NGL is a species of naphtha; conflicting test reports do not justify reclassification.

Hazel Mercantile Ltd. imported approximately 20,110.77 MT of a petroleum product from Oman through vessel MT Tuna, declaring the goods as Naphtha classifiable under CTH 27101229.

The goods were warehoused at Kandla under seven Bills of Entry and were intended for re-export.

Customs testing at Kandla, followed by re-testing by CRCL, New Delhi, indicated that the product was Natural Gasoline Liquid (NGL) rather than Naphtha.

The appellant relied on reports from the load-port agency, TUV India, Geo Chem Laboratories and IIP, Dehradun, which described the product as Naphtha or light Naphtha.

The goods were seized and the appellant challenged the seizure and testing proceedings before the Gujarat High Court.

Pursuant to the High Court’s directions, fresh samples were drawn and tested.

The goods were eventually provisionally released and re-exported pursuant to orders of the CESTAT and the Gujarat High Court.

The Department subsequently issued a show-cause notice alleging misclassification, undervaluation, misdeclaration of country of origin, port of loading and supplier details, and violation of import restrictions applicable to NGL.

The Commissioner classified the goods under CTH 27101290 as NGL, held them liable to confiscation under Sections 111(d), 111(m), 111(o) and 111(p) of the Customs Act, 1962, determined a substantially enhanced value, and imposed penalties on Hazel Mercantile and the connected individuals.

The appeals challenged the adjudication order dated 28 July 2025.

Whether the imported goods were Naphtha classifiable under CTH 27101229, or NGL classifiable under CTH 27101290?

Whether the Department established, on the basis of reliable and legally admissible technical evidence, that the goods were “most akin” to NGL rather than Naphtha?

Whether the WhatsApp chats, recovered documents and statements could be relied upon to establish deliberate misdeclaration of the product, country of origin, port of loading and supplier details?

Whether the goods were liable to confiscation and whether redemption fine, penalties and re-determination of value could be sustained?

The Tribunal applied the Customs Tariff entries under CTH 271012, including CTH 27101229 for Full Range Naphtha and CTH 27101290 for “Other” products, together with the supplementary note defining NGL as a low-boiling liquid petroleum product extracted from natural gas.

Under the General Rules for Interpretation, particularly the “most akin” test under Rule 4, classification must be based on the product to which the imported goods bear the closest resemblance; mere probability or partial similarity is insufficient.

The Tribunal relied on Gastrade International v. Commissioner of Customs, Kandla, which placed the burden on Customs to establish that the goods were most akin to the competing tariff product.

It also applied the principle from Hewlett Packard India Sales Pvt. Ltd. and Garware Nylons Ltd. that the burden of displacing the importer’s declared classification rests on the Revenue and that technical ambiguity must be resolved on cogent scientific evidence.

The Tribunal further relied on Reliance Industries Ltd. v. Commissioner of Customs, affirmed by the Supreme Court, for the proposition that NGL is a species within the broader genus of Naphtha.

For electronic evidence, Section 138C of the Customs Act requires compliance with the statutory conditions, including the requisite certificate for computer-generated records; statements relied upon in adjudication must also satisfy the safeguards under Section 138B.

Confiscation and penalty provisions under Sections 111, 112, 114AA and 117, and redemption fine under Section 125, could operate only if the underlying misdeclaration and liability to confiscation were established.

The Tribunal found that the Department’s CRCL reports were not sufficient to displace the declared classification.

CRCL, Kandla had relied on limited parameters, while CRCL, New Delhi tested only a comparatively restricted set of characteristics before concluding that the product was NGL.

In contrast, Geo Chem and IIP, Dehradun conducted substantially more detailed testing of petroleum-product characteristics, including distillation, density, vapour pressure, sulphur, paraffins, olefins, naphthenes, aromatics and carbon-number composition, and concluded that the samples were Naphtha or light Naphtha.

The Tribunal held that these reports, issued by specialised agencies and based on samples drawn by Customs, deserved greater evidentiary weight than the more limited departmental reports.

The Tribunal also held that the Department failed to demonstrate that the product was “most akin” to NGL in the legally required sense.

The high proportion of C5–C6 hydrocarbons, relied upon by the Department, did not conclusively establish NGL because the same evidence was capable of falling within the recognised range of light Naphtha.

The Tribunal further accepted the principle that NGL is a species of the broader genus Naphtha, particularly in view of the tariff changes that deleted the specific NGL entry while introducing separate entries for light, heavy and full-range Naphtha.

As to the alleged documentary manipulation, the Tribunal held that the WhatsApp material and related documents could not be relied upon without compliance with Section 138C.

No proper statutory certificate or legally sufficient foundation for admitting the electronic records was shown.

The statements and chats were also not adequately tested through examination and cross-examination, and the Department failed to establish a legally reliable chain connecting the alleged documents to the disputed consignment.

Consequently, the alleged discrepancies concerning origin, port of loading and supplier could not independently sustain the confiscation and penalties.

Since the Department failed to establish misclassification or deliberate misdeclaration, the basis for confiscation, enhanced valuation and penalties also failed.

The Tribunal therefore found it unnecessary to sustain the adjudicating authority’s consequential findings.

The specialised and more comprehensive reports of Geo Chem and IIP, together with the legal principle that NGL is a species of Naphtha and the failure to satisfy the “most akin” test, supported the appellant’s classification.

The findings of misdeclaration, confiscation, enhanced valuation and penalties were therefore unsustainable.

The appeals were allowed and the impugned adjudication order was set aside to the extent challenged.