Supreme Court Holds Customs Duty on SEZ-to-DTA Power Clearance Unauthorised; Directs Refund Without Interest

A bench of Justices Aravind Kumar and N.V. Anjaria heard an appeal by Adani Power challenging a 2019 Gujarat High Court order which declined relief on claims for refund of customs duty paid on electrical energy cleared from its Mundra SEZ power plant to the Domestic Tariff Area (DTA) for the period between 16 September 2010 and 15 February 2016. The appeal arose from a sequence of notifications that the Union had issued to treat SEZ-to-DTA electricity as liable to customs duty.

The Court allowed the appeal, held that the levy on SEZ-generated electricity lacked lawful authority, set aside the High Court’s 2019 order and directed refunds of amounts deposited for the period in question without interest. The Court reiterated that the Gujarat High Court’s earlier judgment of 15 July 2015—which had found the original 16% retrospective levy to be ultra vires—constituted a binding declaration of law applicable to subsequent notifications in the same statutory setting. The Court, in its reasoning, observed: "We are of the clear view that these four propositions together constitute the ratio decidendi of the 2015 judgment. It follows that the 2015 judgment was not confined, in principle, to a single notification or to a closed span of time. The declaration of law extended to the very authority to levy customs duty on electrical energy cleared from an SEZ to the DTA in the statutory setting then prevailing. Absence a change in that setting, that declaration governed all periods standing on the same footing." The Court further noted that "Section 25... is a power to relax, not a power to create or levy tax" and that "a delegate cannot do indirectly what it has no authority to do directly."

Background The appellant operated a coal-based thermal plant within the Mundra SEZ and supplied power into the DTA. Section 30 of the SEZ Act provided that goods removed to the DTA would be chargeable to customs "as if such goods had been imported into India", while Section 12 of the Customs Act contemplated duty on goods "imported into India". In 2010 the Union issued Notification No.25/2010-Cus. (stated retrospective from 26 June 2009) to impose a 16% ad valorem duty on electricity cleared from SEZs to the DTA. The appellant challenged that measure; the Gujarat High Court in July 2015 struck it down, finding absence of a taxable event, misuse of the exemption power under Section 25 and retrospective imposition violative of Article 265, and noting an arbitrary double burden in light of Rule 47(3) of the SEZ Rules. This Court declined to interfere with the 2015 judgment.

Subsequently, the Union issued Notification Nos. 91/2010-Cus. and 26/2012-Cus. prescribing specific duties of ten paise and three paise per unit respectively, and later Notification No.9/2016-Cus. exempted large SEZ generators prospectively. The appellant paid the per-unit duties under protest and sought refunds after the 2015 decision. A 2019 Division Bench of the Gujarat High Court refused relief on the ground that the 2015 declaration was confined to the earlier notification and period; the appellant appealed.

The Supreme Court found no material change in law or fact after 2015 that could justify a different outcome. It held that the 2015 decision struck at the authority to levy, not merely at a particular notification or rate, and that the State could not relaunch the same levy through differently labelled subordinate instruments. The Court emphasised the binding discipline on co‑ordinate Benches and observed that a later Bench that doubts an earlier ruling must refer the question to a larger Bench rather than artificially narrow its effect.

Resulting order and directions The Supreme Court declared the levy under Notification Nos. 25/2010-Cus., 91/2010-Cus., 26/2012-Cus. and similar instruments to be without authority of law for the relevant period. It set aside the Gujarat High Court’s 28 June 2019 order, allowed the appeal and directed the jurisdictional Commissioner of Customs to verify and refund sums paid under protest by the appellant for the period 16 September 2010 to 15 February 2016 within eight weeks of the judgment; the refunds were ordered without interest. The Court clarified that no further demand would be enforced for that period and that it expressed no opinion on any future legislative regime.

Case No.: 2026 INSC 1 (Civil Appeal arising out of SLP (C) No. 24729/2019) Case Title: Adani Power Ltd. & Anr. v. Union of India & Ors. Appearances: For the Petitioner(s): Mr. P. Chidambaram, Senior Counsel For the Respondent(s): Shri Raghav Shankar, Additional Solicitor General