HSD-Classification Dispute: Supreme Court Directs Customs to Establish Requisite Testing Facilities to Avert Prolonged Litigation [Read Judgement]

The Supreme Court of India recently directed the Customs Department to establish comprehensive testing facilities to prevent prolonged litigation arising from classification disputes of imported goods.

The ruling by the apex court was given against a Civil Appeal filed by Gastrade International, Rajkamal Industrial Pvt. Ltd. and Divinity lmpex, against the Customs Department in a dispute regarding proper classification of the goods imported by the Appellant, classifying as ‘Base Oil SN 50’.

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The Customs Authorities rejected the contentions of the importer, and sought to classify the same as High Speed Diesel (HSD), which is a prohibited item that could be imported only by a State Trading Enterprise. The Commissioner of Customs, acting as the Adjudicating Authority confiscated the shipments and imposed penalties on the Appellants.

However, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) reversed this decision, ruling in favor of the appellants and classifying the goods as Base Oil. Dissatisfied with this ruling, the Customs Authorities appealed to the Gujarat High Court, which reinstated the findings of the Adjudicating Authority. The present Appeal before the Supreme Court has been filed against the Gujarat High Court judgment.

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Gastrade, represented by Rajesh Kumar Gautam, was of the opinion that the test results relied upon by the Customs to classify the goods as HSD was inconclusive, with the tests only affirming certain characteristics of HSD.

Meanwhile, the Customs, represented by Gurmeet Singh Makker maintained their prior contentions.

Justice Nongmeikapam Kotiswar Singh, after a meticulous examination of the evidence, observed that the lack of a comprehensive and standardized testing framework had contributed to the ambiguity surrounding the classification of the goods.

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The Court noted that existing testing facilities did not have the capability to assess all 21 parameters specified under IS 1460:2005, the prescribed standard for HSD classification. As a result, the authorities had relied on incomplete and inconclusive test reports, thereby prolonging litigation and creating regulatory uncertainty.

Given the absence of definitive test results in the present case, the Court ruled in favor of the appellants and overturned the Gujarat High Court’s judgment. The Supreme Court reiterated that unless the authorities implement advanced testing infrastructure capable of assessing all required parameters, classification disputes will continue to arise, leading to unnecessary litigation and economic inefficiencies.

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The Supreme Court also directed the Customs Department to establish state-of-the-art testing facilities capable of conducting thorough evaluations of imported goods in accordance with scientific and legal standards.

The Court emphasized that while expert opinions and laboratory reports play a crucial role in classification determinations, they cannot be treated as conclusive if they fail to account for all stipulated criteria.

To Read the full text of the Judgement CLICK HERE

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