Can CBEC circular be always retrospective if it is beneficial?

Retrospectivity is now the most debated issue. And retrospectivity of a circular issued by the Central Board of Excise and Customs (CBEC) is also in the news now. A recent judgment of the Tribunal in the case of L&T Sargent & Lundy - 014(35) STR945 (Tri. Ahmd., depending on a Supreme Court judgement in the case of Suchitra Components Ltd. Vs. Commissioner - 2008(11)ST- R430(SC), and Jai Fibres Ltd. vs. CCE, Mumbai -2007 (218) E.L.T. 484 (S.C.), has held that a beneficial circular has to be applied retrospectively while an oppressive circular has to be applied prospectively. I am writing to say that this proposition is not quite legally tenable and there are many more issues involved than the simple proposition mentioned above.

First, the Suchitra Components judgment has solely depended on Jai Fibres' judgement. And the latter does not clearly say in as so many words that the beneficial CBEC circular in all cases are retrospective. Moreover, the issue was regarding a circular dated 24.9.1992 of the Board under Section 37B of the Excise Act which said that the goods shall be "henceforth classified" at a higher rate. So Supreme Court said that henceforth means prospective. In another judgment, namely CCE, Bangalore vs. Mysore Electricals Industries-2006(204)ELT517(SC), Supreme Court says (at para 15) the following, "…….. such re-classification can take effect only prospectively from the date of communication of the show cause notice proposing re-classification.

In the instant case, the show cause notice was communicated to the assessee only on 31-12-1993. Therefore, as rightly urged by the learned counsel for the respondent, the reclassification can take effect only from 27-4-1994 and accordingly, the differential duty can be demanded only from that date".

So Supreme Court judgment is that a higher duty can be levied from the time the show cause memo is issued and finalised. 27.4.1994 seems to be the date of finalisation of the issue of reclassification. The Supreme Court has not made any general observation that a circular of the Board is retrospective when it is beneficial although the lawyer of the taxpayer argued to that effect. If it has to be a Supreme Court judgment on such a fundamental issue of retrospectivity, then the Supreme Court has to say this in so many words, which it has not done. It has only given the judgments on very specific and limited issues as discussed above.

Then there is another issue as to whether the Board can make a circular prospective when it is basically retrospective in nature. This has arisen because of the same Supreme Court judgment in the case of Jai Fibres Ltd. (mentioned above) interpreting the retrospectivity of classification on the basis of a CBEC Circular No.54/12/91-CX.1 dated 24.7.1992. The facts of the Supreme Court case relate to classification of HDPE bags which were variously classified under central excise tariff items 39, 54, or 63. To bring about uniformity, the Board under Section 37-B of the Central Excise Act ordered "that HDPE bags shall be henceforth classified under heading 3923.90".

The manufacturer argued in the case of H.M. Bags vs. CCE -1997(94)ELT3(SC) that 'henceforth' means prospective. This has also been accepted by Supreme Court in the H.M. Bags case and also much later in 2007 by Supreme Court in the Jai Fibre case, 1997 (supra). Actually, the 2007 judgment of Supreme Court merely relied on the first judgment of 1997 and the latter is a very brief judgment in which there is no argument made by the Department. Therefore, my view is that the Board cannot make classification prospective when it is basically, that is, legally retrospective since it is clarificatory in nature, that being the fundamental principle on retrospectivity.

Conclusion: The fundamental principle is that a clarificatory circular can only be retrospective. Any circular cannot be retrospective just because it is beneficial to the tax payer. It has to be clarificatory also at the same time.

If it is clarificatory, then it will be retrospective even if it is oppressive to the tax payer. Secondly, if a circular is fundamentally retrospective in nature, CBEC cannot make it prospective. For it means, throwing away revenue which it cannot do.

smukher2000@yahoo.com