• Dated 30^th June, 2025

SUPREME COURT CLARIFIES: DUTY DRAWBACK BENEFIT RETROACTIVE FOR MERCHANT EXPORTERS

Brief Facts:

The Petitioner, Suraj Impex (India) Pvt. Ltd., is a merchant exporter engaged in the export of Soyabean Meal (SBM), an agricultural product falling under Chapter 23 of the Customs Tariff Act, 1975. From 2006 onwards, the company was availing the benefit of 1% All Industry Rate (AIR) customs duty drawback on its exports, as allowed under various CBEC Notifications Notification No. 81/2006 dt. 13.07.2006 and continued vide annual Notification Nos. 68/2007 dt.16.07.2007, No. 103/2008 dt. 29.08.2008, No. 84/2010 dt. 17.09.2010. Clause 5 of the Notification no. 81/2006 & 68/2007 and Clause 6 of Notification No. 103/2008 and 84/2010 respectively,issued annually. This rate was applicable irrespective of whether the CENVAT credit was availed or not. However, in 2008, the Director General of Central Excise Intelligence (DGCEI), Indore opined that if an exporter had already claimed excise rebate under Rule 18 or Rule 19(2) of the Central Excise Rules, 2002, the AIR drawback should not be granted. Acting on this, the department denied drawback benefits to the Petitioner and similarly situated exporters. Representations were made, and CBEC issued Circular No. 35/2010-Cus. dated 17.09.2010, clarifying that AIR drawback (customs component) and excise rebate could be claimed simultaneously. However, the Department interpreted this Circular to have prospective effect only from 20.09.2010. Suraj Impex challenged this interpretation and sought retrospective application of the Circular.

To resolve the ambiguity, the CBEC issued Circular No. 35/2010-Cus., dated 17.09.2010, clarifying that exporters were entitled to AIR customs duty drawback even if they had availed excise rebate under the above Rules. However, the Department denied the retrospective application of this Circular, citing that it expressly stated an effective date of 20.09.2010. Consequently, the Petitioner approached the Commissioner (Customs), Kandla, who reiterated the department's position. When their representation to CBEC was rejected, the Petitioner filed Writ Petition No. 2576/2012 before the High Court of Madhya Pradesh, which too rejected their plea, holding the Circular to be prospective in nature. The subsequent review petition was also dismissed. Aggrieved, the Petitioner approached the Hon'ble Supreme Court.

Assessee's Contention:

The Petitioner contended that the CBEC Circular dated 17.09.2010 was clarificatory and benevolent, issued to settle the confusion regarding eligibility for AIR drawback when the CENVAT facility was availed. It did not create any new benefit, but merely explained the existing position under prior notifications. Therefore, being explanatory in nature, the Circular should be held to operate retrospectively.

The Petitioner submitted that the earlier drawback notifications (from 2006 to 2010) clearly allowed 1% customs drawback irrespective of CENVAT availment, and the department's restrictive interpretation in 2008 was incorrect. They relied on CBEC's consistent language in all notifications and cited decisions by the Commissioner (Appeals) in similar cases (e.g., Pradeep Overseas Ltd. and Ruchi Soya Industries) which allowed simultaneous benefit of excise rebate and customs drawback. The Petitioner also relied on judicial precedents, such as Mysore Electricals Industries Ltd., where it was held that clarificatory circulars should be applied retrospectively.

Department's Contention:

The Respondent (Union of India) argued that the Circular No. 35/2010-Cus. clearly mentions that it is effective from 20.09.2010, and hence cannot be given retrospective effect. The Circular, according to the Respondent, formed part of the Notification No. 84/2010, and the effective date specified was binding.They further contended that the benefit of duty drawback was inadmissible because the Petitioner had already availed benefits under Rule 18 or Rule 19(2) of the Central Excise Rules. They relied on the statutory language of the notifications which, according to their interpretation, excluded the export of goods where excise rebate had been claimed. It was submitted that not all beneficial legislations are retrospective unless they explicitly or implicitly indicate such intention, relying on the decision in Shyam Sunder v. Ram Kumar, which emphasized that a beneficial statute must still conform to legislative intent.

Decision:

The Hon'ble Supreme Court ruled in favour of the Petitioner, holding that CBEC Circular No. 35/2010-Cus. dated 17.09.2010 is retrospective in nature, as it is merely clarificatory and does not introduce any new scheme or benefit. The Court observed that the Circular was issued in response to exporter representations and served to clarify the position under earlier notifications, which uniformly allowed 1% drawback on customs duty irrespective of CENVAT availment.The Court found that the language and content of the prior notifications from 2006 onward did not support the Department's restrictive interpretation. There was no new right created or new burden imposed by the Circular; rather, it affirmed an existing entitlement that was being wrongly denied due to departmental confusion. The Supreme Court also noted that where a circular clarifies the scope of a benefit and does not adversely affect the interests of others, it ought to be applied retrospectively.The Court criticized the High Court for failing to appreciate the true nature and purpose of the Circular and for rejecting the review petition without addressing the legal issues in depth. Accordingly, the Supreme Court set aside the High Court's order and held that the Petitioner was entitled to 1% AIR drawback for exports made even prior to 20.09.2010.

BTA's Comment:

The Supreme Court's ruling reinforces the doctrine that clarificatory fiscal Circulars, especially those conferring benefits, are to be given retrospective effect when they merely explain existing entitlements. It prioritizes substance over form, ensuring exporters are not penalized for administrative misinterpretations. This decision not only benefits soybean-meal exporters like Suraj Impex but sets a powerful precedent across Customs, Excise, and GST regimesaffirming that equity and legislative intent should guide the application of such circulars, and that justice cannot be thwarted by technicalities.

Case Reference: SURAJ IMPEX(INDIA)PVT.LTD VS UNION OF INDIA [(2025)30 CENTAX 362 (S.C)] DATED 22-05-2025

Author: Pritam Ghosh

Edited by: Shaily Gupta