The apparently simple ruling, is not so simple in its implications. If the lower authorities are bound by the CBEC circular, then at the appellate stage the commissioner and the tribunal cannot set aside their orders.
Thus the CBEC circular also binds them. Also it will be a serious departure from the practice developed over the past 30 years and that too on the order of the Supreme Court itself.
Earlier, the CBEC rulings to the officers on classification of goods was binding. They used to swear by the CBEC ruling. It was sacrosanct. So, there was uniformity and stability.
This continued till 1970, when the Supreme Court in the Orient Paper Mills vs Union of India case, (1978 ELT J 382), said CBEC rulings were not binding on the officers doing adjudication on classification.
It caused a mayhem. It made assessing officers free to do what they liked. Even unscrupulous action causing harassment to taxpayers went in the name of independent decision. The CBEC started giving tariff advice, but they were not binding on subordinates.
To stop this free-for-all, the government in December 1985 introduced Section 37B on the central excise side and Section 151A on the Customs side.
It made CBEC rulings binding on all Customs and excise officers and all those employed in execution of the Act.
It was also provided in the Act that such rulings would not bind the collector on the appellate side. Thus the tribunal being the higher appellate body was also not bound by the CBEC circular.
In the Commissioner of Central Excise vs Usha Martin case, 1997 (94)ELT 460 (SC), the apex court further said even if the instruction was issued without reciting the Section 37B, it was binding on the department.
This was an U-turn on the 1970 judgment in the Oriental Paper Mills case. But it is all for the better.
Thus the apex court ruling amounts to saying that the tribunal and the commissioner (appeal) are bound by the CBEC circular since they cannot change the order of a subordinate who has simply followed the circular, even if they think the circular to be wrong.
This introduces an element of coercive effect. Section 37B specifically provides that the appellate commissioner is not bound by a circular issued under Section 37B. This is all the more true for the tribunal because it is a higher appellate authority.