Binding departmental circulars and prospective withdrawal: 0.5% bottle-breakage tolerance could not be denied for the relevant period.

Beneficial CBEC circulars issued under statutory authority were binding on the department while in force, and the 0.5% tolerance for breakage of aerated water bottles could not be denied for the relevant period. The later circular withdrawing that concession was held prospective only, because nothing in its language showed retrospective operation and it was issued to govern future cases. The specific tolerance allowance also supplemented the general remission scheme, so a separate application under Rule 21 of the Central Excise Rules, 2002 was not required for claiming that limited benefit.

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Issues: (i) whether the CBEC circulars dated 8.9.1971 and 17.9.1975 were binding on the department; (ii) whether the withdrawal of those circulars by circular dated 9.7.2010 operated retrospectively; and (iii) whether the petitioners were required to seek remission under Rule 21 of the Central Excise Rules, 2002 before claiming the 0.5% tolerance benefit.

Issue (i): whether the CBEC circulars dated 8.9.1971 and 17.9.1975 were binding on the department.

Analysis: The circulars were issued in exercise of statutory power under Section 37B of the Central Excise Act, 1944 and specifically allowed a 0.5% tolerance for breakage of aerated water bottles during handling and movement, subject to verification by the Range Staff. Such departmental circulars are binding on the authorities so long as they remain in force, and the department cannot disregard them while taking action for the relevant period.

Conclusion: The circulars were binding on the department for the period in question, and the benefit under them could not be denied to the petitioners.

Issue (ii): whether the withdrawal of those circulars by circular dated 9.7.2010 operated retrospectively.

Analysis: The withdrawal circular was issued to avoid future disputes and was premised on changed circumstances, including the shift from glass bottles to PET bottles and the CENVAT regime. A circular withdrawing a concession that is adverse to the assessee is prospective in nature unless expressly made retrospective. Nothing in the withdrawal circular indicated retrospective operation, and its own language showed an intent to govern future cases.

Conclusion: The withdrawal circular was prospective and could not be applied to production and transactions for June 2002 to September 2007.

Issue (iii): whether the petitioners were required to seek remission under Rule 21 of the Central Excise Rules, 2002 before claiming the 0.5% tolerance benefit.

Analysis: Rule 21 provides a general remission mechanism for goods lost or destroyed, but the circulars in question created a specific allowance for breakage of aerated water bottles after departmental verification. The long-standing departmental practice showed that the tolerance benefit was being granted on certification by the Range Staff without insisting on a separate remission application. The circulars did not conflict with Rule 21 but supplemented the scheme by reducing the quantity on which duty would otherwise be computed.

Conclusion: The petitioners were not required to follow the remission procedure under Rule 21 for the limited 0.5% tolerance allowed by the circulars.

Final Conclusion: The demand confirmations and appellate/revisional orders were unsustainable. The petitioners were entitled to the 0.5% tolerance benefit for the relevant period, and the writ petitions succeeded.

Ratio Decidendi: A beneficial departmental circular issued under statutory authority remains binding while in force, and a later circular withdrawing that benefit operates prospectively unless retrospective application is expressly provided; where the circular itself creates a specific tolerance allowance, a separate general remission procedure need not be invoked for that allowance.

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