Binding circulars prevent retrospective reclassification and invalidate a demand raised contrary to the operative classification practice.

Binding Board circulars controlled the classification dispute because the circular dated 25 September 1986 classified stators and rotors under heading 8503.00 and remained operative when the show cause notices were issued. The Revenue could not ignore that circular and adopt a contrary classification for the earlier period. The later circular dated 13 December 1989 expressly made the change prospective, so it could not support a retrospective demand. The show cause notices and the consequential demand were therefore quashed as unsustainable.

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Issues: Whether show cause notices and the consequential demand could be sustained when they were contrary to binding Board circulars then in force, and whether the later circular could justify a retrospective change in classification.

Analysis: The existing circular dated 25 September 1986 classified stators and rotors under heading 8503.00 and was binding on the Revenue. The notices were issued while that circular remained operative, so the adjudicating authority could not disregard it and proceed on a contrary classification. The later circular dated 13 December 1989 itself stated that the earlier practice was to be changed only prospectively, which meant it could not validate a demand already raised for an earlier period. A demand issued contrary to existing binding circulars was, therefore, unsustainable.

Conclusion: The show cause notices and the demand were held to be unsustainable and were quashed, in favour of the assessee.

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