Whether the goods imported and described as ‘recycled base oil’ were ‘virgin base oil’ or not?

PJ/Case Laws/2012-13/1469

Case:-OM UDYOG V/S COMMISSIONER OF CENTRAL CUSTOMS, AMRITSAR

Citation:- 2013(288) E.L.T. 85 (Tri.-Del.)

Brief Facts: - The appellant imported 'recycled base oil' classifying the same under Customs Tariff Heading 271019.60 at the declared assessable value of Rs. 4,37,050/-. A sample was drawn from the consignment declared by the appellant as 'recycled base oil'. As per the test report of Central Revenue Control Laboratory, the product under reference does not appear to be recycled. Its actual use may be ascertained. On the basis of the said report, Revenue entertained a view that the base oil imported by the appellant was not 'recycled base oil' as declared by them but appeared to be 'virgin base oil'. Accordingly, Revenue was of the view that the appellant had mis-declared the description of the goods and as such the transaction value did not appear to be acceptable under Rule 4 of the Customs (Valuation) Rules, 1988 and the same should be based upon transaction value of similar goods under Rule 6 of Customs Valuation Rules, 1988. On this basis, the appellant was issued a Show Cause Notice (SCN) proposing the enhancement of the assessable value to US $ 388 per MT, the total value of the consignment being Rs. 9,87,385/-. Notice accordingly proposed confirmation of demand of differential duty of Rs. 2,15,731/- and also proposed confiscation of goods as also imposition of penalty. The said SCN culminated into an order passed by original adjudicating authority confirming demand along with interest confiscating the goods with redemption fine of Rs. 50,000/- and also imposing penalty of Rs. 50,000/-. Appeal against the above order did not succeed before the Commissioner (Appeals). Hence the assessee filed the present appeal.

Appellant’s Contention: - The Appellant contended that there were no standard technical specifications for virgin base oil and recycled based oil and no such specifications could be developed by anybody; that the various characteristics of base oils (virgin/recycled) differed from refinery to refinery depending upon the process deployed for refining of crude/used oils and the quality of base stocks or used oils (basic raw material for refinery) which were at variance in the world from region to region. In certain cases recycled base oils might be even better in quality/colour than virgin base oils if modern hydro treating process was used for re-refining; that automobile spent lube oils, used for producing recycled base oils, were cheaper in certain countries compared to crude oils and because of the same, recycled base oils were available at lower prices in the world market. The appellants further submit that the re- refined (recycled) base oil was used for motor oil that underwent an extensive refining process to remove contaminants, distilled and oil molecules were reformed to produce new base oils that had the same performance characteristics as virgin base oils made from crude oil. They further submit that the recycled base oil might have better quality than virgin base oils depending upon the process of re-refining. In support of their above submissions, the appellants enclosed certain literature/printout of the used oil/HHW Conference held in California in 2005 which would strengthen their claim that the product imported by them, was nothing but recycled base oil. They prayed, in view of these submissions, the impugned order is totally illegal, unjustified and merits to be set aside out rightly. They have also contended that the lower authorities have relied upon the cross examination of chemical examiner conducted in another identical matter wherein the chemical examiner himself stated that there is no technical certification for recycled base oil and virgin base oil. Further observations made by chemical examiner that "the product under reference does not appear to be recycled", is indicative of the fact that he himself is not sure about the conclusion. As such they have pleaded that there being no positive evidence of the oil being the virgin base oil, the description given by the foreign supplier in the invoice as also in the packing list has to be accepted.

Respondent’s Contention: - The respondent reiterated the conclusion arrived at by lower authorities wherein he has observed that though the appellant has produced certain literature/printout of the used oil/HHW Conference held in California in 2005 to substantiate their claim that the product imported by them was nothing but recycled base oil, they have not submitted any technical literature or authentic evidence to prove their claim. As such by referring to various decisions, Commissioner (Appeals) has observed that test report of chemical examiner, unless demonstrated to be erroneous, cannot be lightly brushed aside on the basis of above finding of private persons and the same has to be preferred. As such prays that the appeal filed by the appellant should be rejected.

Reasoning of Judgment: - The Hon’ble CESTAT held that the goods stand described in the invoice of the foreign supplier as recycled base oil packed in old used drums. To the same effect are the packing list and other import documents. On the other hand, Revenue is relying upon the report of the chemical examiner. As can be seen from the reproduced report of the chemical examiner, the conclusion arrived at by him is to the effect that "the product under reference does not appear to be recycled". As can be seen, the said conclusion is not a positive and identifiable conclusion arrived at by the chemical examiner and the language used by him reflects upon the fact that he himself is not sure about the oil to be virgin base oil. Further they note that the original adjudicating authority has referred to the cross examination of chemical examiner conducted in some other cases where he had examined an identical product and has given an identical report. In para 18 of his order, the original adjudicating authority has observed that the Chemical Examiner has stated that here is no technical specification for re-cycled base oil and virgin base oil. The observations of the Chemical Examiner are that the product under reference does not appear to be recycled. The phrase itself is indicative of the fact that the observation is an inference drawn but not an authentic conclusion. As can be seen from this, even the original adjudicating authority has observed that the report of chemical examiner is indicative of the fact that the observations made by him are inferences. However, he has chosen to ignore his own observations by referring to a footnote by the chemical examiner which is to the effect that:-“However, in this connection, it may be clarified that Board Circular No. 33 under F.No. 405 /7/2000-Cus.-II is only applicable in case of Furnace/Fuel oil." Accordingly he has observed to the effect that since chemical examiner has observed in his cross examination that since the glycal bodies test was found to be negative in the case which is being used as anti-freeze in used lubricating oils, therefore, it has to be inferred that the samples did not appear to be recycled oil.
Thus, they note that the above observations of the lower authorities are in the arena of assumption and presumption. The observations made by chemical examiner in his report as also at the time of cross examination clearly shows that the conclusion arrived at by him is not a positive finding of fact but a doubt about the oil being recycled or not. They have also examined the invoice of foreign supplier which refers to the product as recycled base oil. Similarly packing list issued by foreign supplier refers to the product as recycled base oil is packed in old drums. Certificate by original foreign supplier also described the goods as recycled base oil. Revenue has not produced any evidence to show that such description given by the foreign supplier is wrong. No doubt the report given by the chemical examiner has to be given preference as held by Tribunal in various decisions relied upon by the Commissioner (Appeals). At the same time, the decisions are to the effect that if the report is proved to be erroneous, the same cannot be adopted as conclusive proof. As already discussed, the chemical examiner report is wavering and is not coming to a definite conclusion. In such a scenario, not much credence can be given to the said report so as to brush aside lightly all the other documents produced by the appellant in support of their claim that the oil imported by them is a recycle base oil, especially when the authorities themselves have accepted that the report given by the chemical examiner is not authenticated. They also find from the literature produced by the appellant on the topic of re-refining used lubricant oils (Pollution Engineering (POLLUT. ENG.) Vol. 18, No. 6, pp. 44-51, 1986) that re-refining of lube oils has existed as an industry since the late 1920's. A second generation of technology using distillation/hydro treatment has now been developed allowing used lubricating oils to be re-refined to "equivalent to virgin oil" standards. Mohawk Oil, a fully Canadian-owned company, has operated this technology since December, 1982, when it commissioned an in-house designed distillation/hydro treatment process. As is seen re-refined oil can be equivalent to virgin oil standards, thus making it difficult even for the chemical examiner to arrive at a conclusive finding, especially in the absence of admitted laid down characteristics of both. As such, they are of the view that the sole reliance on the half-hearted report of the chemical examiner, read with his cross examination and in the absence of rebuttal of declaration made by foreign supplier in various documents, is unjustified and cannot be made the basis for holding against the appellant. In view of the foregoing discussions, they are of the view that the Revenue has failed to establish beyond doubt that the oil imported by the appellant was virgin oil so as to enhance the assessable value of same. Accordingly, they set aside the impugned order and allow the appeal with consequential relief to the appellant.

Decision: - The appeal was allowed.

Comment:-The substance of this case is that when the basis of rebutting the classification of goods made by the assessee was solely the chemical report of the chemical examiner and that too was doubtful and not conclusive, the classification as done by the appellant had to be accepted.

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PJ/Case Laws/2012-13/1469

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