A fine legal question has arisen which is whether a board's circular can make a classification prospective when legally it is retrospective. This has arisen because of a Supreme Court judgement in the case of Jai Fibres Ltd vs CCE, Mumbai — 2007(218)ELT484(SC) 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 the case of H M Bags vs. CCE -1997(94)ELT3(SC) that ‘henceforth’ means prospective.
This has also been accepted by the Supreme Court in the H M Bags case and also much later in 2007 by the Supreme Court in the Jai Fabrics case (supra). I am writing in this treatise to say that the 2007 judgement of the Supreme Court merely relied on the first judgement of 1997 and the later is a very brief judgement in which there is no argument made by the department.
Therefore I am raising this issue now whether the Board can make a classification prospective when basically the legal position is that it is retrospective. The reasons why I hold that it cannot be done are the following:
(a) Section 11A — Under this Section a demand has to be issued under Section 11A. This is a statutory requirement and surely the Board cannot undo the statutory requirement by a mere circular.
(b) Scope of 37B circular is limited — A circular under Section 37B can only be issued 'for the purpose of uniformity in the classification of goods or with respect to levy of duty on such goods...’, 37B — circular cannot do anything more than that. It cannot bring about retrospective or prospective effect which depends on the fundamental legal position. The fundamental position that demand can be issued retrospectively on HDPE bags has been admitted by the Supreme Court in the Jai Fibres case (supra) in view of the validation of retrospecitivity of Section 11A by the Supreme Court in the case of ITW Signode India vs. CCE2003(158) ELT403(SC). Can this fundamental position be changed by a 37B circular which by law can only bring uniformity? I hold that it cannot because it cannot override the statute.
(c) Henceforth — what it means. This word has been used by the 1992-circular in the context of varying classifications namely 39, 54 or 63. So the circular really holds that there should not be lack of uniformity as in the past and it will be 39 henceforth. So it means that the lack of uniformity should give way to an uniform classification. So far as the past is concerned, the board has not clarified anything which only means that the normal law will take its own course, that is to say, action due under Excise Act will take place.
(d) Contemporaneous expositio — The department as well as the tribunal have also understood the circular in that way. Even now demands are being issued regularly and nobody has gone to the courts challenging them on the basis of this circular and the judgements quoted above.
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This being the correct legal position that the Board's cannot make classification prospective when it is basically, that is legally retrospective, may have to be canvassed before the Supreme Court in a similar pending case since this is a matter of great legal and revenue importance.