Source: Supreme Court  

Why in News? 

Recently, Justices BV Nagarathna and Satish Chandra Sharma has held that the CBEC Circular dated 17th September 2010 must be applied retrospectively as it merely clarified existing notifications and did not introduce a new fiscal regime. 

• The Supreme Court held this in the matter of M/S Suraj Impex (India) Pvt. Ltd. v. Union of India & Ors. (2025). 

What was the Background of M/S Suraj Impex (India) Pvt. Ltd. v. Union of India & Ors. (2025) Case? 

• M/s Suraj Impex (India) Pvt. Ltd., a merchant exporter primarily engaged in export of Soyabean Meal (SBM), claimed entitlement to duty drawbacks at All-Industry Rate (AIR) of 1% under various Customs Notifications issued between 2006-2010. 
• The company regularly received the benefit of 1% AIR duty drawback until 2008, when the Director General of Central Excise, Indore formed an opinion that manufacturers/exporters were not entitled to AIR drawback if they had already availed rebate of central excise duty under Rule 18 or Rule 19(2) of the Central Excise Rules, 2002. 
• Following this interpretation, the customs authorities withheld release of duty drawback to the appellant and other similarly placed merchant exporters, despite the notifications clearly stating that drawback was available irrespective of whether CENVAT facility was availed or not. 
• The exporters approached the Central Board of Excise and Customs (CBEC) through representations, arguing that the drawback on SBM export was the customs component while the benefit under Rule 18 and Rule 19(2) pertained to central excise portion, which were distinct in nature. 
• In response to these representations, CBEC issued Clarificatory Circular No. 35/2010-Cus dated 17th September 2010, stating that AIR duty drawback towards customs portion as well as excise duty benefit under Central Excise Rules shall be available simultaneously. 
• However, when the appellant approached the Commissioner (Customs) Kandla seeking disbursement of AIR Duty Drawback for the period prior to 17.09.2010, the benefit was denied on grounds that the circular had prospective effect only from 20.09.2010. 
• The CBEC (Drawback Division) also reiterated that Notification No. 84/2010-Customs dated 17.09.2010 was effective from 20.09.2010 and being clear in its prospective nature, retrospective applicability did not arise. 
• Aggrieved by this denial, the appellant filed Writ Petition No. 2576/2012 before the Madhya Pradesh High Court seeking declaration that Circular No. 35/2010-Cus dated 17.09.2010 had retrospective effect. 
• The High Court dismissed the writ petition holding that the notification was not merely clarificatory but was prospective in nature as it clearly mentioned effectiveness from 20.09.2010 and subsequently dismissed the review petition as well. 

What were the Court’s Observations? 

• The Court observed that substance of the circular must be examined rather than merely its form, noting that the CBEC Circular No. 35/2010-Cus was clarificatory and benevolent in nature, issued in response to representations from exporters who were being denied the 1% drawback despite previous notifications clearly stating availability irrespective of CENVAT availment. 
• The Court found that having regard to the concerned Circular vis-à-vis previous notifications, no new right or benefit came to be created, but the actual scope of benefit accruing to merchant exporters was explained and settled once and for all, merely clarifying that 1% customs duty drawback was available to SBM merchants despite having availed CENVAT. 
• Being explanatory in nature, the Court held that the Circular could not be construed as adoption of a fresh fiscal regime for rebate of customs duty intended to affect vested rights or impose new burdens upon the Department, as it was passed to resolve ambiguity regarding meaning and threshold of previous notifications. 
• The Court observed that the CBEC Circular read in conjunction with previous notifications already in operation did not confer prospective benefit on antecedent facts, but established the scope of benefit introduced vide the first Notification No. 81/2006, and for this reason, operation of such provision could only be retrospective in nature to give effect to the objective of CBEC notifications. 
• The Court noted that retrospectivity of a statute is to be tested on the anvil of doctrine of "fairness", stating that when benefit to one person does not inflict undue burden on another, purposive construction can be given retrospective effect, and courts need not entertain objections to operation of clarificatory provisions unless they are arbitrary, vexatious or constitute parallel mechanism making operation unfair. 

What are the Central Excise Rules, 2002? 

Central Excise Rules, 2002 

• Legal Framework: Statutory rules made under Central Excise Act, 1944, effective from 1st March 2002, governing central excise duty administration across India. 
• Purpose: Provides procedural framework for levy, assessment, collection of central excise duty on manufactured/produced excisable goods. 
• Administrative Structure: Establishes Central Excise Officers' appointment and jurisdiction for enforcement and administration of excise laws. 

Rule 18 - Rebate of Duty 

• Export Rebate: The Central Government may grant rebate of duty paid on exported goods or materials used in their manufacture through notification. 
• Scope: Covers both direct duty on exported goods and indirect duty on raw materials/inputs used in manufacturing. 
• Conditional Benefit: Subject to conditions, limitations and procedures specified in government notifications. 

Rule 19(2) - Export without Payment of Duty 

• Duty-Free Material Removal: Permits removal of materials without duty payment from factory/warehouse for manufacturing export goods. 
• Prior Approval: Requires approval from Principal Commissioner/Commissioner of Central Excise. 
• Conditional Facility: Subject to conditions, safeguards and procedures notified by Central Board of Excise and Customs.