Summary
A merchant exporter of soyabean meal was denied the 1% All Industry Rate customs duty drawback for periods before 20.09.2010 on the footing that CBEC Circular No. 35/2010-Cus., which confirmed that the customs component of drawback is available even where central excise rebate under Rules 18 or 19(2) of the Central Excise Rules, 2002 has been taken, operated only prospectively. The Court held the Circular to be clarificatory and declaratory of the benefit already conferred by the drawback notifications since 2006, and therefore retrospective, and set aside the High Court's contrary judgment.
Issues
- Whether CBEC Circular No. 35/2010-Cus. dated 17.09.2010, concerning availability of the customs component of All Industry Rate duty drawback to exporters who had availed central excise rebate under Rule 18 or Rule 19(2) of the Central Excise Rules, 2002, is clarificatory and retrospective or confers a new benefit prospectively from 20.09.2010.
- Whether a beneficial clarificatory circular which imposes no new burden on the Department can be given retrospective effect notwithstanding a stated effective date.
Provisions considered
- Clause 5 / Clause 6 (meaning of identical rates in both drawback columns), Customs Notifications No. 81/2006, 68/2007, 103/2008 and 84/2010 (All Industry Rates of Duty Drawback)Each notification provided that where the drawback rate is the same whether or not CENVAT facility has been availed, the rate pertains only to the customs component and is available irrespective of CENVAT. Since the Schedule prescribed 1% for soyabean meal in both columns, the customs component was available to the exporter from the first notification onwards. (¶¶ 3, 4, 13, 17)
- Clause 7(e)-(f) / Clause 8(e)-(f) (exclusion where Rule 18 or Rule 19(2) rebate availed), Customs Notifications No. 81/2006, 68/2007 and 103/2008The Department read these clauses as denying all drawback to exporters who had taken central excise rebate under Rule 18 or procured inputs duty-free under Rule 19(2). The Court held this interpretation erroneous: the exclusion concerns the central excise component, and the customs component which remained unrebated was always to be provided through the AIR drawback route. (¶¶ 7, 9, 13, 14)
- Paragraph (vi)(d), CBEC Circular No. 35/2010-Cus. dated 17.09.2010The Circular, issued on references that exporters were being denied the 1% customs component, stated that unrebated customs duties 'should be provided through the AIR drawback route'. The Court treated this as declaratory of the existing notifications, creating no new right and casting no new burden, and therefore retrospective despite the notification's effective date of 20.09.2010. (¶¶ 5, 13, 14, 15, 16, 17)
- Rules 18 and 19(2), Central Excise Rules, 2002Rebate of central excise duty on inputs (Rule 18) or duty-free procurement of inputs (Rule 19(2)) relates to the central excise component of drawback; availing it does not disentitle the exporter to the distinct customs component, so there is no double benefit. (¶¶ 4, 5, 9, 14)
Held
- In deciding whether a circular is retrospective, its substance and not merely its form governs. Circular No. 35/2010-Cus. was issued on representations from exporters being denied the 1% customs component, there was no difference in the benefit available to soyabean meal merchant exporters from the first notification to the date of the Circular, and the Circular vested no fresh right and cast no burden beyond what the earlier notifications already imposed. (¶ 13)
- The Circular made no substantive modification to the earlier notifications; it merely clarified that customs duties remaining unrebated are to be provided through the AIR drawback route whether or not central excise rebate under Rule 18 or 19 of the Central Excise Rules, 2002 was taken. Being explanatory, it was not the adoption of a fresh fiscal regime affecting vested rights or imposing new burdens, and its operation could only be retrospective so as to give effect to the object of the notifications. (¶¶ 14, 15)
- It could not be inferred that the CBEC intended to deprive exporters of the customs drawback for periods before 20.09.2010; it was not the Department's case that the 2006 to 2009 notifications were not in operation, and the earlier notifications could not have operated in any manner other than as clarified by the Circular. (¶ 16)
- The use of 'should' in relation to the earlier notifications was deliberate and declaratory; applying the principle of contemporanea expositio, the Circular read with the notifications did not confer a prospective benefit on antecedent facts but established the scope of the benefit introduced by Notification No. 81/2006, and therefore operates retrospectively. (¶ 17)
- Although not every beneficial provision is retrospective, retrospectivity is tested on the doctrine of fairness: where extending a benefit inflicts no undue burden on the other side, a purposive construction may give it retrospective effect. Courts need not entertain objections to the operation of a clarificatory or declaratory provision that merely gives effect to its parent provision, unless it is arbitrary, vexatious or creates an unfair parallel mechanism. (¶ 18)
- The High Court erred in relying solely on the Department's submission that the Circular was effective from 20.09.2010 without appreciating its rationale or the purport of the notifications, and in dismissing the review petition at the threshold. (¶ 19)
Result
Appeals disposed of; the High Court's judgment dated 17.11.2014 in the writ petition and order dated 01.04.2016 in the review petition set aside; the appellant held entitled to 1% AIR customs duty drawback on its soyabean meal exports from 2008 as applicable, Circular No. 35/2010-Cus. being given retrospective operation; pending applications disposed of.