In a significant ruling with implications for Special Economic Zones (SEZs), the Supreme Court on Monday held that customs duty cannot be levied on electricity generated in an SEZ and supplied to the Domestic Tariff Area (DTA). Setting aside a Gujarat High Court judgment from 2019, the top court directed the Union government to refund amounts collected from Adani Power Limited for such levy between September 2010 and February 2016.
Background of the Case
Adani Power operates a large coal-based thermal power plant inside the Mundra SEZ in Gujarat. While part of the electricity generated is consumed within the SEZ, a substantial portion is supplied to buyers outside the zone, including state power utilities.
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In 2010, the Centre issued a customs notification imposing duty on electricity cleared from SEZs to the DTA, initially at 16% with retrospective effect, and later at lower per-unit rates. Adani Power challenged this move, arguing that electricity generated within India could not be treated as “imported goods” for customs purposes.
In 2015, the Gujarat High Court ruled in favour of Adani Power, holding that such levy was without legal authority. That decision was later upheld by the Supreme Court. However, when Adani sought refunds for duties paid under later notifications, a different High Court bench rejected the claim in 2019, leading to the present appeal.
Key Issues Before the Court
The Supreme Court examined whether its earlier endorsement of the 2015 High Court ruling applied only to a specific notification and period, or whether it declared, as a matter of principle, that customs duty itself was impermissible on SEZ-to-DTA electricity supply.
Another central question was whether the government could continue collecting the same levy through subsequent notifications at reduced rates, without a fresh charging provision enacted by Parliament
Court’s Observations
The bench Justice Aravind Kumar and Justice N. V. Anjaria observed that customs duty can be imposed only when there is a clear charging provision and a valid taxable event. Electricity generated within India and transmitted from an SEZ to the DTA, the Court said, does not amount to an “import into India.”
“The absence of a lawful charging event goes to the root of the matter,” the bench noted, adding that an exemption notification cannot be used as a tool to impose a new tax.
The Court was critical of the government’s attempt to reintroduce the levy through successive notifications.
“What could not be done directly has been sought to be achieved indirectly,” it said, calling the exercise a misuse of delegated legislative power.
It also faulted the Gujarat High Court’s 2019 decision for narrowing the scope of its own 2015 ruling. A coordinate bench, the Supreme Court said, was bound to follow the earlier declaration of law or refer the issue to a larger bench instead of limiting its effect.
Decision
Allowing Adani Power’s appeal, the Supreme Court declared that the levy of customs duty on electricity supplied from the SEZ to the DTA during the period from 16 September 2010 to 15 February 2016 was without authority of law.
The Court set aside the 2019 Gujarat High Court judgment and directed the customs authorities to refund all amounts collected from Adani Power during the relevant period, after verification.
The refund, the Court clarified, will not carry any interest and must be completed within eight weeks.
Case Title: Adani Power Ltd. & Anr. vs Union of India & Ors.
Case Number: Civil Appeal arising out of SLP (Civil) No. 24729 of 2019
