CESTAT Mumbai Rules That Partial CRCL Test Reports Cannot Support Reclassification of Imported Solvent as Kerosene
Background of the Dispute
M/s Danish Impex, a business based in Gadag, Karnataka, imported a consignment of solvent from United Arab Emirates describing the product in the Bill of Entry dated 12.03.2019 as “Industrial Composite Solvent” under Customs Tariff Item 3814 0010. The shipment comprised 108.120 MTs packed in six containers.
The Bill of Entry was processed under the Risk Management System (RMS) and the goods were cleared on the basis of self-assessment, without physical examination or verification at that initial stage.
Subsequently, the Central Intelligence Unit (CIU) at Jawaharlal Nehru Customs House (JNCH) received intelligence that the consignment might actually be Superior Kerosene Oil (SKO) being imported in violation of the import policy. Acting on this information, CIU officers examined the consignment and noted that the contents were a colourless liquid with a petroleum odour. Representative sealed samples were drawn on 22.03.2019 and sent to the DYCC Laboratory (CRCL unit at JNCH) on 26.03.2019 for testing.
The first laboratory report from DYCC stated that, on the parameters tested, the sample met the requirements of IS 1459:1974 for Superior Kerosene Oil (SKO). On the strength of this report, Customs authorities seized the goods on 25.04.2019.
Danish Impex requested retesting, and fresh representative samples were sent on 09.08.2019 to CRCL, New Delhi. The CRCL report dated 20.11.2019 again stated that the product conformed to the specifications for kerosene/SKO as per IS 1459:2018.
On this basis, the Department concluded that the assessee had misdeclared SKO classifiable under CTI 2710 1910 as Industrial Composite Solvent under CTI 3814 0010, thereby evading import restrictions applicable to SKO and misusing the “free” import status of industrial solvents.
Proceedings Before the Departmental Authorities
Show Cause Notice and Adjudication
Relying primarily on the two test reports, the CIU alleged that the consignment was, in substance, Superior Kerosene Oil and that the assessee had attempted to circumvent the import policy under ITC (HS) 2017, which permits import of SKO under CTI 2710 1910 only through State Trading Enterprises (STEs) such as IOC, BPC, HPCL and IBP.
A Show Cause Notice (SCN) dated 20.01.2020 was issued proposing, inter alia:
- Rejection of the declared description “Industrial Composite Solvent” and treating the goods as “Kerosene/Superior Kerosene Oil”
- Rejection of classification under
CTI 3814 0010and reclassification underCTI 2710 1910 - Redetermination of value under Rule 4 of the Customs Valuation (Determination of value of imported goods) Rules, 2007
- Confiscation of the seized goods under Sections 111(d) and 111(m) read with Section 119 of the Customs Act, 1962
- Imposition of penalties under Section 112(a) and 112(b) of the Customs Act, 1962
The Additional Commissioner of Customs adjudicated the SCN through Order-in-Original dated 23.11.2020, upholding every proposal. The order confirmed reclassification as SKO, demand of customs duty, confiscation, redemption fine, and penalties on the assessee.
First Appellate Order Against Danish Impex
Danish Impex challenged the Order-in-Original before the Commissioner of Customs (Appeals), Nhava Sheva, contending primarily that the reclassification was based on incomplete and legally unsustainable test reports which did not cover all the mandatory parameters prescribed in IS 1459:1974.
The Commissioner (Appeals), however, rejected the appeal through Order-in-Appeal dated 25.06.2021, endorsing the Department’s reliance on the DYCC and CRCL test reports and sustaining reclassification, demand, confiscation, penalty and redemption fine.
Departmental Appeal for Higher Redemption Fine
Separately, the Department filed an appeal against the same Order-in-Original dated 23.11.2020 seeking enhancement of redemption fine to Rs.42,23,772/-, relying on a review order.