Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration
Date: 11.09.2026
CESTAT Ahmedabad- Customs Cannot Reclassify Naphtha as NGL Without Conclusive Scientific Evidence
This Short Article has been prepared & written by Advocate Ravi Shekhar Jha-Delhi High Court, New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email id intelconsul@gmail.com .
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Ahmedabad has allowed the appeals filed by Hazel Mercantile Limited and connected appellants in a major customs classification dispute concerning whether imported petroleum cargo declared as Naphtha could be reclassified by Customs as Natural Gasoline Liquid (NGL).
A Division Bench comprising Judicial Member Somesh Arora and Technical Member A.K. Jyotishi held that the Customs Department had failed to authoritatively establish the classification sought by it and that the classification declared by the importer could not be disturbed.
The Naphtha vs NGL Dispute
- Hazel Mercantile is engaged in the import, export and trading of petrochemicals, including Naphtha. The dispute arose from a consignment of approximately 20,110.767 MT which the company stated had been imported as Naphtha and was ultimately intended for export.
- Hazel filed seven Bills of Entry declaring the product as Naphtha under CTH 2710 1229. Customs, however, alleged that the imported product was actually Natural Gasoline Liquid (NGL) and proposed classification under CTH 2710 1290. The goods were consequently seized by DRI.
- The subsequent show cause notice proposed rejection of the declared description and classification, enhancement of the assessable value, confiscation under Sections 111(d), 111(m), 111(p) and 111(o) of the Customs Act, and penalties under Sections 112(a), 112(b), 114AA and 117.
Conflicting Laboratory Reports Become Central Issue
- The dispute largely turned on competing technical reports.
- CRCL Kandla and CRCL Delhi treated the product as NGL. On the other hand, the importer relied upon reports from TUV India, Geo Chem Laboratories and CSIR-Indian Institute of Petroleum (IIP), Dehradun, apart from the load-port certification, to maintain that the product was Naphtha.
- Pursuant to directions of the Gujarat High Court, fresh samples had been drawn. Geo Chem concluded that the sample conformed to Naphtha specifications, while IIP Dehradun concluded that the sample fell within the light Naphtha range.
- CESTAT ultimately placed considerable weight on the expertise and depth of testing undertaken by these specialised laboratories.
Specialised Laboratory Reports Preferred Over CRCL
- The Tribunal observed that IIP Dehradun, which specialises in petroleum and petroleum-product testing, had conducted multiple tests before concluding that the sample fell within the range of light Naphtha.
- It similarly noted that Geo Chem had subjected the sample supplied by the Department itself to detailed examination and concluded that the product was Naphtha.
- CESTAT rejected Revenue’s contention that the private reports were unreliable merely because the importer had referred to the sample as Naphtha while forwarding it for testing. The Bench reasoned that a laboratory of such stature would not simply accept the description supplied by the party without conducting its own technical analysis.
- The Tribunal therefore preferred the reports of the specialised testing agencies, finding that they had greater wherewithal to test petroleum products than the departmental laboratories.
Burden to Prove Reclassification Lies on Customs
- CESTAT reiterated the settled principle that where the Department seeks to change the tariff classification declared by an importer, the burden of proving the proposed alternative classification rests upon Revenue.
- The Tribunal referred to Hewlett Packard India Sales Pvt. Ltd. v. Commissioner of Customs, observing that even where classification emerges from self-assessment, the Department must discharge the burden if it seeks to alter that classification.
- It also relied upon Tata Chemicals Ltd. v. Commissioner of Customs, Union of India v. Garware Nylons Ltd. and Commissioner of Customs, Mundra v. Sunrise Traders on the relevance of scientific evidence, BIS standards and the insufficiency of inconclusive expert reports for disturbing an assessee’s classification.
Reliance Industries NaphthaβNGL Ruling Considered
- Hazel placed substantial reliance upon the earlier CESTAT Ahmedabad decision in Reliance Industries Ltd. v. Commissioner of Customs, Ahmedabad, 2024 (10) TMI 1555 β CESTAT Ahmedabad.
- In that case, the Tribunal had observed that Naphtha is the genus and NGL is a species, and that NGL could fall within the broader description of Naphtha in the context considered there.
- The Revenue’s appeal against the Reliance Industries decision was subsequently dismissed by the Supreme Court on 9 April 2025 in Civil Appeal Nos. 5133β5137 of 2025, the Court finding no good reason to interfere with CESTAT’s order.
- CESTAT considered this jurisprudence while analysing Hazel’s classification dispute.
βMost Akinβ Test Does Not Help Revenue
- The Department relied upon the Supreme Court’s decision in Gastrade International Ltd. v. Commissioner of Customs, Kandla and argued that the imported goods were most akin to NGL.
- CESTAT, however, found the argument to be self-defeating in the facts of Hazel’s case.
- The Bench observed that the reports of IIP Dehradun and Geo Chem were based on a significantly wider range of parameters and were issued by more specialised agencies. Those reports supported the appellant’s case even when the βmost akinβ test was applied.
- The Tribunal consequently held that whether the dispute was examined on the basis of akinness, inconclusive test reports or the common-parlance understanding that NGL is a species within the broader category of Naphtha, Revenue had failed to establish its proposed classification.
Importer’s Classification Cannot Be Disturbed
The Tribunal therefore reached the categorical conclusion that:
βthe classification of the appellant cannot be allowed to be disturbed.β
- It further held that the conclusions reached by the adjudicating authority were incorrect and could not be adopted.
- This finding went to the root of the proceedings because the Department’s confiscation and penalty case substantially flowed from its allegation that Hazel had misdeclared NGL as Naphtha.
CESTAT Allows Appeals on Merits
- Having decided the fundamental classification controversy in favour of Hazel Mercantile, CESTAT observed that it was inclined to allow the appeals without going into the Department’s other pleas, since the appellants succeeded on the factual and legal merits of the classification issue.
- The Tribunal accordingly allowed the appeals through Final Order Nos. 10728β10735/2026, pronounced on 7 September 2026.
Important Observation on WhatsApp and Electronic Evidence
- The proceedings also involved reliance by Revenue upon WhatsApp chats and other material extracted from mobile devices.
- While deciding the matter principally on classification, CESTAT referred to Section 138C of the Customs Act, concerning admissibility of computer-generated evidence, and made an unusual concluding observation suggesting that the Department should consider a dedicated statutory provision governing mobile-phone evidence and the procedure for its extraction, rather than relying solely on Section 138C.
- This observation could assume wider significance in customs investigations increasingly dependent upon mobile-phone data, messaging applications and digital forensic evidence.
Key Legal Takeaway
The decision reinforces a fundamental customs-classification principle: the Department cannot disturb an importer’s declared tariff classification merely by asserting an alternative description; the proposed reclassification must be affirmatively established through reliable technical evidence.
Where competing laboratory reports exist, the expertise of the testing body, comprehensiveness of the parameters tested and reliability of the methodology become critical considerations.
The ruling is particularly significant for the petroleum and petrochemical sector because it also engages with the continuing tariff distinction between Naphtha and Natural Gasoline Liquid, the βmost akinβ test and the earlier Reliance Industries ruling recognising NGL as a species within the broader genus of Naphtha.
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Source: CESTAT Ahmedabad
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