Imported Base Oil can be used as HSD or Automotive fuel in internal Combustion Engines: HC

Commissioner of Customs Vs Rajkamal Industrial Pvt. Ltd. (Gujarat High Court)

Conclusion: CESTAT ignored the fact that High-Speed Diesel imported under the guise of Base Oil SN 50 was being diverted as fuel by routing such goods through the purported manufacturers who claim to manufacture Bio-Diesel B100. Thus, department had established the fact that imported Base Oil could be used as HSD / Automotive fuel in internal combustion engines.

Held: In the instant case, the officer issued a show-cause notice calling upon assessee to show cause as to why the entire consignment of the HSD should not be confiscated and penalty be imposed under Section 112(a) and (b), Section 114AA read with Section 117 reply of the Customs Act. Commissioner of Customs, had reclassified the imported goods under the CTH 27101930 as HSD and confiscated the imported goods with an option to re-export on payment of fine / penalty by assesee – company and individual Directors of the Company under Section 112(a) of the Customs Act. The order in original also imposed a penalty on the individual Directors under Section 114AA of the Act. Further, various penalties came to be imposed under Section 112(a) and Section 114AA on the foreign suppliers and their representatives.Tribunal, allowed the appeals and took the view that the goods imported were not High-Speed Diesel, but was just a Base Oil thereby setting aside the redemption fine and penalties imposed. It was held that the inquiry  had 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. Thus, the modus operandi adopted thus appeared to be that High-Speed Diesel imported under the guise of Base Oil SN 50 was being diverted as fuel by routing such goods through the purported manufacturers who claim to manufacture Bio-Diesel B100. These glaring facts were ignored by CESTAT while drawing the observations that the department ought to have established that the imported Base Oil can be used as HSD / Automotive fuel in internal combustion engines.

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT

1 Since the issues raised in all the captioned Tax Appeals are the same and the challenge is also to a common order passed by the Tribunal, those were taken up for hearing analogously and are being disposed of by this common judgement and order.

2 All the three Tax Appeals under Section 130 of the Customs Act, 1962 (for short, “the Act, 1962”) are at the instance of the Revenue and are directed against the common order passed by the Customs, Excise, and Service Tax Appellate Tribunal (for short, the “CESTAT”), West Zonal Bench at Ahmedabad in the Customs Appeal No.10240 of 2020 and allied appeals dated 28th September 2021, by which the Tribunal allowed the appeals filed by the respondents herein taking the view that the product in question is not classifiable as High Speed Diesel, but the same is just in the form of base oil.

3 The facts giving rise to the three appeals before us may be summarized as under;

4 It appears from the materials on record that one of the respondents before us namely Divinity Impex imported the subject goods declaring it to be Base Oil SN50 through a vessel by name “Al Heera” and filed bills of entry by classifying the product under the CTH 27101960. The DRI officers received information that the product imported was High Speed Diesel and not Base Oil. The DRI officers collected samples of the product in question and forwarded those to the customs laboratory at Vadodara for analysis. The Chemical Analyzer at the customs laboratory at Vadodara, vide his test report dated 10th May 2018, certified that the samples have characteristics of High Speed Diesel (HSD) – Automotive Fuel Oil confirming to IS 1460 : 2005 and was other than the Base Oil.

5 The respondents herein requested that the samples be retested at the Central Revenue Control Laboratory (CRCL) at New Delhi or at the Indian Institute of Petroleum, Dehradun. A second set of samples of the product were forwarded to the CRCL, Vadodara. The CRCL, upon analysis, vide its report dated 3rd July 2018, confirmed that the product was HSD – Automotive Fuel classified as IS 1460 : 2005 and the samples were other than the Base Oil.

6 The samples were tested for the 3rd time at the IOCL, Central Laboratory, Mumbai. The IOCL, Central Laboratory also certified that the samples meet with the specification IS 1460 : 2005 i.e. HSD.

7 In view of the aforesaid, the Revenue issued a show cause notice calling upon the respondents herein to show cause as to why the entire consignment of the HSD should not be confiscated and penalty be imposed under Section 112(a) and (b), Section 114AA read with Section 117 resply of the Customs Act. The show cause notice came to be adjudicated by the Commissioner of Customs, Kandla, who, vide order in original dated 3rd December 2019, reclassified the imported goods under the CTH 27101930 as HSD and confiscated the imported goods with an option to re-export on payment of fine / penalty by the respondents – companies and individual Directors of the Companies under Section 112(a) of the Customs Act. The order in original also imposed penalty on the individual Directors under Section 114AA of the Act. Further, various penalties came to be imposed under Section 112(a) and Section 114AA on the foreign suppliers and their representatives.

8 The respondents herein being aggrieved and dissatisfied with the order in original passed by the Commissioner of Customs, Kandla, challenged the same by filing appeals before the CESTAT, Ahmedabad. The Tribunal, as referred to above, allowed the appeals and took the view that the goods imported was not High Speed Diesel, but was just a Base Oil thereby set aside the redemption fine and penalties imposed.

9 The Revenue, being dissatisfied with the impugned order passed by the Tribunal, is here before us with these appeals.

10 All the captioned Tax Appeals came to be admitted vide order passed by this court dated 6th January 2022 on the following three substantial questions of law:

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

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

c. “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 so as to make the present appeals maintainable before this Court under Section 130 of the Act?”

11 We have heard Mr. Devang Vyas, the learned Additional Solicitor General of India assisted by Mr. Dhaval D. Vyas, the learned Senior Standing Counsel appearing for the appellant and Mr. D. K. Trivedi and Mr. Modh, the learned advocates appearing for the assessees.

12 We propose to first look into the question as regards the maintainability of the present appeals before us under Section 130 of the Act. According to the learned advocates for the assessees, the appeals filed by the Revenue before this High Court under Section 130 of the Act, 1962 are not maintainable. It is argued that an appeal shall lie to the High Court from an order that may be passed by the Appellate Authority, except an order relating to, among other things to the determination of any question having a relation to the rate of duty of customs or to the value of good for the purposes of assessment. It has been vehemently argued by both the learned advocates appearing for the assessees that the three appeals before us involves a question relating to the rate of duty of customs and classification and in such circumstances, the appeal would lie before the Supreme Court under Section 130E of the Act, 1962.

13 On the other hand, Mr. Devang Vyas, the learned A.S.G. assisted by Mr. Dhaval Vyas, learned counsel appearing for the Revenue would submit that the appeals are very much maintainable before this High Court under Section 130 of the Act, 1962 as the order impugned does not relate to the determination of any question having a relation of the rate of duty of customs or to the value of goods for the purposes of assessment.

14 The principal argument canvassed on behalf of the Revenue is that if the imported goods is to be treated as HSD, then, it is per se prohibited (except to be imported by the State Trading Enterprise). In other words, the very import of the HSD is prohibited. Any goods, which are prohibited from being imported, are liable to be straightway confiscated with imposition of appropriate fine and penalty. In such circumstances, there is no question of any determination as regards the rate of duty of customs or the value of goods for the purposes of assessment.

15 The argument of Mr. Vyas is that the Court may not go by the operative part of the order in original. The plain reading of the operative part of the order in original may in the first blush give an impression that the Commissioner has classified the imported goods under the respective tariff item. The argument of Mr. Vyas is that there is no classification for the purposes of determination of rate of duty, the classification is only for the purposes of identity of the two disputed products.

16 In such circumstances referred to above, Mr. Vyas would submit that the appeals filed by the Revenue are maintainable before this High Court and the Revenue need not invoke Section 130E of the Act for the purpose of filing appeal those before the Supreme Court.

17 Mr. Vyas submitted, relying upon the decision of the Supreme Court in the case of Navin Chemicals Mfg and Trading Co. Ltd vs. Collector of Customs [1993 (68) ELT 3 (SC)] submitted that the expression “determination of any question having a relation to the rate of duty of customs or to the value of goods for the purposes of assessment” must be read as meaning a direct and proximate relationship to the rate of duty and to the value of goods for purposes of assessment. Mr. Vyas placed much emphasis on the observations made in para 11 of the said judgement. Para 11 reads thus:

“It will be seen that Sub-section 5 uses the said expression ‘determination of any question having a relation to the rate of duty or to the value of goods for the purposes of assessment’ and the Explanation thereto provides a definition of it ‘for the purposes of this sub-section’. The Explanation says that the expression includes the determination of a question relating to the rate of duty; to the valuation of goods for purposes of assessment; to the classification of goods under the Tariff and whether or not they are covered by an exemption notification; and whether the value of goods for purposes/of assessment should be enhanced or reduced having regard to certain matters that the said Act provides for. Although this Explanation expressly confines the definition of the said expression to Sub-section 5 of Section 129-D, it is proper that the said expression used in the other parts of the said Act should be interpreted similarly. The statutory definition accords with the meaning we have, given to the said expression above. Questions relating to the rate of duty and to the value of goods for purposes of assessment are questions that squarely fall within the meaning of the said expression. A dispute as to the classification of goods and as to whether or not they are covered by an exemption notification relates directly and proximately to the rate of duty applicable thereto for purposes of assessment. Whether the value of goods for purposes of assessment is required to be increased or decreased is a question that relates directly and proximately to the value of goods for purposes of assessment. The statutory definition of the said expression indicates that it has to be read to limit its application to cases where, for the purposes of assessment, questions arise directly and proximately as to the rate of duty or the value of the goods.”

18 Navin Chemicals Mfg (supra) has been referred to and relied upon by the Supreme Court in the case of Steel Authority of India vs. Designated Authority Directorate General of Anti-Dumping and Allied Duties [2017 (349) ELT 193 (SC)].

19 We are of the view that the question as regards the maintainability of the appeals before us should be answered in favour of the Revenue. For the reasons, we shall assign hereinafter:

20 Section 130 of the Customs Act, 1962 reads thus:

“130. Appeal to High Court.—(1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal on or after the 1st day of July, 2003 (not being an order relating, among other things, to the determination of any question having a relation to the rate of duty of customs or to the value of goods for the purposes of assessment), if the High Court is satisfied that the case involves a substantial question of law.

(2) The Principal Commissioner of Customs or Commissioner of Customs] or the other party aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be—

(a) filed within one hundred and eighty days from the date on which the order appealed against is received by the 3 [Principal Commissioner of Customs or Commissioner of Customs] or the other party;

(b) accompanied by a fee of two hundred rupees where such appeal is filed by the other party;

(c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved.

(2A) The High Court may admit an appeal after the expiry of the period of one hundred and eighty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the same within that period.

(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.

(4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question:

Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.

(5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.

(6) The High Court may determine any issue which—

(a) has not been determined by the Appellate Tribunal; or

(b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub-section (1).

(7) When an appeal has been filed before the High Court, it shall be heard by a bench of not less than two Judges of the High Court, and shall be decided in accordance with the opinion of such Judges or of the majority, if any, of such Judges.

(8) Where there is no such majority, the Judges shall state the point of law upon which they differ and the case shall, then, be heard upon that point only by one or more of the other Judges of the High Court and such point shall be decided according to the opinion of the majority of the Judges who have heard the case including those who first heard it.

(9) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908) relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section.”

21 At this juncture reference may be made to Section 130 of the Customs Act, which to the extent the same is relevant for the purpose, provides that an appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal not being an order relating, among other things, 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, if the High Court is satisfied that the case involves a substantial question of law. On a plain reading of the above provision, it is apparent that what is excluded from the jurisdiction of the High Court are orders relating, among other things, to the determination of any question having a relation to the rate of duty of customs or to the value of goods for the purposes of assessment. In the present case, the proceedings right from the inception relate to the question as to whether the imported goods are liable to confiscation and do not relate to any assessment proceedings. Therefore, the basic requirement of the section for the purpose of excluding the jurisdiction of the High Court, namely that the order which is subject matter of appeal should be relating to the rate of duty or value of goods for the purposes of assessment is not satisfied in the present case.

22 From the facts noted hereinabove, it is clear that the controversy before the Tribunal was as to whether the applicant herein had correctly described the goods imported by it. It is in the context of such controversy, that the Tribunal has rendered its findings. 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.

23 We are of the view that 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. [See : Ruchi Soya Industries Ltd vs. Commissioner of Customs (2017) 346 E.L.T. 372 (Guj)].

24 We take notice of the fact that the judgement rendered by this High Court in the case of Ruchi Soya Industries (supra) was challenged in the Supreme Court by way of Special Leave to Appeal (Civil) No.14335 of 2016. The S.L.P. came to be dismissed vide order dated 21st November 2016 in the following terms:

“We are not inclined to interfere with the impugned judgment and order passed by the High Court.

However, we leave the question of law open to be decided in an appropriate case. The High Court is at liberty to decide the issue on merits.

The special leave petition is disposed of.”

The Gujarat High Court in its impugned order had held that issue before Tribunal was with regard to confiscability of import cargo due to alleged mis-declaration of description in IGM. The decision of Tribunal was also with regard to finding that there was no misdeclaration as IGM contains only broad description and goods cannot be confiscated because of this alleged misdeclaration. Clearly no issue pertaining to rate of duty and valuation for purpose of assessment of import cargo involved in instant issue which relate to description of goods in IGM and consequent confiscability. Appeal to High Court was held maintainable and cost of 25,000/- imposed on applicant for filing frivolous application.”

25 Thus, the question No.3, as framed above, is answered in favour of the Revenue and against the assessees.

26 The aforesaid now takes us to consider the other two questions of law. The adjudicating authority vide its Order-in-Original dated 3rd December 2019 took the view considering the Test Analysis Report that the subject goods imported by the assessees is not Base Oil, but the same is High Speed Diesel. Let us see how the adjudicating authority has dealt with this issue. We quote the following findings recorded by the adjudicating authority:

“25.4 I find that the test reports of samples of the goods imported have categorically held that the goods were other than base oil and the same have been found to conform to the specifications of High Speed Diesel Oil / Automotive Fuel oil confirming to IS 1460:2005. Accordingly, the imported goods declared. as “Base Oil SN50-In Bulk” can not be considered as conforming to the declared description.

26. I find that the test analysis report has been unconditionally accepted by the noticee No.1. I further find that the department had considered the request of the importer repeatedly and got the sample re-tested and sought clarification from the testing laboratories. Further, the laboratories are well equipped and have technical expertise. These facts demonstrate that the department has taken all steps to secure natural justice to the importer.

27. Further, the noticees have given opinion of Shri Bhavadip N. Vaidya, Managing Director of HARB Global Consultants Pvt. Ltd. and Prof. M. C. Dwivedi (Ex. Department of Chemical Engineering, I.I.T. Bombay) of the aspect of various factors distinguishing Base Oil SN 50 from HSD Oil as obtained by them. However, I find that in these letters, no authentic standards specified by any Govt. Agency or Petroleum Institute of repute have been quoted for purported goods ‘Base Oil SN 50’ to distinguish them from HSD. Therefore, these opinions are of no value to the facts of the case.

28. Noticees have argued that Petroleum Class ‘B’ under Petroleum Act, 1934 means petroleum having a flash point of 23 degree C and above but below 65 degree C, e.g. HSD, SKO, MTO etc. He has argued that as per test reports, its flash point is 110°C or above and hence HSD cannot be classified as Class B petroleum product. I find that test report of different laboratory came to the conclusion that the imported product is HSD on the basis of different characteristics/parameters which also include Flash point. I find that laboratory have given their test report on the basis of testing of different characteristics/parameters of HSD. Accordingly, I do not find any merit in the argument that since HSD is given as an example in Petroleum class ‘B’, its Flash Point has to be below 65°C. Also this argument of the noticees has inherent fallacy. On one hand the noticees accept that as per IS1460:2005, the minimum flash point of HSD should be 35°C by Abel method and minimum 66°C by PMCC method and on the other hand refers to Section 2 of the Petroleum Act, 1934 to say that to be HSD the flash point should be below 65°C. On perusal of classification in class ‘A’, ‘B’ & ‘C’ under Petroleum Act, 1934 it is seen that HSD is given as a example under class ‘B’ of Petroleum Products. It is true if the flash point of HSD is below 65°C, it would fall under class ‘B’ products. But flash point of HSD can be above 65°C as per IS standards, in that it would fall in class ‘C’ category and may also go out of ambit of petroleum Act, 1934 if the flash point goes above 93°C. To understand more on importance of flash point or otherwise, I have searched the literature available on the subject. The literature downloaded from the reputed websites is as under:

Wikipedia

Flash point:

The flash point of a volatile material is the lowest temperature at which vapours of the material will ignite, when given an ignition source.

The flash point is a descriptive characteristic that is used to distinguish between flammable fuels, such as petrol (gasoline in the US), and combustible fuels, such as diesel. It is also used to characterize the fire hazards of fuels. Fuels which have a flash point less than 37.8°C ( 100.0°F) are called flammable, whereas fuels having a flash point above that temperature are called combustible.

Petrobazaar.com

DIESEL FUELS (HSD/LDO)

A diesel fuel is any fuel suitable for burning in diesel or compression ignition engines. Petroleum diesel fuels may be distillates or blends of distillates and residual fuels.

In a compression ignition engine, air alone is drawn in to cylinder and compressed until it is very hit (about 500 deg C). At this stage, finely atomized fuel is injected at a very high pressure, which is ignited by the heat of compression and hence the term compression ignition (C.1).A spark ignition engine on the other hand, relies upon a carburetor to supply into the cylinder a mixture of gasoline vapour and air, which after compression, is ignited by a spark.

The average compression ratio of a diesel engine is much higher (about 15:1) than that of a gasoline engine (about 8:1) and this is the reason for the higher thermal efficiency of the diesel engine (about 33% as compared to about 25% of the gasoline engine) which makes for economy in operation.

NOMENCLATURE

Two main grades of diesel fuel are marketed in India, High Speed Diesel (HSD) and Light diesel Oil (LDO). The former is a 100% distillate fuel whereas the latter is a blend Of distillate fuel with a small proportion of residual fuel.

END USE

HSD is normally used as a fuel for high speed diesel engines operating above 750rpm Le. buses, lorries, generating sets, locomotives, pumping sets etc. Gas turbine requiring distillate fuels make us of HSD as fuel. LDO is used for diesel engines, generally of the stationery type operating below 750 rpm.

IGNITION QUALITY

When fuel is injected into the combustion of a diesel engine, ignition does not occur immediately. The interval between the commencement of fuel injection and commencement of combustion is known as the “ignition delay” and is a measure of the ignition quality of fuel. This delay period depends upon the nature of the fuel, the engine design and on the operating conditions. If the delay is too long, the engine may be hard to start and when the accumulated fuel does ignite, the rate of pressure rise may be so great that it causes roughness or diesel knock. The effects of diesel knock are similar to the effects of knocking in gasoline engines, viz. a loss of efficiency and power output and possibility of mechanical damage to the engine if knocking is prolonged.

CETANE NUMBER

The most accurate method of assessing the ignition quality of diesel fuel is by measuring its cetane number in a test engine, the higher the cetane number the higher the ignition quality. The cetane number of fuel is defined as a percentage of cetane, arbitrarily given a cetane number of 100, In a blend with alphamethyl-naphthaline (cetane number-0), which is equivalent in ignition quality to that of the test fuel.

VISCOSITY

Defined simply, viscosity means resistance to flow or movement. in metric system, centistoke is the unit for its measurement. It is function of the time taken in seconds for a given volume of oil to flow through a calibrated viscometer under specified conditions. Viscosity depends on temperature and decreases as temperature increases, so no numerical value has any meaning unless the temperature is specified.

CARBON RESIDUE

Different fuels have different tendencies to crack and leave carbon deposits when heated under similar conditions. This property is normally measured by the Conradson or the Ramsbottom coke tests. In these tests, a sample of the fuel is heated without contract with air under specified conditions and the weight of carbon residue remaining after the test is expressed as a percentage of the weight of the sample.

VOLATILITY

As a rule, the higher the viscosity of a liquid fuel, the lower its volatility. Therefore provided the viscosity lies within specified limits, a satisfactory volatility is automatically ensured. However, the percentage recovered at some particular temperature e.g. 366 deg C, is specified in the case of HSD mainly to control engine fouling due to Incomplete combustion of the higher boiling components.

TOTAL SULPHUR

This is significant because it governs the amount of sulphure oxides formed during combustion. Water from combustion of fuel collects on the cylinder walls, whenever the engine operates at low jacket temperatures. Under such conditions, sulphurous and sulphuric acids are formed, which attack the cylinder walls and piston rings, promote corrosion, and thus cause increased engine wear and deposits. Total sulphur is expressed as a percentage of the weight of the fuel sample.

CORROSIVE SULPHUR

It is important that diesel fuels shall be free of these sulphur compounds which in themselves attack metal parts of the engine or the fuel system. This characteristic is tested by the Copper Strip Corrosion Test, a severe discoloration or pitting of the polished strip indicating the presence of corrosive sulphur compound in the fuel.

ACIDITY

This should be low in order that corrosion of metals in contract with the fuel during storage and distribution is minimized. .

INORGANIC OR MINERAL ACIDITY

Where diesel fuels are treated with mineral acid as part of the refining procedure, traces of mineral acid remaining in the final product would obviously be undesirable. Hence, zero limit is usually specified for this property.

ORGANIC ACIDITY

This is due to the naphthenic type which are constituents of crude petroleum. Their presence in small amounts is not necessarily an indication of improper refining or poor quality. Although much weaker than mineral acids, they may attack galvanized metal and this is why the use of galvanized containers for the storage of diesel fuels is not recommended.

ASH CONTENT

Ash is a measure of the incombustible material present in a fuel and is expressed as a Percentage of the weight of the fuel sample. In the case of distillate fuels, it usually Consists of rust, tank scale or sand which settles out readily. Blends of distillate and residual fuel, e.g. LDO may additionally contain metal oxide derived from oil soluble and Insoluble metallic compounds: Ash is significant because it can give rise to deposit problems such as abrasion, malfunctioning of injectors and high temperature corrosion, Particularly with residual fuels.

SEDIMENT AND WATER

These are absolutely undesirable contaminants and should be as low as possible. The higher the specific gravity and viscosity of a fuel, the greater the quantity of water and sediments, it can hold in suspension. Large quantities of sediment can affect the combustion of a fuel, and if abrasive, may cause excessive wear of closely fitting parts of fuel pumps and injectors. It may also clog filters and build up deposits in tanks and piping.

POUR POINT

The pour point of a fuel is the lowest temperature at which it will pour or flow when chilled under prescribed conditions. It is a very rough indication of the lowest temperature at which a given fuel can be readily pumped. However, since practical conditions are quite different from those under which the laboratory test is conducted, many fuels can be pumped at temperatures well below their laboratory pour point. Sometime cloud point is measured. This the temperature at which paraffin wax begins to crystallize or separate from solution when the fuel is chilled under prescribed conditions. This may settle out in the fuel system and cause blockage of filters leading to malfunctioning or stalling of the engine.

COLD FILTER-PLUGGING POINT

The cold filter plugging point (CFPP) is defined as the highest temperature at which the fuel, when cooled under prescribed conditions, either will not flow through the filter (45 microns) or will require more than 60 seconds for 20 ml to pass through. This is the temperature at which wax crystals begin to cause blockage of filter.

FLASH POINT

This has no bearing on performance but is important largely from the point of view of safety in handling the fuel and minimum values are usually specified in the specification.

The flash point of High Speed diesel is stipulated as min. 32 deg C and thus it falls under the category of Class ‘B’ of Petroleum products. While other diesel fuels have a flash point of min 66 deg C and hence fall in the category of class ‘C’ of petroleum products.

SPECIFIC GRAVITY

This is defined as a ratio of weight of given volume of oil to the weight of same volume Of water at a given temperature. Another index for measuring this characteristic is by Density, mass per unit volume at a standard temperature. Specific Gravity/Density is of limited usefulness as a direct measure of diesel fuel quality. However, it provides a Convenient means of controlling product uniformity in refinery operations and of Converting volume to weight. Variations in specific gravity affect the volumetric fuel consumption of an engine, since the higher the specific gravity the higher the heat content in a unit volume of fuel. However this is not significant in use unless the variations are very large.

These literature amply. shows that the high flash point of ‘HSD’ imported by M/s. Rajkamal but misdeclared as ‘base oil’ has no bearing on performance but has bearing on safety in handling only and that is why only minimum value has been specified in IS1460:2005 specifications. I find support to this finding from the cross-examination of Dr. Gobind Singh, DGM(Lab), IOCL by the noticee. On a specific question on what is the maximum and minimum flash point for considering the sample as HSD, the expert has replied that only the minimum limit prescribed is 35°C and there is no maximum limit prescribed in the standard. On another question by the noticee whether in case the flash point exceeds above 100°C etc., does it still pertains to HSD, the expert replied that as above 35°C whatever the flash point is, it does not matter.

29. It is found that over and above the report of IOCL, the department is having analysis report of CRCL and after analysis, a clear-cut opinion has come on record that the so called base oil imported is definitely HSD. It is also found that there is no product described by the noticee as ‘Base Oil SN50° in its import documents and therefore, such description is a deliberate attempt to mislead the department and to suppress the actual imported restricted goods.

30. I find that The Directorate of Revenue Intelligence, Ahmedabad had inquired with Central Revenues Control Laboratory, New Delhi whether the Central Excise & Customs Laboratory at Vadodara and the CRCL, New Delhi had the requisite facilities for testing of samples of HSD against the parameters prescribed under the IS1460:2005 in the light of Circular No. 43/2017-Customs dated 16th November, 2017 issued under F. No. 401/243/2016-Cus-III. The Joint Director, Central Revenues Control Laboratory, New Delhi reconfirmed that the testing facilities for the sample of Base Oil and Petroleum products including HSD/Automotive Diesel Fuel were available at Central Excise And Customs Laboratory, Vadodara and the Central Revenues Control Laboratory, New Delhi on reporting date of Test Reports i.e. 11.05.2018 and 03.07.2018 respectively for the parameters reported in the respective test reports.

30.1 As discussed above, I find that the findings of the three independent laboratories of repute has held that the sample meets the specification for parameters tested as per the specification IS:1460:2005 prescribed for High Speed Diesel, as hydrocarbon oil.

31. Further I find that Shri Meet B. Mehta, Director of M/s. Rajkamal, Ahmedabad in his statement dated 17.05.2018 has agreed that the Test Reports of the sample drawn from the goods imported by them per vessel MT. AL HEERA, given by the Chemical Examiner, Central Excise & Customs Laboratory, Vadodara indicated that the sample has characteristics of High Speed Diesel Oil/Automotive fuel oil confirming to 1S: 1460:2005 and is other than Base Oil, thereby the goods imported is High Speed Diesel Oil.

32. I find that M/s Rajkamal has not produced any document or evidence to substantiate their claim that the goods imported is ‘Base Oil SN50’. M/s Rajkamal also failed to produce any authentic or statutory literature detailing the specifications and parameters of the product ‘Base Oil SN50’. M/s Rajkamal could not get any independent specification of ‘Base Oil SN50’ of any authoritative/ statutory body, but they had relied upon the specification of ‘Base Oil SN50′ given by their suppliers M/s Kelorex Energy, FZE, UAE. However, they themselves accepted that M/s Kelorex Energy, FZE is not the manufacturer but is only a trader and that M/s Kelorex Energy, FZE is not an accredited agency to issue certifications. M/s Rajkamal were not aware on what basis the trader has issued the analysis report indicating the parameters of the ‘Base Oil SN 50’.

32.1. I also find that M/s Rajkamal, purportedly did not place any written order for the goods ‘Base Oil SN50’ and could not produce any authentic or authoritative literature about what is ‘Base Oil SN50’. The trader who purportedly supplied the so called ‘Base Oil SN50′ to them did not provide the name of refinery where the same was manufactured so that details of the product could be had directly from source.

32.2. I also find that Shri Hitesh Mehta of M/s. Renish Petrochem FZE, Dubai, UAE had chartered the vessel MT AL HEERA. Further, Shri Meet B. Mehta, Director of M/s Rajkamal, Ahmedabad in his statement has stated that Mr. Hitesh Mehta is his paternal uncle and is the owner of M/s Renish Petrochem FZE, UAE. Hence it is evident that Shri Meet B. Mehta, Director of M/s Rajkamal, Anmedabad, was well aware about the nature of the goods, its specifications and its actual suppliers, however they have intentionally kept the department in the dark and have at no stage revealed the details.

33. I find that in this case, certain documents describing it as ‘Base Oil SN 50’ were prepared. As such, to use the broad terminology to cover an imported petroleum Product is only to disguise the correct specification or declaration to be made and to give it a broad spectrum definition with a view to escape any charge of misdeclaration. All such declarations are as absurd as describing “High Speed Diesel” as ‘Base Oil SN SO’. These facts reveal that the whole game plan has been to misdeclare the product so imported, under cover of coining the product broadly as ‘Base Oil SN 60’.

33.1 The above deliberation leads me to conclude that Noticees have failed to discharge the onus to prove the goods imported per Al Heera were Base Oil falling under CTH27101960 of Customs Tariff Act, 1975.

34. Another contention of the noticee is that M/s IOCL have tested only 14 parameters out of 22 for HSD IS1460:2005 and since all the parameters have not been tested, it can be said that the sample is of HSD. But, I find fallacy in this argument as the noticee had not pointed out which of these remaining 8 parameters will not be satisfied, if tested. Unless that is pointed out by noticee it is only a hollow argument and has no substances in it. Also M/s IOCL themselves have their refineries and producing HSD. They would have facility to test the vital parameters for determination as to whether the sample meets the specifications of IS1460:2005. Once they have performed the tests for which they have the facility and given the report that the sample meets the 14 parameters of IS1460:2005 for which the facility is available with them, I think nothing remains for determination further and it can safely be concluded that imported item was mis-declared as ‘Base Oil SN 50’ and sought to be cleared under CTH 27101960. The actual item is ‘High Speed Diesel’ and that the flash point of the Product was increased and even then since the specification prescribe minimum flash point only, all the tested parameters including flash point match with ‘High Speed Diesel.”

27 The aforesaid findings recorded by the adjudicating authority did not find favour with the Tribunal. The Tribunal, while allowing the appeals filed by the assessees herein, held as under:

“4.11 In the present case also we find that the commissioner has merely relied on the 3 test report to conclude that the imported product is HSD even though none of the laboratories were able to test the samples for ail 21/22 parameters prescribed in IS 1460:2005 and no test was conducted to decide whether product is a base oil. The department has not adduced any document to support or substantiate their claim that the imported products are HSD. As held by this tribunal in the aforesaid case, in this case also though it is claimed that the imported product is HSD and not the base oil but the laboratories were not able to test the sample of all the 21/22 parameters under IS 1460:2005 as they did not have the requisite facility for testing. In our view the custom department ought to have established that the imported base oil can be used as HSD/ Automotive fuel in internal combustion engines but the adjudicating authority could not establish that the imported product can be used as HSD or automotive fuel and he kept silence on this aspect. We find that the ratio of the above case is squarely applicable to this also and in absence of any conclusive evidence to hold that the imported product is only HSD and it can be used as Automotive Fuel, the imported base oil in question cannot be reclassified as HSD. The aforesaid decision has been upheld by the Apex Court reported in 2007 (4) TMI 672 (SC) by dismissing the department’s appeal.

4.12 The learned counsel for the appellant also raised the valid point that when the value prescribed for flash point is same for both HSD and fuel oil and almost all the parameters prescribed for fuels oil is commonly prescribed for HSD also while the DRI has not considered the testing the samples of the imported product for the parameters prescribed for the fuel oil under IS 1593 and why they have pre supposed that the imported products only HSD and not the fuel oil. Since fuel oil is freely Importable Into India, it appears that DRI has not reckoned with the BIS Standard for fuel oil and the parameters prescribed for it. We have also observed in our above discussion why the DRI only opted to test the product for HSD and not first got the product tested as base oil. However, in our above discussion we opined that in absence of testing of all the 21/22 parameter the product cannot be classified as HSD as the same is not in confirmation to IS 1460:2005.

5.1 In view of the above settled legal position in the present case also 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.

5.2 As per our above discussion and finding we hold that 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 reexport 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 reexport the goods.”

28 Thus, the Tribunal appears to have taken the view that all the three laboratories were able to undertake only 14 tests out of prescribed 22 tests for the purpose of determining the nature of the subject goods i.e. whether the same is High Speed Diesel or Base Oil, as imported by the assessees. 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.

• ANALYSIS :

29 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.

30 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 was observed by the Supreme Court in Sir Chunilal V. Mehta & Sons Ltd. v. Century Spg. & Mfg. Co. Ltd. [1962 AIR 1314 : 1962 SCR Supl. (3) 549] that “a question of law would be a substantial question of law if it directly or indirectly affects the rights of parties and/or there is some doubt or difference of opinion on the issue”. But “if the question is settled by the Apex Court or the general principles to be applied in determining the question are well-settled, mere application of it to a particular set of facts would not constitute a substantial question of law.” Where the determination of the issue depended upon the appreciation of evidence or materials resulting in ascertainment of basic facts without application of any principle of law, the issue merely raises a question of fact. A question of fact becomes a question of law, if the finding is either without any evidence or material, or if the finding is contrary to the evidence, or is perverse or there is no direct nexus between the conclusion of fact and the primary fact upon which that conclusion is based. But, it is not possible to turn a mere question of fact into a question of law by asking whether as a matter of law the authority came to a correct conclusion upon a matter of fact. Where the determination of an issue depends upon the appreciation of evidence or materials resulting in ascertainment of basic facts without application of any principle of law, the issue raises a mere question of fact. The Delhi High Court laid down in DCIT vs. Marudhar [245 ITR 138] the following four tests to determine whether the question involved is one of fact or law:

“As the Tribunal is the ultimate fact-finding authority, if it has reached certain findings upon examination of all relevant evidence and materials before it, the existence or otherwise of certain facts at issue is a question of fact.

Any inference from certain facts is also a question of fact. If a finding of fact is arrived at by the Tribunal after improperly rejecting evidence, a question of law can arise.

While the Tribunal acts on materials partly relevant and partly irrelevant, it can give rise to a question of law if it is impossible to say to what extent the irrelevant material was used to arrive at the finding. Such a finding is vitiated because of the use of inadmissible material.

Where any finding is based on no evidence or material, it involves a question of law.”

31 Keeping the aforesaid in mind, we proceed to examine the matter further. All the three assessees before us were given an opportunity of cross-examining Shri Gobind Singh, Manager (Lab), IOCL, Central Laboratory, Mumbai. The cross-examination of Shri Singh, at the instance of M/s. Rajkamal Industrial Pvt Ltd reads thus:

“(Before the Principal Commissioner of Customs, Custom House Kandla)

Cross Examination of Shri Gobind Singh, Manager (Lab), IOCL, Central

Laboratory, Mumbai in the matter of SCN F. No.DRI/AZU/CI/INQ-12(INT-2/2018 dated 22.04.2019 issued to M/s. Rajkamal Industrial Pvt Ltd & Others by Shri Hardik Modh, Advocate.

Q: What is your name?

A: Dr. Gobind Singh.

Q: Where have you been working and for how long?

A: I have been working in IOCL at Sewree at Mumbai since 2012.

Q: How many samples have you tested in respect of petroleum products?

A: I have tested large number of samples running into hundreds of samples.

Q: Are you aware of letter dated 04.08.2018 written by the Assistant Director of DRI whereby it was requested to Mr. Vivek W. Sawant, DGM, IOCL to test the samples as requested under test memo in accordance with the parameters prescribed under IS 1460:2005 for “High Speed Diesel” and to ‘categorize the identity of the goods. Had you tested these good only to ascertain whether the parameters prescribed under Indian Standard IS 1460:2005 for High Speed Diesel? A: Yes.

Q: As per the letter dated 04.08.2018, you were requested to verify whether the samples were HSD as per IS 1460:2005. Have you followed these instructions?

A: Yes.

Q: Have you signed the test reports annexed with “Relied upon Documents” at Sr. No. 25 to the Show Cause Notice dated 22.04.2019? A: Yes.

Q: What does it mean ‘reviewed by’?

A: The samples were tested by me and checked, supervised and signed by my senior at the lab.

Q: Table I of IS 1460:2005 provides total 22 parameters are to be tested for ascertaining whether the sample meets with the criteria of HSD?

A: The Sample meets with the specification IS 1460:2005 for the parameters tested at our laboratory which are 14 parameters tested as per our lab capabilities.

Q: Does it mean that the other 8 parameters are not important for ascertaining or deciding whether the sample meets with the criteria of HSD?

A: Already provided in the report that in the lab the samples were tested as per IS 1406:2005 and there is facility available only for testing of 14 parameters and for the remaining 8 parameters, the facility is not available for which I can’t comment.

Q: Do you know the function/characteristics of the 8 parameters provided under IS 1406:2005 that have not been tested?

A: As the 8 parameters have not been tested, I can’t comment in respect of these parameters.

Q: On perusal of report, have you concluded that it meets with the criteria of high speed diesel of IS 1460:2005?

A: Again, it is submitted in the report that the samples tested for 14 parameters as per IS 1406:2005, at the lab which itself is for high speed diesel.

Q: In respect of Flash Point, two methods are prescribed, Abel as well as PMCC. Remark No. 2 of test report provides that flash point was tested by Abel apparatus method but since it was more than 66°C, sample was tested by PMCC. In which situation, sample of HSD is required to be tested at Abel method and PMCC method?

A: If the temperature is above 66°C then PMCC is required and if the temperature is below 66°C than it is required to do with Able method. Q: Do you think so one of the ingredients for considering HSD is flashpoint?

A: Can’t comment on ingredients. The minimum temperature for Flash Point 35°C as prescribed in standard. We have submitted the report. Q: What is the maximum and minimum flashpoint for considering the sample as HSD?

A: Only the minimum limit is talked about that is 35°C and there is no maximum limit prescribed in the standard.

Q: If case, the Flash Point exceeds above 100°C, 150°C, 200°C etc. , then does it still pertains to HSD standard?

A: Can’t comment as above 35°C whatever the Flash Point is, it does not matter.

Q: Point No.1 of supplementary note of Chapter 27 of Customs Tariff Act provides that “Jute Batching Oil”, “Textile Oil” are Hydrocarbon Oils, which have their flash points on and above 93°C. In case flash point exceeds 93°C, what you call it?

A: Can’t comment. As flashpoint isn’t the only parameter. We have tested the samples that were submitted to us as per IS 1460:2005. Q: IOCL supplies HSD to various parties. Have you ever come across any situation in which you have found the Flash Point of all these test reports above 93°C and considered as a HSD?

A: Flash Point is not the only parameter which is used to measuring the sample as per IS 1460:2005.

Q: Can you Say it is an automotive diesel?

A: Already written in the lab report and we have tested the samples as per the parameters as per IS 1460:2005.”

32 The cross-examination of Shri Singh at the instance of M/s. Gastrade International is as under:

“(Before the Principal Commissioner of Customs, Custom House, Kandla)

Cross Examination of Shri Gobind Singh, Manager (Lab), IOCL, Central Laboratory, Mumbai in the matter of SCN F. No.DRI/AZU/CI/ENQ-11(INT-2/2018 dated 24.04.2019 issued to M/s. Gastrade International & Others by Shri Hardik Modh, Advocate.

Q: What is your name?

A: Dr. Gobind Singh.

Q: Where have you been working and for how long?

A: have been working in IOCL at Sewree at Mumbai since 2012.

Q: How many samples have you tested In respect of petroleum products?

A: I have tested large number of samples running into hundreds of samples.

Q: Are you aware of letter dated 04.08.2018 written by the Assistant Director of DRI whereby it was requested to Mr. Vivek W. Sawant, DGM, IOCL to test the samples as requested under test memo in accordance with the parameters prescribed under IS 1460:2005 for “High Speed Diesel” and to categorize the identity of the goods. Had you tested these good only to ascertain whether the parameters prescribed under Indian Standard IS 1460:2005 for High Speed Diesel? A: Yes.

Q: As per the letter dated 04.08.2018, you were requested to verify whether the samples were HSD as per IS : 1460:2005. Have you followed these instructions?

A:Yes.

Q: Have you signed the test reports annexed with “Relied upon Documents” at Sr. No. 14 to the Show Cause Notice dated 2404.2019? A: Yes.

Q: What does it mean ‘reviewed by’?

A: The samples were tested by me and checked, supervised and signed by my senior at the lab.

Q: Table I of IS 1460:2005 provides total 22 parameters are to be tested for ascertaining whether the Sample meets with the criteria of HSD? A: The Sample meets with the specification IS 1460:2005 for the parameters tested at our laboratory which are 14 parameters tested as per our lab capabilities.

Q: Does it mean that the other 8 parameters are not important for ascertaining or deciding whether the sample meets with the criteria of HSD?

A: Already provided in the report that In the lab the samples were tested as per IS 1406:2005 and there is facility available only for testing of 14 parameters and for the remaining 8 parameters, the facility is not available for which I can’t comment.

Q: Do you know the function/characteristics of the 8 parameters provided under IS 1406:2005 that have not been tested?

A: As the 8 parameters have not been tested, I can’t comment in respect of these parameters.

Q: On perusal of report, have you concluded that it meets with the criteria of high speed diesel of IS 1460:200S?

A: Again, it is submitted in the report that the samples tested for 14 parameters as per IS 1406:2005, at the lab which itself is for high speed diesel.

Q; In respect of Flash Point, two methods are prescribed, Abel as well as PMCC. Remark No. 2 of test report provides that flash point was tested by Abel apparatus method but since it was more than 66°C, sample was tested by PMCC. In which situation, sample of HSD is required to be tested at Abel method and PMCC method?

A: If the temperature is above 66°C then PMCC is required and if the temperature is below 66°C than it is required to do with Able method. Q: Do you think so one of the ingredients for considering HSD is flashpoint?

A: Can’t comment on ingredients. The minimum temperature for Flash Point 35°C as prescribed in standard. We have submitted the report. Q: What is the maximum and minimum flashpoint for considering the sample as HSD?

A: Only the minimum limit is talked about that is 35°C and there is no maximum limit prescribed in the standard.

Q: If case, the Flash Point exceeds above 100°C, 150°C, 200°C etc. , then does it still pertains to HSD standard?

A: Can’t comment as above 35°C whatever the Flash Point is, it does not matter.

Q: Point No. I of supplementary note of Chapter 27 of Customs Tariff Act provides that “Jute Batching Oil”, “Textile Oil” are Hydrocarbon oils, which have their flash points on and above 93°C. In case flash point exceeds 93°C, what you call it?

A: Can’t comment. As flashpoint isn’t the only parameter. We have tested the samples that were submitted to us as per IS 1460:2005. Q: IOCL supplies HSD to various parties. Have you ever come across any situation in which you have found the Flash Point of all these test reports above 93°C and considered as a HSD?

A: Flash Point is not the only parameter which is used to measuring the sample as per IS 1460:2005.

Q: Can you say it is an automotive diesel?

A: Already written in the lab report and we have tested the samples as per the parameters as per IS 1460:2005.”

33 The cross-examination of Shri Singh at the instance of Divinity Impex is as under:

“(Before the Principal Commissioner of Customs, Custom House, Kandla)

Cross Examination of Shri Gobind Singh, Manager (Lab), IOCL, Central Laboratory, Mumbai in the matter of SCN F. No.DRI/AZU/CI/ENQ-13(INT-02/2018)/2018 dated 24.04.2019 issued to M/s. Divinity Impex & Others by Shri Kumar Pal Mehta, Practising Company Secretary and Authorized representative of M/s Divinity Impex.

Q: What is your name?

A: Shri (Dr.) Gobind Singh.

Q: What is your qualification?

A: P.hd Chemistry.

Q: How many years of experience do you have?

A: 7 years.

Q: How many samples have you tested till now?

A: Whatever the samples that are submitted to me, I have tested them.

‘Q: What are the exact numbers of samples you have tested?

A: whatever the number of samples that are submitted to me by DRI, I have tested them.

Q: Have you personally examined the samples?

A: Yes

Q: When did you receive the samples from DRI?

A: 09.08.2018

Q: Have you yourself prepared the report?

A: There is a procedure for that. The samples were received by concerned authority, after that I have tested and prepared the report and my senior has reviewed the report thereafter.

Q: After how many days of the seizure of the sample by the DRI, the sample was received by you?

Adjudicating Authority intervened and said that this is a matter of record and it is a sheer wastage of time of Adjudicating Authority and the person whose cross examination is being done.

Q: What is the standard specification for testing the samples of HSD?

A: IS 1460:2005

Q: How many parameters were tested for the samples?

A: A total of 14 parameters were tested as prescribed in the standard as per the Lab capabilities

Q: Did certain parameters were not tested due to the testing facility of other parameters not being available at the lab?

A: Yes, as the lab is a marketing lab and it is not a refining lab.

Q: Have you tested the sample as per IS 1460:2005?

A: This sample has been tested as per the standard IS 1460:2005 and under this specification there are total 22 tests covered out of which we have tested only 14 parameters as per our Lab capability.”

34 The plain reading of the aforesaid would indicate that the expert in no uncertain terms has made himself clear that all the 14 tests which were carried out revealed only one thing that the sample was High Speed Diesel and not Base Oil, as imported by the assessees. Shri Singh was honest enough to admit that the IOCL Laboratory is equipped to conduct only 14 tests as it has no facility or means to conduct the remaining 7 tests. The question is whether the analysis could be said to incomplete or inconclusive in any manner. Could it be said that the test could be conclusive as regards the nature of the sample only if all the 21 tests are undertaken, more particularly, when the expert has asserted that all the 14 tests carried out indicated only one thing that the sample analyzed was High Speed Diesel.

35 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.

36 In the aforesaid context, and more particularly, keeping in mind the test reports of the laboratories and the cross-examination of the expert, we must look into the observations of the Supreme Court in the case of Collector of Customs, Madras and others vs. D. Bhoormall reported in AIR 1974 SC 859, which reads thus:

“31. It cannot be disputed that in proceeding for imposing penalties. under Clause (8) of Section 167 to which Section 178-A-does not apply, the, burden of proving that the goods are smuggled goods, is on the Department. This is a fundamental rule relating to proof in all criminal or quasi-criminal proceedings, where there is no statutory provision to. the contrary. But in appreciating its scope And the nature of the onus. cast by it, we must pay due regard to other kindred principles, no less fundamental, of universal application. One of them is that the prosecution or the Department is not required to prove its case with mathematical precision to a demonstrable degree; for, in all human affairs. absolute certainty is a myth, and-as Prof. Brett felicitously puts it all exactness is a fake” El Dorado of absolute proof being unattainable, the law accepts for it, probability as a working substitute in this work-a- day world. The law does not require the prosecution to prove the impossible. All that it requires is the establishment of’ such a degree of probability that a prudent man may, on its basis, believe in the existence of the fact in issue. Thus, legal proof is not necessarily perfect proof.; often it is nothing more than a prudent man’s estimate as to the probabilities of the case.

3.2 The other cardinal principle having an important bearing on the incidence of burden of proof is that sufficiency and weight of the evidence is to be considered to use the words of Lord Mansfield in Batch v. Archer (1774) 1 Cowp. 63 “according to the proof which it was in the power of one side to prove, and in the power of the other to have contradicted”. Since it is exceedingly difficult, if not absolutely impossible, for the prosecution to prove facts which are especially within the knowledge of the opponent or the accused, it is not obliged to prove them as parts of its primary burden.”

37 In the case of A. N. Guha & Co. vs. Collector [1996 (86) E.L.T. 333], the CESTAT, West Zonal Branch, Mumbai held that it is not necessary for the department to establish a fact with mathematical precision. Once the presumption as to the existence of a fact is raised against the assessee that the input has not been transported in the vehicle mentioned in the invoices, it is reasonable to say that the inputs were not received in the factory. In the case of R. V .E. Venkatachala Gounder v. Arulmigu Viswesaraswami & V. P. (order dated 8th October 2003 in Civil Appeal No. 10585 of 1996), the Apex Court held as follows:

“Whether a civil or a criminal case, the anvil for testing of ‘proved’, ‘disproved’ and ‘not proved’, as defined in Section 3 of the Indian Evidence Act, 1872 is one and the same. A fact is said to be ‘proved’ when, if considering the matters before it, the Court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of a particular case, to act upon the supposition that it exists. It is the evaluation of the result drawn by applicability of the rule, which makes the difference. “The probative effects of evidence in civil and criminal cases are not however always the same and it has been laid down that a fact may be regarded as proved for purposes of a civil suit, though the evidence may not be considered sufficient for a conviction in a criminal case. BEST says : There is a strong and marked difference as to the effect of evidence in civil and criminal proceedings. In the former a mere preponderance of probability, due regard being had to the burden of proof, is a sufficient basis of decision : but in the latter, especially when the offence charged amounts to treason or felony, a much higher degree of assurance is required. (BEST, S. 95). While civil cases may be proved by a mere preponderance of evidence, in criminal cases the prosecution must prove the charge beyond reasonable doubt.” (See Sarkar on Evidence, 15th Edition, pp. 58-59) In the words of Denning LJ (Bater V.B, 1950, 2 All ER 458, 459) ‘It is true that by our law there is a higher standard of proof in criminal cases then in civil cases, but this is subject to the qualification that there is no absolute standard in either case. In criminal cases the charge must be proved beyond reasonable doubt, but there may be degrees of proof within that standard. So also in civil cases there may be degrees of probability.’ Agreeing with this statement of law, Hodson, LJ said ‘Just as in civil cases the balance of probability may be more readily fitted in one case than in another, so in criminal cases proof beyond reasonable doubt may more readily be attained in some cases than in others.’ (Hornal V. Neuberger P. Ltd, 1956 3 All ER 970, 977)”.

38 In the case of Collector of Customs, Madras vs. D. Bhoormul (supra), the Court further held as follows :

“It cannot be disputed that in proceeding for imposing penalties, under Clause (8) of S.167 to which S. 178-A does not apply, the burden of proving that the goods are smuggled goods, is on the Department. This is a fundamental rule relating to proof in all criminal or quasi-criminal proceedings, where there is no statutory provision to the contrary. But in appreciating its scope and the nature of the onus cast by it, we must pay due regard to other kindred principles, no less fundamental, of universal application. One of them is that the prosecution or the Department is not required to prove its case with mathematical precision to a demonstrable degree; for, in all human affairs, absolute certainty is a myth, and as Prof Brett felicitously puts it all exactness is a fake” El Dorado of absolute proof being unattainable, the law accepts for it, probability as a working substitute in this work-a-day world. The law does not require the prosecution to prove the impossible. All that it requires is the establishment of such a degree of probability that a prudent man may, on its basis, believe in the existence of the fact in issue. Thus, legal proof is not necessarily perfect proof; often it is nothing more than a prudent man’s estimate as to the probabilities of the case. The other; cardinal principle having an important bearing on the incidence of burden of proof is that sufficiency and weight of the evidence is to be considered – to use the words of Lord Mansfield in Batch v. Archer (1774)1 Cowp. 63 “according to the proof which it was in the power of one side to prove, and in the power of the other to have contradicted”. Since it is exceedingly difficult, if not absolutely impossible, for the prosecution to prove facts which are especially within the knowledge of the opponent or the accused, it is not obliged to prove them as parts of its primary burden. Smuggling is clandestine conveying of goods to avoid legal duties. Secrecy and stealth being its covering guards, it is impossible for the Preventive Department to unravel every link of the process. Many facts relating to this illicit business remain in the special or peculiar knowledge of the person concerned in it. On the principle underlying S.106, Evidence Act, the burden to establish those facts is cast on, the person concerned; and if he fails to establish or explain those facts, an adverse inference of facts may arise against him, which coupled with the presumptive evidence adduced by the prosecution or the Department would rebut the initial presumption of innocence in favour of that person, and in the result prove him guilty. As pointed out by Best in ‘Law of Evidence’, (12th Edn. Article 320, page 291), the “Presumption of innocence is, no doubt, presumption juris, but every day’s practice shows that it may be successfully encountered by the presumption of guilt arising from the recent (unexplained) possession of stolen property”, though the latter is only a presumption of fact – Thus the burden on the prosecution or the Department may be considerably lightened even by such presumption of fact arising in their favour. However, this does not mean that the special or peculiar knowledge of the person proceeded against will relieve the prosecution or the Department altogether of the burden of producing some evidence in respect of that fact in issue. It will only alleviate that burden to discharge which very slight evidence may suffice.”

39 The concepts of “reasonable doubt” and “preponderance of probability” have been lucidly explained by the Apex Court in the case of State of Rajasthan vs. Mohan Lal [2009 (237) E.L.T. 435(S.C.)] as follows:

“36. Doubts would be called reasonable if they are free from a zest for abstract speculation. Law cannot afford any favourite other than truth. To constitute reasonable doubt, it must be free from overemotional response. Doubts must be actual and substantial doubts as to the guilt of the accused persons arising from the evidence, or from the lack of it, as opposed to mere vague apprehensions. A reasonable doubt is not an imaginary, trivial or a merely possible doubt, but a fair doubt based upon reason and common sense. It must grow out of the evidence in the case.

37. The concepts of probability, and the degrees of it, cannot obviously be expressed in terms of units to be mathematically enumerated as to how many of such units constitute proof beyond reasonable doubt. There is an unmistakable subjective element in the evaluation of the degrees of probability and the quantum of proof. Forensic probability must in the last analysis, rest on robust common sense and, ultimately, on the trained intuitions of the Judge….”

40 Thus, what is discernible from the above referred case laws is that it would be too much to ask the department to prove its case with mathematical accuracy. So long as the department has been able to establish its case with such a degree of preponderance, the existence of a fact could be said to have been proved. The only ground on which the Tribunal interfered with the findings recorded by the adjudicating authority is that the laboratories were not in a position to conduct all the 21 tests. 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.

41 Once again, at the cost of repetition, we state that Mr. Singh, as an expert, has deposed in clear terms that the sample met with the specification IS 1460 : 2005 i.e. with the parameters tested at the IOCL, Central Laboratory, Mumbai. We are conscious of the fact that unless a question of law arises for the determination, the High Court should not replace its reasoning with that of the Tribunal. At the same time, the High Court would be justified in interfering if it is noticed by the Court that the Tribunal has disregarded material evidence on record and that too, on technical grounds. The High Court would also be justified in interfering when the findings recorded by the Tribunal are ex-facie illegal, perverse and such would give rise to a question of law.

42 The learned advocates appearing for the assessees vehemently submitted that even if on the same material, it is possible for this Court to take a different view, the same would not give rise to a substantial question of law. Both the learned advocates are right in their submission, but it is not just a question of taking a different view. We have interfered because we are not at all convinced with the findings recorded by the Tribunal. The Tribunal could be said to have ignored the material evidence in the form of the three test reports of three different laboratories certifying the sample to meet with the specification IS 1460 : 2005. The assessees have not been able to show anything on the basis of which we can take the view that if all the prescribed 22 tests are not carried out, the report would remain incomplete and would not be admissible in evidence or would not be conclusive of the nature of the sample. The question that is baffling us is that if these 14 tests indicate the sample to be one of High Speed Diesel, then should such evidence be discarded, ignored or overlooked only on the ground that 7 other tests could not be undertaken by the laboratories because of lack of adequate facility to conduct those 7 tests. To say so is to tell the department to prove its case with mathematical accuracy and beyond reasonable doubt.

43 As observed by the Supreme Court in D. Bhoormall (supra) that the department is not required to prove its case with mathematical precision to a demonstrable degree. The legal proof is not necessarily a perfect proof.

44 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. One particular inquiry with another major buyer of the purported Base Oil SN 50, revealed that they were engaged in the manufacture of Bio-Diesel B100, which is 100% Bio-Diesel. The said buyer had shown consumption of the Base Oil SN 50 in the production of Bio-Diesel B100. 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. These glaring facts were ignored by CESTAT while drawing the observations that the department ought to have established that the imported Base Oil can be used as HSD / Automotive fuel in internal combustion engines.

45 For the foregoing reasons, all the Tax Appeals succeed and are hereby allowed. The impugned common order passed by the Tribunal dated 28th September 2021 is hereby quashed and set aside. The substantial questions of law are answered in favour of the Revenue and against the assessees.

46 Consequently, the connected Civil Applications also stand disposed of.