Operation Of Circular Resolving Ambiguity Of Previous Notifications Would Be Retrospective: Supreme Court Grants Benefit Of 1% AIR Customs Duty Drawback To Exporter

The Apex Court explained that the Circular was passed to resolve the ambiguity qua the meaning & threshold of the previous Notifications ad thus, the operation of such a provision or instruction by the Department could only be retrospective in nature.

The Appeal before the Apex Court was directed against the Judgment of the Madhya Pradesh High Court whereby the applicability of the Customs Circular No. 35/2010-Cus. Dated September 17, 2010, for All Industry Rate (AIR) Duty Drawbacks was observed to be prospective.

The Division Bench of Justice B. V. Nagarathna and Justice Satish Chandra Sharma observed, “By virtue of the said Circular, it was merely clarified that the benefit of 1% customs duty drawback as indicated under the prior Notification was available to SBM merchants despite having availed CENVAT. Being explanatory in nature, the Circular in question cannot be construed as an adoption of a fresh fiscal regime for rebate of customs duty, intended to affect vested rights or impose new burdens upon the Department. It was passed to resolve the ambiguity qua the meaning & threshold of the previous Notifications. For the same reason, the operation of such a provision or instruction by the Department could only be retrospective in nature, so as to give effect to the objective of the Notifications issued by CBEC.”

Senior Advocate Arvind P Datar represented the Appellant while AOR Gurmeet Singh Makker represented the Respondent.

Factual Background

The Appellant, M/s Suraj Impex (India) Pvt. Ltd., primarily engaged in the operations of export of Soyabean Meal, an agricultural-commodity falling under Chapter 231 of the Custom Tariff Act, 1975, asserted that as a merchant exporter, the entity is entitled to claim duty drawbacks at All-Industry Rate (AIR) introduced by the Customs Notification No. 81/2006 dt. July 13, 2006 and continued vide annual Notifications. The First Schedule to the Customs Tariff Act, 1975 permits 1% AIR duty drawback on the export of SBM, on both occasions, whether the CENVAT Facility (collective component of customs, central excise and service) was availed or not.

The Appellant regularly received the benefit of the 1% AIR duty drawback up till 2008, when the Director General of Central Excise, [DGCEI] Indore, (fourth Respondent) framed an opinion that the manufacturers/exporters were not entitled to the said AIR drawback, if they had already availed the rebate of central excise duty under Rule 18 or Rule 19(2) of the Central Excise Rules, 2002. The third respondent withheld the release of the duty drawback to the Appellant and such similarly placed merchant exporters, then approached the Directorate of Drawback and the Central Board of Excise and Customs, New Delhi. The CBEC issued the Clarificatory Circular No. 35/2010-Cus, the bone of contention herein, wherein it was stated that the AIR duty drawback towards the customs portion as well as excise duty benefit under Rule 18 or Rule 19(2) of the Central Excise Rules, 2002, shall be available simultaneously.

The Appellant approached the Commissioner (Customs) seeking disbursement of AIR Duty Drawback before September 17, 2010, who denied the said benefit stating that the effect of the Circular was not retrospective but prospective, and the benefits would only be applicable once the circular is in operation, i.e. from September 20, 2010. The High Court dismissed the Writ Petition stating that the Notification dated. September 17, 2010, was not merely to clarify the position or make explicit an implicit issue in previous notifications and would not be applicable retrospectively, as it mentioned that the same would be effective from September 20, 2010. The Review Petition was also dismissed in limine.

Reasoning

The Bench noted that if the Circular is held to be clarificatory, curative and declaratory, its application would be retrospective and would entail the claim of the Appellant of custom duty drawbacks at 1% AIR payable & enforceable against the Respondents. “Even otherwise, a threadbare analysis of the nature and substance of the CBEC Circular No. 35/2010-Cus. dt. 17.09.2010, would firstly make it evident that there is no substantive modification and amendment to the previous CBEC Notifications. The language of the Circular does not expand or alter the scope of the previous Notifications, but cements the claim of the merchant exporters, who were entitled to receive the benefit of AIR customs duty drawback since 2007”, it said.

The Bench further noted, “Having regard to the concerned Circular dt. 17.09.2010 vis-à-vis the previous Notifications, no new right or benefit came to be created, but the actual scope of the benefit accruing to the Appellant and such similarly placed merchant exporters, was explained and settled once and for all. By virtue of the said Circular, it was merely clarified that the benefit of 1% customs duty drawback as indicated under the prior Notification was available to SBM merchants despite having availed CENVAT.”

The Bench explained that the language “shall be deemed always to have meant” or “shall be deemed never to have included” is declaratory and is in plain retrospective. It was apparent that the CBEC was mindful of its intent whilst adopting the said terminology in issuing the said circular in question. In this respect, the statutory principle of “contemporanea exposito”, which takes into consideration contemporaneous interpretation was relevant. As per the Bench, the CBEC Circular dt. September 17, 2010, read in conjunction with the previous Notifications already in operation, did not confer a prospective benefit on antecedent facts, but established the scope of the very benefit introduced vide the first Notification No. 81/2006 dt. July 13, 2006, for the sake of the Appellant and such similarly placed exporters. “For this simple reason, the operation of the said CBEC Circular dt. 17.09.2010 ought to be retrospective”, it said.

The Bench also explained that the retrospectivity of a statute is to be tested on the anvil of the doctrine of “fairness”. “It is therefore pertinent to clarify that except in cases where such enactments or issuance of Circulars are arbitrary, vexatious or constitute a parallel mechanism making its operation unfair, the Courts need not entertain objections to the operation of a clarificatory/declaratory provision which is only intended to assert & give effect to its parent provision/statute”, it added.

Thus, setting aside the judgment of the High Court, the Bench held, “...the Appellant is entitled to the benefit of 1 % AIR Customs Duty Drawback on its export of SBM from the year 2008 as applicable, by according retrospective operation to the Circular No. 35/2010- Cus. dated 17.09.2010 issued by the Central Board of Excise & Customs, New Delhi, for the purposes of All Industry Rate (AIR) Duty Drawbacks.”

Cause Title: M/s Suraj Impex (India) Pvt. Ltd. v. Union of India & Ors. (Neutral Citation: 2025 INSC 755)

Appearance:

Appellant: Senior Advocate Arvind P Datar, AOR Mayank Kshirsagar, Advocates Ashutosh Upadhyay, Tushar Jarwal, Parth Sarathi, Amumita Verma, Chaitanya Kashyap

Respondent: AOR Gurmeet Singh Makker

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