In a significant ruling concerning customs duty benefits for exporters, the Supreme Court has held that Circular No. 35/2010-Cus dated 17.09.2010, issued by the Central Board of Excise and Customs (CBEC), is retrospective in nature. The Court concluded that the circular merely clarifies existing entitlements and does not confer new rights, thereby entitling merchant exporters to 1% All Industry Rate (AIR) duty drawback even for the period prior to its issuance.
The decision was rendered by a Bench comprising Justice B.V. Nagarathna and Justice Satish Chandra Sharma in M/s Suraj Impex (India) Pvt. Ltd. vs Union of India & Others, Civil Appeal Nos. ____ of 2025 (Arising out of SLP (C) Nos. 26178-79 of 2016), by setting aside the judgment of the Madhya Pradesh High Court dated 17.11.2014.
Background
The appellant, M/s Suraj Impex (India) Pvt. Ltd., is a merchant exporter of Soyabean Meal (SBM), classified under Chapter 23 of the Customs Tariff Act, 1975. The appellant claimed 1% AIR duty drawback on such exports under successive notifications issued by the CBEC between 2006 and 2010.
Initially, this benefit was being granted. However, from 2008 onward, the Department began denying the drawback, citing that exporters who had already availed rebate under Rule 18 or Rule 19(2) of the Central Excise Rules, 2002, were not entitled to the AIR drawback. This interpretation was reinforced by the Director General of Central Excise Intelligence (DGCEI), Indore.
Merchant exporters, through representations made by the Federation of Indian Export Organizations, contended that the drawback claimed was for the customs component and was independent of central excise rebates.
In response, CBEC issued Circular No. 35/2010-Cus dated 17.09.2010, clarifying that exporters could avail both the excise rebate and the customs component through AIR drawback. However, the Circular stated that it would take effect from 20.09.2010. The appellant sought a declaration that the Circular be applied retrospectively.
The CBEC and Commissioner of Customs (Kandla) denied the retrospective application, prompting the appellant to file Writ Petition No. 2576/2012 before the Madhya Pradesh High Court, which was dismissed. A Review Petition was also rejected.
Arguments of the Parties
Appellant’s Submissions:
The appellant, represented by Senior Advocate Arvind Datar, argued that the 2010 Circular was clarificatory in nature and aimed to resolve ambiguity arising from earlier notifications. It was submitted that the CBEC had consistently issued notifications from 2006 onwards allowing 1% AIR drawback, regardless of whether CENVAT credit was availed.
It was further contended that:
- The language of the 2010 Circular merely reiterated what was already implicit in prior notifications.
- The circular did not grant any new benefit but clarified that the customs component of the drawback was always available.
- A clarificatory or beneficial circular must be applied retrospectively, as held by the Supreme Court in Mysore Electricals Industries Ltd. v. CCE and other decisions.
Respondents’ Submissions:
The Union of India argued that the 2010 Circular was prospective, explicitly stating its effective date as 20.09.2010. It contended that prior to this date, exporters who had availed central excise rebates were ineligible for AIR drawback as per existing notifications, and that the Circular could not alter this retrospectively.
Supreme Court’s Analysis
The Court noted that the core issue was whether Circular No. 35/2010-Cus was clarificatory or substantive in nature. Upon a detailed comparison of CBEC notifications from 2006 through 2010, the Court found that all notifications contained identical language making it clear that the 1% AIR drawback represented only the customs component, and was available irrespective of whether the exporter availed CENVAT.
The Court made the following key observations:
- The Circular was issued due to representations from exporters who were being denied the drawback despite previous notifications clearly allowing it.
- “A combined reading of the Circular and the Notifications issued prior thereto, would show there is no express distinction in the benefit accrued to the SBM merchant exporters from day one to the date of issuance of the circular.”
- “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.”
- The Circular “clarifies and makes it explicit that the customs duties which remained unrebated to the concerned manufacturers, should be provided through the AIR drawback route…”
Referring to settled principles of statutory interpretation, the Court emphasized that clarificatory or declaratory circulars, which do not create new obligations or rights but explain existing ones, should be treated as retrospective.
The Court also relied on CIT v. Vatika Township (P) Ltd. to hold that “retrospectivity of a statute is to be tested on the anvil of the doctrine of fairness.”
Decision
Holding that the High Court failed to appreciate the clarificatory nature of the Circular, the Supreme Court set aside the judgment dated 17.11.2014 and the subsequent review dismissal dated 01.04.2016. It concluded:
“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…”
The appeal was allowed accordingly, and pending applications, if any, were disposed of.
Case Details:
- Bench: Justice B.V. Nagarathna and Justice Satish Chandra Sharma
- Case Title: M/s Suraj Impex (India) Pvt. Ltd. vs Union of India & Others
- Case No.: Civil Appeal Nos. ___ of 2025 (Arising out of SLP (C) Nos. 26178-79 of 2016)
