2021 (9) TMI 1267 - AT - Customs

Classification of imported goods - Base Oil SN 50 - classifiable under Customs Tariff chapter hearing 27101960 as claimed by the appellant in the bill of entry or the same is classifiable as HSD under Chapter heading 27101930 of Customs Tariff Act, 1975 as claimed by the revenue? - Confiscation - redemption fine - penalty - HELD THAT - The entire case was decided on the basis of test conducted initially by the Central excise and Customs Laboratory at Vadodara and CRCL New Delhi. Subsequently on the intervention of Hon ble Gujarat High Court in the petition filed by the appellant and as per direction of Hon ble High Court the test was conducted at IOCL, Mumbai. As per IS 1460 2005 there are 21 Parameters and as per amended IS 1460 2017 it is 22 parameters. However, IOCL Lab tested 21 parameters as per IS 1460 2005. The adjudicating authority decided the confiscation on the basis of test report given by IOCL laboratory. The test report if read with the explanation given by the Shri Gobind Singh, who tested the samples, it is clear that though 14 parameters were tested as per IS 1460 2005 but in absence of testing of remaining 8/7 parameters it cannot be concluded that the goods is HSD. Upper limit of flash point - HELD THAT - In the present case even though the Flash point tested was above 93 C on that basis the goods cannot be classified as HSD. We also observed that the department with the pre- determined mind got the goods tested for HSD. Whereas in the first attempt since the goods was declared as base oil the sample should have been tested with parameters of base oil also and if the parameters are not meeting for the base oil than only the department should have resorted to carry out the test for classifying the goods either under HSD or any other classification. In the case of GULF FIRST PETRO PRODUCTS INDIA P. LTD. VERSUS CC., ST. EX., COCHIN 2015 (2) TMI 297 - CESTAT BANGALORE , the dispute was whether the goods are base oil or lubricating oil on the chemical test by the customs laboratory. The flash point of the imported product was found to be above 94 C as per chapter note 27 lubricating oil means any oil which is ordinarily used for lubrication excluding hydrocarbon oil which has its flash point below 93.3 C. It was held by this tribunal that product having flash point above 94 C cannot be classified as lubricating oil and the classification as base oil has been maintained - In the present case also the flash point is 112 C applying the ratio of the aforesaid judgment the goods having flash point above 94 C will merit classification as base oil only. In this position goods cannot be classified as HSD. Since all the parameters as specified under IS 1460 2005 has not been tested it is not proved that product imported by the appellant are HSD. Since Supplementary note to chapter 27 defines the meaning of HSD that means hydrocarbon oil conforming to the Indian standard subsequently by IS 1460 2005 as amended from time to time - In the present case admittedly all the 21/22 parameters were not tested therefore product cannot be called as conforming to IS 1460 2005 and consequently cannot be classified as HSD. Thus, even if the product is base oil or otherwise but since it was not proved by the department beyond doubt that the impugned goods are HSD; the case of department got failed - irrespective of whether the base oil was correctly declared by the appellant or otherwise but since the proposed classification by the department does not sustain the case of department clearly fails, for this reason also the impugned order is not sustainable. The goods are not classifiable as HSD under CTH 271031930. Consequently the claim of the appellant for classification of goods as base oil under CTH 271019160 is maintained. The appellant have submitted that irrespective decision of classification they seek permission to re- export of goods. Though we have decided the classification as claimed by the appellant in their favour but as per the concession made by the appellant we allow the appellant to re-export the goods. As the goods are not classifiable as HSD as claimed by the revenue, the redemption fine and penalties imposed on the appellants are set aside - appeal allowed in part.

Summary

Issues Involved:
1. Classification of the imported goods (Base Oil SN50 vs. High-Speed Diesel (HSD)).
2. Validity and completeness of the chemical tests conducted.
3. Burden of proof for classification.
4. Applicability of the Petroleum Act, 1934.
5. Provisional release and re-export of goods.
6. Imposition of penalties and fines.
7. Waiver of demurrage and detention charges.

Detailed Analysis:

1. Classification of the Imported Goods:
The primary issue was whether the imported goods (Base Oil SN50) should be classified under Customs Tariff Heading (CTH) 27101960 as claimed by the appellant or under CTH 27101930 as High-Speed Diesel (HSD) as claimed by the revenue. The adjudicating authority decided on confiscation based on test reports from various laboratories, concluding that the imported goods were HSD. However, the Tribunal found that the test reports were inconclusive as they did not test all 21/22 parameters required under IS 1460:2005 to classify the goods as HSD.

2. Validity and Completeness of the Chemical Tests:
The Tribunal noted that the initial tests conducted by the Central Excise and Customs Laboratory at Vadodara and CRCL New Delhi did not test all required parameters. Even the subsequent test by IOCL, Mumbai, conducted under the direction of the Hon'ble Gujarat High Court, tested only 14 out of 21/22 parameters. The Tribunal emphasized that for a product to be classified as HSD, it must conform to all parameters specified in IS 1460:2005.

3. Burden of Proof for Classification:
The Tribunal reiterated that the burden of proof lies on the revenue to establish that the goods are classifiable under a different heading than claimed by the importer. The revenue failed to provide conclusive evidence that the imported goods were HSD, as required by the Supreme Court judgments in HPL Chemicals Ltd. and Puma Ayurvedic Herbals Pvt. Ltd.

4. Applicability of the Petroleum Act, 1934:
The Tribunal considered the definitions under the Petroleum Act, 1934, which classifies petroleum products based on flash points. The imported goods had a flash point above 93°C, which, according to the Petroleum Act, would classify them as heavy oils, not as HSD. The Tribunal found that the revenue's reliance on the Petroleum Act was not justified since the classification should be based on the Customs Tariff Act and the relevant IS specifications.

5. Provisional Release and Re-export of Goods:
The appellants sought provisional release and re-export of the goods, which was initially denied by the department. The Tribunal noted that the appellant had a strong prima facie case and allowed the re-export of the goods, considering the inconclusive nature of the test reports and the appellant's willingness to re-export.

6. Imposition of Penalties and Fines:
The Commissioner of Customs had imposed penalties on the appellants and other parties involved. However, the Tribunal set aside these penalties, stating that the classification of the goods as HSD was not conclusively proven. The Tribunal emphasized that the revenue failed to establish that the imported goods could be used as HSD or automotive fuel, making the penalties and fines unsustainable.

7. Waiver of Demurrage and Detention Charges:
The appellants argued for the waiver of demurrage and detention charges, given the incorrect classification by the department. The Tribunal found the appellant's claim prima facie correct and suggested that the appropriate authority consider waiving these charges in light of the Tribunal's decision.

Conclusion:
The Tribunal allowed the appeal, holding that the goods were not classifiable as HSD under CTH 27101930. The classification of the goods as Base Oil under CTH 27101960 was maintained. The Tribunal set aside the penalties and fines imposed and allowed the re-export of the goods. The issue of demurrage and detention charges was left to be considered by the appropriate authority. The Tribunal did not address the jurisdiction issue for issuing the Show Cause Notice, as the case was decided on merit.