Court’s Decision
The Supreme Court allowed the civil appeals and set aside the judgment dated 17.11.2014 and the review dismissal dated 01.04.2016 by the High Court of Madhya Pradesh. It held that CBEC Circular No. 35/2010-Cus dated 17.09.2010 is clarificatory in nature and must be given retrospective effect. Consequently, the appellant was held entitled to the 1% All Industry Rate (AIR) customs duty drawback on exports of Soyabean Meal (SBM) made since 2008.
Facts
The appellant, a merchant exporter dealing in Soyabean Meal (an agricultural commodity under Chapter 23 of the Customs Tariff Act), was entitled to AIR customs duty drawback at 1% under a series of notifications:
- Notification No. 81/2006-Cus dated 13.07.2006
- Notification No. 68/2007-Cus dated 16.07.2007
- Notification No. 103/2008-Cus dated 29.08.2008
- Notification No. 84/2010-Cus dated 17.09.2010
Each of these provided a 1% drawback rate, regardless of whether CENVAT credit had been availed.
In 2008, the DGCEI (Indore) opined that exporters who had availed rebate under Rule 18 or availed goods without payment of duty under Rule 19(2) of the Central Excise Rules, 2002 were ineligible for the AIR drawback. Consequently, benefits were withheld.
Exporters, including the appellant, made representations through the Federation of Indian Export Organizations, arguing that the 1% rate represented only the customs component and was independent of the central excise rebate.
This led to CBEC issuing Circular No. 35/2010-Cus dated 17.09.2010, clarifying that customs component of AIR drawback would be available even where excise duty rebate had been claimed under Rules 18 or 19(2). However, this circular was made effective only from 20.09.2010, and its retrospective applicability became the bone of contention.
Issues
- Whether CBEC Circular No. 35/2010-Cus dated 17.09.2010 has retrospective or prospective effect.
- Whether the appellant was entitled to 1% AIR customs duty drawback on exports made prior to 20.09.2010.
Petitioner’s Arguments
- The circular was clarificatory, declaratory, and beneficial, and therefore must apply retrospectively.
- The same language was used across all previous notifications (2006–2010), confirming uniform eligibility to customs duty drawback.
- Circulars that clarify existing provisions and do not create new rights should apply retrospectively.
- Relied on orders passed by Commissioner (Appeals) in similar cases (e.g., Pradeep Overseas Ltd., Ruchi Soya Industries).
- Placed strong reliance on Commissioner of Central Excise, Bangalore v. Mysore Electrical Industries Ltd., (2006) 12 SCC 448, which held that beneficial circulars are to be applied retrospectively.
Respondent’s Arguments
- Circular No. 35/2010-Cus expressly stated its effective date as 20.09.2010 and hence is prospective.
- It merely explains Notification No. 84/2010-Cus, which also has a prospective date.
- Relied on Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24, to argue that not all beneficial legislations are retrospective, unless explicitly stated.
Analysis of the Law
The Court evaluated the text and context of the circular and previous notifications. It laid down the test for determining retrospectivity:
- If the circular is clarificatory and does not create new rights or liabilities, it can be presumed to be retrospective.
- The language and structure of notifications from 2006 onward showed no change in policy; all referenced the same 1% rate for exporters regardless of CENVAT.
- The phraseology across years (including clauses 5, 6, 7, 8, and 9) was consistent in asserting that the customs portion was independent of central excise benefits.
The Court concluded that Circular No. 35/2010-Cus:
- Did not introduce a new benefit;
- Was intended to remove ambiguity and settle divergent departmental views;
- Did not cast additional burden on the Department;
- Was thus clarificatory and declaratory, not prospective.
Precedent Analysis
The Court referred to and relied on:
- Commissioner of Central Excise, Bangalore v. Mysore Electrical Industries Ltd. [(2006) 12 SCC 448]
⇒ Beneficial circulars must be applied retrospectively. - CIT v. Vatika Township (P) Ltd. [(2015) 1 SCC 1]
⇒ Retrospectivity is presumed where legislation is fair, beneficial, and does not disturb vested rights. - Sree Sankaracharya University v. Dr. Manu [(2023) SCC OnLine SC 640]
⇒ Substance over form must guide interpretation of statutes. - State of Bihar v. Ramesh Prasad Verma [(2017) 5 SCC 665]
⇒ Importance of statutory intent and fairness. - CIT v. Gold Coin Health Food (P) Ltd. [(2008) 9 SCC 622]
⇒ Clarificatory provisions, even in taxation, can operate retrospectively. - Shyam Sunder v. Ram Kumar [(2001) 8 SCC 24]
⇒ Not all beneficial statutes are automatically retrospective — distinguished.
Court’s Reasoning
- There was no substantive change introduced by Circular No. 35/2010.
- The CBEC intended to remove confusion caused by misinterpretation of earlier notifications.
- The High Court’s finding that the circular was prospective was based solely on its effective date, and failed to examine its substantive character.
- The Court invoked the doctrine of “contemporanea expositio” (contemporaneous exposition), stating that the interpretation of a statute by the authority which enforces it is of persuasive value.
- A clarificatory circular cannot be interpreted as altering rights or obligations or being prospective in absence of express language to that effect.
Conclusion
The Supreme Court concluded that:
“It is inconceivable that the previous Notifications would be in operation in any other manner except as specified and clarified in the manner indicated in the Circular dt. 17.09.2010.”
Thus, the High Court’s judgment dated 17.11.2014 and the Review Order dated 01.04.2016 were set aside, and the appellant’s entitlement to the 1% AIR customs duty drawback since 2008 was affirmed.
Implications
This judgment:
- Reinforces the principle that clarificatory circulars must be given retrospective effect, particularly in fiscal matters.
- Brings uniformity and certainty to exporters affected by similar claims.
- Ensures fairness in trade incentive schemes, preventing unjust enrichment of the State at the cost of merchant exporters.