Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration
Date: 23.10.2026
Gujarat High Court- Administrative Circulars Cannot Curtail Statutory SAD Refunds
This Short Article has been prepared & written by Advocate Ravi Shekhar Jha-Delhi High Court, New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email id intelconsul@gmail.com .
The Gujarat High Court held that customs and trade authorities could not use administrative circulars or a public notice to curtail a statutory refund benefit available under a customs exemption notification.
In Agarwalla Timbers Pvt. Ltd. v. Union of India & Ors., decided on 12 October 2022, the Gujarat High Court ruled in favour of importers who had paid Special Additional Duty (SAD) through DEPB and Reward Scheme scrips. The Court invalidated the restriction that prevented use of re-credited scrips after 30 September 2013 and directed that, where such scrips were no longer available, the refund must be paid electronically, with 6% interest.
Background: Why SAD Refunds Matter
SAD is an additional customs duty levied under Section 3(5) of the Customs Tariff Act, 1975. It is intended to create parity between imported goods and domestically purchased goods, since domestic transactions generally attract sales tax or VAT.
Under Notification No. 102/2007-Cus dated 14 September 2007, an importer who subsequently sells imported goods in India and pays applicable sales tax or VAT can claim refund of SAD, subject to the conditions in the notification.
Where SAD was paid in cash, the refund was ordinarily made in cash. Where it was paid by debit in DEPB or Reward Scheme scrips, departmental instructions contemplated a re-credit of the amount in the relevant scrip.
The Dispute Before the Court
Agarwalla Timbers imported timber and paid customs duties, including SAD. Some SAD payments were made through DEPB and Reward Scheme scrips acquired from the market. The company later sold the imported goods on payment of VAT/sales tax and filed SAD refund claims.
The refund process was delayed because Customs disputed whether round logs, after being processed into sawn timber, retained the identity required for the refund. Earlier proceedings ultimately supported the importerβs position, and the Supreme Court had also issued an interim direction requiring refund upon a 50% bank guarantee.
However, when Customs granted the refunds in May and June 2013, the authorities had introduced a new deadline. DGFT Public Notice No. 6(RE-2013)/2009-14 dated 18 April 2013 and CBEC Circular No. 18/2013-Cus dated 29 April 2013 provided that re-credited scrips could be used only up to 30 September 2013.
The importer could not fully use the re-credited amount within that limited period. Its request to transfer the credit was rejected. The dispute before the High Court was therefore whether these administrative measures could lawfully deprive the importer of its refund benefit.
The Courtβs Decision
The Court held that the 18 April 2013 public notice and the 29 April 2013 circular were invalid insofar as they denied SAD refund through DEPB or Reward Scheme scrips beyond 30 September 2013.
It found that the petitioners had filed their refund claims properly and that the inability to use the credit arose because of delays by the authorities. The Court rejected the proposition that the department could rely on a cut-off date after its own delayed processing had made the benefit impracticable.
The Court directed:
- sanction of the refund relating to re-credited DEPB/Reward Scheme scrips;
- payment through RTGS within 12 weeks if the relevant scrip mechanism was no longer available; and
- interest at 6% from the date of receipt of the refund application until payment.
Core Legal Principles Applied
1. A circular cannot amend an exemption notification
The central principle is that an exemption notification issued under Section 25(1) of the Customs Act has statutory force. If the government wishes to impose a new condition, restrict a benefit, or alter the terms of that exemption, it must do so through a fresh notification issued under the same statutory power.
The Court held that a DGFT public notice and CBEC circular could not introduce a new restriction on the refund benefit under Notification No. 102/2007-Cus.
2. Administrative instructions cannot override statutory rights
Circulars may guide customs officers and help ensure consistent administration. They cannot, however, reduce, defeat, or impose harsher conditions than those contained in the governing statute or statutory notification.
The 30 September 2013 deadline was not a condition in the exemption notification. By making refund availability dependent on using re-credited scrips before that date, the authorities effectively added a condition without statutory authority.
3. Conditions for exemption must appear in the notification itself
The Court reaffirmed that importers must be able to identify the conditions of an exemption from the notification that grants it. A condition cannot later be introduced through an executive instruction, guideline, press note, or circular.
This principle protects legal certainty in customs administration. Businesses should not lose an existing fiscal benefit because an authority later changes procedure through a non-statutory instrument.
4. The State cannot benefit from its own delay
The Court found no fault on the part of the petitioners in filing their refund claims. The claims remained pending due to departmental action and disputes. Once refund was sanctioned, only a short period remained before the administrative cut-off expired.
The authorities could not rely on that deadline to deny the benefit where their own delay had prevented meaningful use of the re-credit.
5. Interest on delayed refunds runs from the refund application
Relying on Ranbaxy Laboratories Ltd. v. Union of India, the Court held that interest is payable from the date of receipt of the refund application until payment. It did not accept that interest could be postponed until the date of a later refund order.
The Court fixed the rate at 6%.
Precedents Relied Upon
The judgment follows an established line of authority against executive modification of statutory exemptions:
- Allen Diesels India Pvt. Ltd. v. Union of India: The Delhi High Court held that CBEC circulars could not add restrictions to SAD refund under Notification No. 102/2007-Cus.
- Sandur Micro Circuits Ltd.: A circular cannot take away the effect of a statutory notification or narrow the exemption granted by it.
- Inter Continental (India): The Gujarat High Court held that additional conditions cannot be read into an exemption notification and departmental circulars cannot override it.
- Union of India v. Inter Continental (India): The Supreme Court affirmed that a circular cannot add a condition that restricts the scope of an exemption notification.
- Ranbaxy Laboratories Ltd.: Interest on delayed refund becomes payable after the prescribed period from receipt of the refund application.
Significance for Importers and Exporters
The ruling is significant because it reinforces the hierarchy of legal instruments in customs law. Statutory provisions and notifications issued under statutory authority prevail over administrative circulars and public notices.
For businesses, the judgment confirms that:
- a valid refund entitlement cannot be curtailed by a circular that adds a condition absent from the exemption notification;
- procedural instructions cannot defeat substantive fiscal rights;
- delayed departmental processing cannot be used to extinguish an accrued refund benefit; and
- where an obsolete mechanism makes re-credit impossible, the refund should be provided through an effective alternative mode, such as electronic bank transfer.
Conclusion
The Gujarat High Courtβs ruling protects importers from losing SAD refunds merely because administrative authorities imposed a non-statutory deadline or processed claims too late. Its key message is clear: an executive circular may administer a statutory exemption, but it cannot rewrite, narrow, or nullify it.
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Source: Gujarat High Court
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