Excise Duty | Clarification Is Not Creation—Beneficial Circular Must Operate Retrospectively: Supreme Court Grants ₹21 Crore Duty Drawback in Soybean Export Case

“The circular only clarifies a benefit already granted—it does not create a new one. Denial of retrospectivity defeats fairness.” - In a landmark decision issued today on 22 May 2025, the Supreme Court of India in M/s Suraj Impex (India) Pvt. Ltd. v. Union of India & Others, Civil Appeal arising from SLP (C) Nos. 26178–79 of 2016, held that the CBEC Circular No. 35/2010-Cus dated 17.09.2010 is clarificatory in nature and therefore applies retrospectively, entitling the appellant to 1% All Industry Rate (AIR) customs duty drawback on soybean meal (SBM) exports made even prior to 20.09.2010.

Setting aside the judgments of the Madhya Pradesh High Court, the Court concluded: “No new right or benefit came to be created… The Circular merely clarifies and cements the scope of benefits already granted under earlier notifications.”

“The discharge impugned sounds like an order of acquittal… The special court has exceeded its statutory discretionary jurisdiction.”

CBI Held Duty Drawback Claims Inadmissible Due to CENVAT Rebate

M/s Suraj Impex, a merchant exporter dealing in soybean meal, had availed CENVAT rebates under Rule 18/19(2) of the Central Excise Rules, 2002. From 2006 onwards, CBEC notifications granted 1% AIR duty drawback on such exports—irrespective of CENVAT usage. Yet, in 2008, authorities withheld drawback claims, arguing that since CENVAT rebate was taken, the AIR benefit was no longer valid.

This interpretation contradicted the very language of the notifications, which provided that where the same rate appears under both columns—CENVAT availed and not availed—the amount pertains to the customs component alone, and was universally available.

“The CENVAT facility has no bearing on the rebate of Customs Duty,” argued the exporter in repeated representations.

Clarificatory Circular Issued in 2010, But Authorities Applied It Prospectively

In response to industry confusion, the CBEC issued Circular No. 35/2010-Cus on 17.09.2010, clarifying that customs component of AIR drawback is payable even when excise rebate is claimed. However, the circular stated its effectiveness from 20.09.2010—and both the Department and the High Court treated it as purely prospective.

The High Court dismissed the exporter’s writ petition in 2014 and a subsequent review in 2016, refusing to read retrospectivity into the circular, leading to the appeal before the Supreme Court.

Supreme Court: “When You Clarify, You Don't Introduce—Circular Was Always Meant to Operate from Day One”

The Supreme Court emphatically rejected the Revenue’s argument that beneficial circulars are not always retrospective. Referring to binding precedent, it ruled: “Clarificatory and declaratory provisions, by their very nature, are retrospective… When no new burden is created, but ambiguity is removed, the circular must operate backwards.”

The Court stressed the importance of doctrines of fairness and contemporanea expositio, stating: “The CBEC circular did not confer a prospective benefit on antecedent facts… It clarified an already existing benefit introduced via earlier notifications.”

“To deny retrospective application is to punish exporters for the Department’s ambiguity.”

Clarificatory vs. Substantive: The Core Legal Distinction

The judgment reaffirmed that whether a circular is retrospective hinges not on the word “effective from” but on its substance. Noting the uniformity in language across Notifications from 2006 to 2010, the Court found that Circular 35/2010:

• Did not amend any rule,
• Did not confer new rights or create new liabilities,
• Only restated the existing legal position in response to administrative misinterpretation.

“It is inconceivable that prior Notifications operated differently until the clarification was issued.”

“Clarificatory circulars cannot be used to deny what was always lawful—such use defeats the object of beneficial legislation.”

Exporter Entitled to ₹21 Crore Drawback Retrospectively

The Supreme Court concluded that the entire customs duty drawback withheld between 2008 and 2010 must be released, and the High Court’s dismissal order was passed in undue haste without examining the substance of the circular.

“The substratum of a beneficial legislation is to ensure the benefit is uniform and absolute… fairness mandates retrospective operation.”

“The Appellant is entitled to the benefit of 1% AIR Customs Duty Drawback on its export of SBM from the year 2008.”

This ruling will have a wide impact across sectors where beneficial fiscal schemes have been later clarified, especially in customs and excise contexts. It stands as a powerful reminder that clarity does not await permission, and interpretative justice cannot be defeated by bureaucratic formalism.

“Courts must not entertain objections to clarificatory provisions that merely assert what was always intended—retrospective operation is the legal default in such cases.”

Date of Decision: 22 May 2025