Supreme Court holds CBEC circular clarificatory and retrospective; 1% AIR customs drawback payable from 2008

A bench of Justices B. V. Nagarathna and Satish Chandra Sharma heard an appeal against the Madhya Pradesh High Court, which had held that Customs Circular No. 35/2010-Cus. dated 17.09.2010 was prospective and effective only from 20.09.2010; the issue related to whether the Circular operated retrospectively for the purpose of All Industry Rate (AIR) duty drawback on exports of soybean meal (SBM) and de-oiled cake by merchant exporters.

The Court allowed the appeal, set aside the High Court's judgment dated 17.11.2014 and its review dismissal of 01.04.2016, and held that the CBEC circular was clarificatory, explanatory and retrospective in operation. The bench observed that the Circular did not create any fresh right or impose any new burden on the Department but only "explained and settled once and for all" the scope of the earlier notifications so as to give effect to the intended benefit to exporters. The Court, in its reasoning, observed: "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." The Court directed that the appellant was entitled to the 1% AIR customs duty drawback on exports of SBM from 2008.

Background The dispute arose after merchant exporters of soybean meal, including the appellant, claimed 1% AIR drawback under successive CBEC notifications dating from 2006 onwards. The notifications' schedule showed identical figures for the drawback "whether Cenvat facility has been availed or not." In practice the appellant received the 1% benefit until 2008, when the Directorate General of Central Excise framed an opinion that manufacturers/exporters were not entitled to the AIR drawback if they had availed rebate under Rule 18 or procured inputs under Rule 19(2) of the Central Excise Rules, 2002. Representations followed and CBEC issued Circular No. 35/2010-Cus. (N.T.) dated 17.09.2010, which noted that "the rates of drawback have been made effective from 20.09.2010" but also stated that the customs component of AIR drawback shall be available even if the rebate of central excise duty had been taken. The appellant sought retrospective operation of the Circular for pre-2010 claims; the Department maintained that the Circular was prospective and the High Court accepted that view, dismissing the writ petition and a review petition.

Before the Supreme Court, the appellant argued that the Circular was clarificatory and benevolent, intended to explain earlier notifications and to give effect to the customs component of AIR drawback that had always been available; the respondents relied on the explicit effective date and authorities holding that beneficial legislation was not automatically retrospective. The Court examined the Circular in conjunction with predecessor notifications, held that no substantive amendment or new fiscal regime was introduced, and found the Circular to be explanatory and intended to resolve ambiguity. Applying principles of contemporanea expositio and purposive construction, the Court gave the Circular retrospective operation and allowed the claim for the 1% AIR customs drawback from 2008. The appeals were disposed of accordingly; no interim directions other than the grant of retrospective entitlement were recorded.

Case No.: 2025 INSC 755 Case Title: M/s Suraj Impex (India) Pvt. Ltd. v. Union of India & Ors. Appearances: For the Petitioner(s): Sh. Arvind Datar, Senior Counsel (for the appellant firm) For the Respondent(s): Counsel for Union of India and others (names not specified in the judgment)