2025 (5) TMI 1695 - SC - Customs

Supreme Court rules customs circular clarifying existing benefits applies retrospectively, merchant exporters entitled to drawback despite CENVAT credit

M/s SURAJ IMPEX (INDIA) PVT. LTD. Versus UNION OF INDIA & ORS.

SC held that Customs Circular No. 35/2010-Cus was explanatory in nature, clarifying existing benefits rather than creating new rights. The circular ... Duty drawback - Merchant Exporter - CENVAT Credit Availed or not - Applicability and effect of the Customs Circular No. 35/2010-Cus.- retrospective or prospective - availability of AIR duty drawback - availing rebate of central excise duty under Rule 18 or Rule 19(2) of the Central Excise Rules, 2002 - HELD THAT:- 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. 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. It also cannot be deduced that by virtue of the Circular, CBEC intended to deprive the Appellant and such similarly placed merchant exporters from the benefit of customs duty drawbacks prior to 20.09.2010. In our considered view, 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. 17.09.2020, and it is not the case of the Department that before the issuance of the Circular dt. 17.09.2020 read with Notification No. 84/2010-Cus of even date, the Notifications for the years 2006 to 2009 were not in operation. The substratum of a beneficial legislation is to ensure that the benefit is uniform and absolute, which may be prospective in nature, but when such benefit to one person does not inflict any undue burden on the other, the purposive construction can be considered to be given a retrospective effect CIT vs Vatika Township (P) Ltd. [2014 (9) TMI 576 - SUPREME COURT (LB)] 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. In the present case, the High Court adopted a cursory view by solely relying on the submission of the Respondents that because the subject Circular was to be made effective from 20.09.2010, it was prospective in nature. The High Court did not appreciate the rationale of the CBEC Circular nor the purport of the Notifications time and again issued by the Department and passed the Impugned Order dt. 17.11.2014 in undue haste. Subsequently, as well it refused to remedy the error apparent on record, by dismissing the Review Petition at its threshold. Thus, for the reasons indicated hereinabove, the Impugned Judgment and Order dated 17.11.2014 passed by the High Court of Madhya Pradesh at Indore in Writ Petition No. 2576/2012 and Order dt. 01.04.2016 in R.P No. 1/2015 is set aside, and, 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. The appeals stand disposed of. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court were:Whether the Customs Circular No. 35/2010-Cus. dated 17.09.2010, which clarified the entitlement of exporters to claim All Industry Rate (AIR) duty drawback on the customs component despite availing rebate of central excise duty under Rule 18 or Rule 19(2) of the Central Excise Rules, 2002, has retrospective or prospective effect.Whether the Circular created any new rights or liabilities or merely clarified existing notifications regarding AIR duty drawback rates applicable to merchant exporters of Soyabean Meal (SBM) and similar products.Whether the High Court erred in dismissing the writ petition and review petition by holding that the Circular was prospective and not retrospective in operation.The proper interpretation of the Customs Notifications Nos. 81/2006, 68/2007, 103/2008, and 84/2010, in relation to the availability of AIR duty drawback when CENVAT credit or rebate under Rule 18/19(2) was availed.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Retrospective or Prospective Effect of Customs Circular No. 35/2010-Cus.Relevant legal framework and precedents: The Circular was issued under the authority of the Central Board of Excise and Customs (CBEC) to clarify the applicability of AIR duty drawback rates. The Court referred to principles of statutory interpretation including the doctrine of contemporanea expositio and precedents emphasizing substance over form in interpreting circulars and notifications. Relevant cases included Commissioner of Central Excise, Bangalore v. Mysore Electricals Industries Ltd. and Shyam Sunder v. Ram Kumar, which clarified that beneficial legislation is not necessarily retrospective unless expressly or impliedly intended.Court's interpretation and reasoning: The Court emphasized that the Circular was clarificatory and declaratory, not creating new rights but elucidating the scope of existing notifications. The Circular addressed representations from exporters who were denied the 1% customs component drawback despite earlier notifications indicating entitlement irrespective of CENVAT credit. The Court held that the Circular was intended to remove ambiguity and confirm the entitlement of exporters to the customs component of AIR duty drawback even if they availed central excise duty rebate under Rule 18 or 19(2).Key evidence and findings: The Court analyzed the language of the Circular alongside prior Notifications (Nos. 81/2006, 68/2007, 103/2008, and 84/2010), noting identical provisions regarding drawback rates and conditions. The Circular did not amend or expand the Notifications but clarified their interpretation. The use of the word 'should' and the absence of any new fiscal regime indicated a declaratory intent. The fact that the Circular was issued in response to exporters' grievances reinforced its clarificatory nature.Application of law to facts: Since the Circular merely clarified existing rights under Notifications effective since 2006-2007, the Court concluded it must be given retrospective effect. The Circular was not prospective legislation but an explanatory instrument to ensure uniform application of the Notifications.Treatment of competing arguments: The Respondents argued the Circular was prospective because it expressly stated it was effective from 20.09.2010. The Court rejected this narrow literal interpretation, holding that substance must prevail over form. It noted that the Circular did not create new benefits but clarified existing ones, which justified retrospective application. The Court also distinguished this from cases where beneficial legislation is not retrospective unless clearly intended.Conclusion: The Circular No. 35/2010-Cus. has retrospective effect and applies to duty drawback claims prior to 20.09.2010, including those from 2008 onwards.Issue 2: Interpretation of Customs Notifications and Availability of AIR Duty Drawback Despite Availing CENVAT Credit or Rebate under Rule 18/19(2)Relevant legal framework and precedents: The Customs Tariff Act, 1975 and Central Excise Rules, 2002 govern the duty drawback scheme. Notifications Nos. 81/2006, 68/2007, 103/2008, and 84/2010 specify AIR duty drawback rates and conditions. Rule 18 and Rule 19(2) of the Central Excise Rules provide for rebate or non-payment of central excise duty on inputs used in export goods.Court's interpretation and reasoning: The Court examined the identical wording in the Notifications, which stated that the drawback rate under the column 'when CENVAT facility has not been availed' includes customs, central excise, and service tax components, while the column 'when CENVAT facility has been availed' refers only to the customs component. The difference represents the excise and service tax portion. Where rates are the same in both columns, it indicates the drawback pertains solely to customs duty and is available regardless of CENVAT credit.The Notifications also excluded drawback rates where rebate under Rule 18 or Rule 19(2) was availed, but the Circular clarified that this exclusion did not apply to the customs component of AIR drawback. The Court held that the customs component remained payable even if rebate under Rule 18 or 19(2) was availed for the excise component.Key evidence and findings: The Court relied on the text of the Notifications and Circular, the representations made by exporters, and prior decisions of the Commissioner (Appeals) which supported the view that the customs component of AIR drawback was payable notwithstanding excise duty rebates.Application of law to facts: The appellant, a merchant exporter of Soyabean Meal, was entitled to the 1% AIR duty drawback on the customs component for exports made before and after the Circular, even if it had availed central excise rebate under Rule 18 or 19(2). The Department's denial of drawback on the basis of rebate availed was contrary to the Notifications and Circular.Treatment of competing arguments: The Respondents contended that the final product was exempt from duty and thus outside the CENVAT scheme, and that the appellant had already availed benefit under Rule 19(2), disqualifying it from AIR drawback. The Court rejected this, holding that the Notifications and Circular clearly permitted simultaneous availability of customs component drawback and excise duty rebate, and that the Department's interpretation was erroneous.Conclusion: The appellant was entitled to AIR duty drawback on the customs component notwithstanding availing rebate under Rule 18 or 19(2), as clarified by Circular No. 35/2010-Cus.Issue 3: Whether the High Court erred in dismissing the writ petition and review petitionRelevant legal framework and precedents: The High Court's role in judicial review of administrative orders and circulars includes examining whether the impugned orders are arbitrary or erroneous on the face of the record. The Court cited precedents emphasizing that beneficial clarificatory circulars should be given retrospective effect unless expressly excluded.Court's interpretation and reasoning: The Court found that the High Court erred in relying solely on the effective date stated in the Circular to deny retrospective effect. The High Court failed to appreciate the clarificatory and declaratory nature of the Circular and the consistent scheme of Notifications. The dismissal of the review petition at the threshold was also held to be unjustified.Key evidence and findings: The Court noted that the High Court did not consider the full context of the Notifications and Circular, nor the representations and prior decisions supporting retrospective application.Application of law to facts: The High Court's impugned judgment and order were set aside, and the writ petition was allowed to the extent of granting retrospective effect to the Circular.Treatment of competing arguments: The Court acknowledged the Department's submission on the prospective effect but held that fairness and the nature of the Circular required retrospective application to avoid injustice to exporters.Conclusion: The High Court's judgment and order dismissing the writ petition and review petition were set aside for failure to properly interpret the Circular and Notifications.3. SIGNIFICANT HOLDINGS'The Circular No. 35/2010-Cus. has retrospective effect and applies to duty drawback claims prior to 20.09.2010, including those from 2008 onwards.''The Circular does not vest any fresh rights on merchant exporters or cast any new burden on the Department except the one already cast upon them vide previous Notifications.''The Circular was merely clarificatory and declaratory in nature, intended to remove ambiguity and confirm entitlement of exporters to the customs component of AIR duty drawback even if they availed central excise duty rebate under Rule 18 or Rule 19(2) of the Central Excise Rules, 2002.''The High Court erred in dismissing the writ petition and review petition by relying solely on the effective date mentioned in the Circular without appreciating its clarificatory intent and the consistent scheme of Notifications.''The entitlement to 1% AIR customs duty drawback on export of Soyabean Meal is available to merchant exporters even if they have availed rebate under Rule 18 or Rule 19(2), as clarified by Circular No. 35/2010-Cus.'