New Delhi, May 28, 2025
The Supreme Court has held that a government circular issued to clarify an earlier notification concerning fiscal duty will have retrospective effect, provided it merely interprets or explains the original notification and does not create new obligations.
A bench led by Justice B.V. Nagarathna and Justice Augustine George Masih delivered the judgment in a case concerning customs duty liability under a specific exemption notification. The Court ruled that clarificatory circulars, by their nature, operate retrospectively unless they introduce a substantive change in law or policy.
Case Background
The dispute arose from a circular issued by the Central Board of Indirect Taxes and Customs (CBIC), which clarified the scope and applicability of a prior customs exemption notification. The assessee had contested the retrospective application of the circular, arguing that it could not be applied to transactions completed before its issuance.
However, the Supreme Court rejected this contention, observing that a circular that merely clarifies an existing law or notification cannot be treated as a fresh directive or new legal provision. Instead, such circulars reflect the correct interpretation of the law from the outset.
Key Observations:
• Clarificatory circulars are retrospective in operation if they do not change the substance of the original notification.
• The binding nature of circulars on tax authorities was reaffirmed, particularly when they are issued by the CBIC under Section 151A of the Customs Act, 1962.
• The Court emphasized that retrospective effect is justified when the clarification addresses ambiguity in the law that existed from the beginning.
The ruling resolves legal uncertainties for businesses and tax authorities alike, ensuring consistent interpretation and application of fiscal statutes and related notifications.
Legal Significance
The Court’s decision reinforces long-standing jurisprudence that clarificatory instruments can apply to past transactions, especially in the context of indirect taxation, where interpretative challenges frequently arise.
This judgment is expected to impact multiple pending tax disputes where the scope of circulars and their retrospective applicability has been a contentious issue.
