2022 (2) TMI 264 - HC - Customs

Classification of imported goods - High Speed Diesel or goods just in the form of base oil - product classified under the CTH 27101960 or not - discharge of onus to establish the cargo as High-Speed Diesel or not - determination of any question having a relation to the rate of duty of Customs or to the value of goods for purposes of assessment so as to make the present appeals maintainable before this Court under Section 130 of the Act - confiscation - penalty - whether the applicant herein had correctly described the goods imported by it? HELD THAT - From the findings recorded by the Tribunal, it is clear that none of the findings touch any issue relating to the determination of the rate of duty or value of goods for the purposes of assessment. The entire controversy relates only to the description of the goods in the IGM in connection with the question as to whether such goods are liable to confiscation. None of the issues decided by the Tribunal are in the context of determination of the rate of duty or the value of goods for the purposes of assessment. In such circumstances, the appeal squarely falls within the ambit of section 130 of the Act and has, therefore, rightly been filed before this Court - the assessees have sought to create a ghost that the matter relates to the determination of the rate of duty and value of goods for the purposes of assessment by advancing specious arguments, even when the basic requirements for taking the appeal out of the ambit of section 130 of the Act are not satisfied - According to the Tribunal, although the 14 tests undertaken by the three laboratories might have revealed that the sample is High Speed Diesel, yet the tests cannot be said to be conclusive as regards the nature of the subject goods. In the first blush, it would appear that what has been decided by the Tribunal could be termed as a question of fact. Whether the subject goods fall within one category or the other would essentially be a question of fact. However, even while deciding the same, if the Tribunal overlooks certain basic principles of law applicable to the case on hand and records a finding which could be termed as perverse, then definitely, such decision of the Tribunal would give rise to a question of law - Although the expression substantial question of law has not been defined in any Act or in any of the statutes where this expression appears, yet the true meaning and connotation of this expression is now well settled by various judicial pronouncements. It is a settled position of law that the burden of showing the correct classification lies only on the Revenue. It is not in dispute before us, as it cannot be, that the onus of establishing that the sample meets with the specification IS 1460 2005 lay upon the Revenue. The burden of proof is on the Taxing Authority to show that the particular goods or item in question is taxable in the manner claimed by them. Mere assertion in that regard is of no avail. There should be material to enter appropriate findings in that regard and the material may be either oral or documentary. It is for the Taxing Authority to lay evidence in that behalf even before the first adjudicating authority - The Tribunal has ignored the fact that all the 14 tests carried out in three different laboratories revealed only one thing that the sample showed the characteristics of the High Speed Diesel. If the department is able to lead evidence to this extent, the onus would thereafter shift upon the assessees to establish that these 14 tests cannot be said to be conclusive of the fact that the subject goods is High Speed Diesel. No such attempts have been made by the assessees. The import of the High Speed Diesel in any form has been prohibited vide the Notification dated 17th January 2017. It appears from the materials on record that the investigation was also extended to the major buyers claiming to have imported Base Oil SN 50 in the past and the same has been clearly demonstrated in the Show Cause Notice. The inquiry in the instant case has revealed that the major buyers of such Base Oil were facilitating by issuing only invoices, even without physical receipt of the goods at the behest of the importer, thus evidencing that such imported goods were being clandestinely removed for use as Diesel and only fake invoices were generated to cover the goods - The Bio-Diesel thus shown to have been manufactured was cleared under the invoices for use as Bio-Diesel B100. The Bio-Diesel is a product of vegetable origin and no known literature ascribe the Base Oil as an input for the manufacture of the same. The Bio-Diesel is used as fuel. The modus operandi adopted thus appears to be that High Speed Diesel imported under the guise of Base Oil SN 50 is being diverted as fuel by routing such goods through the purported manufacturers who claim to manufacture Bio-Diesel B100. The substantial questions of law are answered in favour of the Revenue and against the assessees - appeal allowed - decided in favor of Revenue.

Summary

Issues Involved:
1. Whether the Tribunal was right in holding that the department has not discharged the onus to establish the cargo as High-Speed Diesel.
2. Whether the Tribunal was right in setting aside the confiscation of prohibited goods and penalties imposed vide Order in Original.
3. Whether the impugned order of Tribunal relates to the determination of any question having a relation to the rate of duty of Customs or to the value of goods for purposes of assessment, making the present appeals maintainable before this Court under Section 130 of the Customs Act.

Issue-wise Detailed Analysis:

1. Whether the Tribunal was right in holding that the department has not discharged the onus to establish the cargo as High-Speed Diesel:

The Tribunal concluded that the department failed to establish that the imported product was High-Speed Diesel (HSD) rather than Base Oil. The department's evidence included test reports from three laboratories, which tested 14 out of the 22 parameters prescribed under IS 1460:2005 for HSD. The Tribunal found that since not all parameters were tested, the evidence was inconclusive. However, the High Court noted that the expert from IOCL confirmed that the 14 parameters tested were sufficient to classify the product as HSD and that the absence of testing the remaining parameters did not undermine the conclusion. The High Court emphasized that the burden of proof lies with the department, but it is not required to prove its case with mathematical precision. The evidence provided was deemed sufficient to establish that the product was HSD.

2. Whether the Tribunal was right in setting aside the confiscation of prohibited goods and penalties imposed vide Order in Original:

The Tribunal set aside the confiscation and penalties, arguing that the department did not conclusively prove the product was HSD. The High Court disagreed, stating that the evidence from the three laboratories was sufficient to establish the product as HSD. The High Court highlighted that the Tribunal overlooked material evidence, including the expert testimony and the test reports, which consistently indicated the product was HSD. The High Court also noted that the import of HSD is prohibited, and the department's evidence showed the product was being misdeclared as Base Oil to evade restrictions. Therefore, the High Court reinstated the confiscation and penalties imposed by the adjudicating authority.

3. Whether the impugned order of Tribunal relates to the determination of any question having a relation to the rate of duty of Customs or to the value of goods for purposes of assessment, making the present appeals maintainable before this Court under Section 130 of the Customs Act:

The High Court examined whether the appeals were maintainable under Section 130 of the Customs Act. The Tribunal's decision focused on the classification of the goods, which the High Court found did not relate to the rate of duty or value of goods for assessment purposes. The High Court referred to the Supreme Court's decision in Navin Chemicals Mfg and Trading Co. Ltd vs. Collector of Customs, which clarified that questions relating to the classification of goods do not fall under the exclusionary clause of Section 130. Consequently, the High Court held that the appeals were maintainable before it, as the primary issue was the classification and not the rate of duty or value for assessment.

Conclusion:

The High Court allowed the appeals, quashed the Tribunal's order, and reinstated the adjudicating authority's decision to classify the product as HSD, confiscate the goods, and impose penalties. The substantial questions of law were answered in favor of the Revenue, establishing that the department had sufficiently demonstrated the product was HSD and that the appeals were maintainable under Section 130 of the Customs Act.