authority classified the product as High Speed Diesel and ordered confiscation and penalties. However, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) reversed the classification, holding it to be the Base Oil. The High Court of Gujarat then overturned the CESTAT's decision, affirming the Adjudicating Authority's classifying it to be HSD.

**The issue before the Supreme Court was whether the imported goods should be classified as Base Oil, as claimed by the appellants, or as High Speed Diesel (HSD), as determined by the Customs Authorities, which would render the import prohibited for private entities. The Supreme Court critically analyzed the reports from three laboratories that conducted tests based on the Indian Standards Specification IS: 1460:2005 for HSD. **

The Apex Court observed that none of the laboratories tested all 21/22 parameters specified in IS: 1460:2005. While the High Court relied on the principle of "preponderance of probability" based on the 14 parameters tested by the Indian Oil Corporation Ltd. (IOCL), the Supreme Court found the expert opinion and test results inconclusive, particularly regarding the flash point, which was significantly higher than the IS specification.

Supreme Court emphasized that mere conformity with some parameters does not automatically equate the sample to HSD. Departing from the "preponderance of probability" test applied by the High Court, the Supreme Court highlighted the significance of Rule 4 of the General Rules for the Interpretation of the Tariff Act, which mandates classifying goods under the heading appropriate to the goods to which they are "Most Akin" (most similar in nature). The Court observed that the test reports lacked a definitive opinion stating that the imported goods were "most akin" to HSD.

The Apex Court deemed it inappropriate to order further testing after such a long time and, as a one-time measure, gave the benefit of doubt to the appellants and allowed the appeals, setting aside the judgment of the High Court and consequently the orders of the Adjudicating Authority and concluded that the inconclusive evidence, particularly the incomplete testing and the ambiguous expert opinion, did not sufficiently prove that the imported goods were High Speed Diesel (HSD).

The Supreme Court further directed the respondents to ensure proper testing facilities are available for all parameters relevant to the classification of goods in the future to avoid such uncertainties and prolonged litigation.

CORAM: JUSTICE B.V. NAGARATHNA AND JUSTICE NONGMEIKAPAM KOTISWAR SINGH
BETWEEN: GASTRADE INTERNATIONAL VS COMMISSIONER OF CUSTOMS, KANDLA 2025 INSC 411
DOJ: 28-03-2025