Supreme Court Directs Customs Authorities To Upgrade Lab Facilities For Proper Testing Of Disputed Articles On All Parameters

In a key decision, the Supreme Court today overturned the confiscation of imported goods labelled as "Base Oil SN 50," which customs authorities had classified as High-Speed Diesel (HSD), which only the State entities can import. The Court found that the Customs Department failed to provide conclusive evidence proving the goods were High-Speed Diesel (HSD), due to inadequate laboratory testing and conflicting expert opinions. In this regard, the bench comprising Justices BV Nagarathna and N Kotiswar Singh criticized inadequate lab testing facilities, which led to the release of confiscated goods because the customs authorities tested only 8–14 out of 21 IS 1460:2005 (HSD) parameters—insufficient to classify the goods as HSD. Therefore, the Court directed the Respondents to upgrade lab facilities within six months to ensure full IS-standard testing and prevent future disputes."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 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.”, the court observed. HSD is a prohibited item that could not have been imported by a private entity other than a State Trading Enterprise. If the goods were found to be HSD then it would be liable to be confiscated and penalty be imposed on the importers. The Case Briefly put, the Appellants were the importers who imported a substance 'Base Oil SN 50', which the Respondent-Custom Authorities classified as HSD and confiscated. The classification of the Appellant's imported substance to HSD was based on the three labs (Vadodara, CRCL Delhi, IOCL Mumbai) reports which tested the samples but examined only 8–14 out of 21 parameters under IS 1460:2005 (HSD standards). Moreover, the critical parameters like flashpoint were non-compliant, and the reports didn't confirm the confiscated item as HSD, but rather stated that it had "characteristics of HSD".Applying the principle of 'preponderance of probability', the Adjudicating Authority and High Court upheld the confiscation order. Following this, the appellants-importers appealed to the Supreme Court. Decision Overturning the High Court's decision, the judgment authored by Justice NK Singh emphasized that the court erred in applying the preponderance of probability test to determine whether the confiscated item was HSD. The ruling stated that such a test is unsuitable for scientific or technical classification. Instead, the Court held that the “Most Akin Test” should be used to assess whether the item was prohibited. “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.”, the Court observed. “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 Court added. “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 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.”, the Court noted further. In light of the...

Supreme Court Directs Customs Authorities To Upgrade Lab Facilities For Proper Testing Of Disputed Articles On All Parameters

Yash Mittal

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