The Supreme Court has directed the Union government to boost testing infrastructure and laboratory capabilities, underscoring the risks of relying on incomplete test results in cases involving confiscation and penalties.
A bench of justices BV Nagarathna and N Kotiswar Singh issued the directive in a ruling dated March 28, after it found that three premier laboratories failed to conclusively determine whether an imported oil consignment was High-Speed Diesel (HSD) or Base Oil. HSD is a controlled substance that only state trading enterprises can import.
Emphasising the need for state-of-the-art laboratory facilities capable of conducting tests on all required parameters, the court closed customs proceedings against three importers, granting them the benefit of doubt, even as it called for a comprehensive overhaul of testing facilities to prevent such classification disputes in the future.
“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,” stated the court, giving the government six months to implement necessary upgrades.
The case revolved around consignments imported by M/s Gastrade International, M/s Rajkamal Industrial Pvt Ltd and M/s Divinity Impex from UAE, declared as “Base Oil SN 50”. The Directorate of Revenue Intelligence (DRI), however, suspected that the cargo contained HSD and seized the shipment at Gujarat’s Kandla Port in 2019.
To determine the true nature of the product, the samples were sent for testing to three renowned laboratories. The Central Excise and Customs Laboratory at Vadodara found that the oil shared characteristics with HSD in eight out of 21 parameters, concluding that the sample was “other than Base Oil.” The second test at Central Revenues Control Laboratory (CRCL), New Delhi found conformity with 10 out of 21 parameters for HSD, but stopped short of explicitly classifying the sample as HSD. Finally, the Indian Oil Corporation Ltd. (IOCL), Mumbai, examined 14 out of 21 parameters, yet again failing to deliver a definitive classification.
The lack of a conclusive determination left the Supreme Court questioning the reliability of the testing process itself. The court noted that sending the oil for another round of tests at this stage would be futile, as its characteristics might have changed over time. Instead, it decided to grant the benefit of doubt to the importers and quash the confiscation orders against them.
While closing the case, the Supreme Court issued a broader directive to the government to modernise testing facilities. It pointed out that the absence of comprehensive laboratory capabilities led to prolonged litigation and legal uncertainty.
“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,” it noted.
Accordingly, it directed the Union government to ensure that testing facilities are upgraded within six months to cover all necessary parameters, ensuring precise and legally robust classification of goods in the future.
“We are of the view that non-examination of any product/article/goods on all the parameters laid down by the customs authority will always lead to uncertainty and doubt, which are required to be removed when dealing with confiscatory proceedings,” maintained the bench, noting that laboratory assessments meet rigorous standards before leading to punitive actions.