- Bookmark
- Share
- CaseIQ
Union Of India And Others v. Arviva Industries India Limited And Others
Factual and Procedural Background
The dispute concerns the applicability of Board's Circular No. 39/99-Cus. dated 25-6-1999, which extends the benefit of the brand-rate of drawback to exporters of re-rolled steel products and processed fabrics. The Department resisted the High Court’s view that such circulars are binding on it. Special Leave Petitions were filed against the High Court judgment reported as (2004) 5 Bom CR 664. The Supreme Court granted leave, heard the matter, and delivered the present decision.
Legal Issues Presented
- Whether circulars issued by the Central Board of Excise and Customs (or the Central Board of Direct Taxes, in the income-tax context) are binding on departmental authorities such that the Revenue cannot argue contrary to their contents.
- Whether the two-judge decision in Hindustan Aeronautics Ltd. v. CIT (2000) 5 SCC 365, which took a different approach, remains good law in light of later Constitution Bench authority.
- Whether the matter should be referred to a larger Bench as urged by the learned Solicitor General.
Arguments of the Parties
Department / Appellant
- Sought to contend that the Board’s circulars were not binding and attempted to urge a position contrary to Circular No. 39/99-Cus.
- Moved for a reference of the case to a larger Bench.
Respondent / Assessee
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| (2004) 5 Bom CR 664 (High Court) | Held that Board’s circulars are binding on the Department. | Affirmed and adopted by the Supreme Court. |
| Navnit Lal C. Javeri v. K.K Sen, AIR 1965 SC 1375 | Circulars issued under the taxing statutes bind Revenue authorities. | Relied upon as foundational authority. |
| Ellerman Lines Ltd. v. CIT, (1972) 4 SCC 474 | Same principle of binding nature of circulars. | Cited in support. |
| K.P Varghese v. ITO, (1981) 4 SCC 173 | Circulars are binding on the Department. | Followed. |
| Union of India v. Azadi Bachao Andolan, (2004) 10 SCC 1 | Consistency in treating circulars as binding. | Followed. |
| CCE v. Usha Martin Industries, (1997) 7 SCC 47 | Binding nature of circulars under Central Excise Act. | Relied upon. |
| Ranadey Micronutrients v. CCE, (1996) 10 SCC 387 | Circulars bind the Revenue. | Relied upon. |
| CCE v. Jayant Dalal (P) Ltd., (1997) 10 SCC 402 | Same principle. | Relied upon. |
| CCE v. Kores (India) Ltd., (1997) 10 SCC 338 | Same principle. | Relied upon. |
| Paper Products Ltd. v. CCE, (1999) 7 SCC 84 | Department cannot act contrary to circulars. | Relied upon. |
| Dabur India Ltd. v. CCE, (2004) 13 SCC 107 | Same principle. | Relied upon. |
| Hindustan Aeronautics Ltd. v. CIT, (2000) 5 SCC 365 | Took a view contrary to the above line of cases. | Declared not good law because inconsistent with later Constitution Bench ruling. |
| CCE v. Dhiren Chemical Industries, (2002) 2 SCC 127 (Constitution Bench) | Authoritative affirmation that circulars bind the Department. | Treated as controlling; overrides Hindustan Aeronautics. |
| Commissioner of Customs v. Indian Oil Corporation Ltd., (2004) 3 SCC 488 | Summarised principles on the effect of circulars (items 1-4 quoted in the opinion). | Principles extracted and applied. |
| Union of India v. Arviva Industries (I) Ltd. (decision of the same day) | Sets out the law reaffirmed in the present judgment. | Basis for remanding transferred cases. |
Court's Reasoning and Analysis
The Court began by endorsing the High Court’s conclusion that Board circulars are binding on the Department. It then reviewed an extensive line of Supreme Court authority—beginning with Navnit Lal C. Javeri (1965) and culminating in the Constitution Bench ruling in Dhiren Chemical Industries (2002)—all of which hold that circulars issued under Section 119 of the Income-tax Act, 1961 and Section 37-B of the Central Excise Act, 1944 must be obeyed by Revenue officials.
The Bench noted that a divergent view expressed by a two-judge bench in Hindustan Aeronautics Ltd. v. CIT (2000) stood in conflict with the later Constitution Bench in Dhiren Chemical Industries and therefore could not constitute good law.
Reinforcing the binding nature of circulars, the Court quoted verbatim the four principles extracted in Commissioner of Customs v. Indian Oil Corporation Ltd. (2004) 3 SCC 488, emphasising that:
- The Revenue cannot contest the validity of an operative circular.
- Departmental appeals contrary to a circular are impermissible.
- Show-cause notices and demands issued in defiance of a circular are void ab initio.
- Arguments advanced contrary to circulars cannot be entertained.
Applying these principles, the Court dismissed the Solicitor General’s request for reference to a larger Bench, finding that the legal position is already settled by multiple decisions, particularly the Constitution Bench authority.
Holding and Implications
The civil appeals are DISMISSED with no order as to costs. Circular No. 39/99-Cus. remains binding on departmental authorities, and the Department is precluded from contending otherwise.
Transferred Case (TC) Nos. 51-56, 58-74, 76-79 of 2006 are remitted to their respective High Courts for fresh consideration in light of this ruling and the companion decision in Union of India v. Arviva Industries (I) Ltd.
Implications: The judgment strengthens the doctrine that administrative circulars issued under statutory authority bind Revenue authorities unless revoked or declared illegal. No new precedent is set, but the decision consolidates and re-affirms existing Supreme Court jurisprudence, while expressly disapproving the contrary view in Hindustan Aeronautics Ltd.
Order
1. Leave granted in the special leave petitions. We agree with the view taken (2004) 5 Bom CR 664 by the High Court that the circulars issued by the Central Board of Excise and Customs are binding on the Department and the Department cannot be permitted to urge that the circulars issued by the Board are not binding on it.
2. This Court in a series of decisions has held that the circulars issued under Section 119 of the Income Tax Act, 1961 and Section 37-B of the Central Excise Act, 1944 are binding on the Revenue. [See Navnit Lal C. Javeri v. K.K Sen AIR 1965 SC 1375, (1965) 56 ITR 198, Ellerman Lines Ltd. v. CIT (1972) 4 SCC 474, K.P Varghese v. ITO (1981) 4 SCC 173, Union of India v. Azadi Bachao Andolan (2004) 10 SCC 1, CCE v. Usha Martin Industries (1997) 7 SCC 47, Ranadey Micronutrients v. CCE (1996) 10 SCC 387, CCE v. Jayant Dalal (P) Ltd. (1997) 10 SCC 402, CCE v. Kores (India) Ltd. (1997) 10 SCC 338, Paper Products Ltd. v. CCE (1999) 7 SCC 84 and Dabur India Ltd. v. CCE (2004) 13 SCC 107, (2003) 157 ELT 129.]
3. A slightly different approach was taken by this Court in Hindustan Aeronautics Ltd. v. CIT (2000) 5 SCC 365 by two learned Judges which runs counter to the decisions referred to above. The view taken in Hindustan Aeronautics Ltd. (2000) 5 SCC 365 being contrary to the subsequent decision of the Constitution Bench of this Court in CCE v. Dhiren Chemical Industries (2002) 2 SCC 127 cannot be taken to be good law.
4. This Court in Commr. of Customs v. Indian Oil Corpn. Ltd. (2004) 3 SCC 488, after examining the entire case law, culled out the following principles:
“(1) Although a circular is not binding on a court or an assessee, it is not open to the Revenue to raise a contention that is contrary to a binding circular by the Board. When a circular remains in operation, the Revenue is bound by it and cannot be allowed to plead that it is not valid nor that it is contrary to the terms of the statute.
(2) Despite the decision of this Court, the Department cannot be permitted to take a stand contrary to the instructions issued by the Board.
(3) A show-cause notice and demand contrary to the existing circulars of the Board are ab initio bad.
(4) It is not open to the Revenue to advance an argument or file an appeal contrary to the circulars.”
5. In this particular case, the Board's Circular No. 39/99-Cus. dated 25-6-1999 extends the benefit of the brand rate of drawback to compensate exporters for the re-rolled steel products and processed fabrics. The High Court has rightly come to the conclusion that the circulars issued by the Board are binding on the Department. An effort was made by the learned Solicitor General to get this case referred to a larger Bench. We do not accept this contention in view of a number of decisions and especially the Constitution Bench decision in Dhiren Chemical Industries (2002) 2 SCC 127.
6. The civil appeals are dismissed. No costs.
TC (C) No. 51 of 2006, TCs Nos. 52-56, 58-74, 76-79 of 2006
7. All these transferred cases are sent back to the respective High Courts for being decided afresh in view of the law laid down by us today in Union of India v. Arviva Industries (I) Ltd., as expeditiously as possible.
Alert