Customs Duty on SEZ Power Supply to DTA Held Ultra Vires; Refund Directed

Adani Power Limited operates a coal-based thermal power plant within the Mundra Special Economic Zone (SEZ), Gujarat, and supplies a substantial portion of the electricity generated to buyers in the Domestic Tariff Area (DTA). Historically, imported electrical energy attracted NIL customs duty. Under the SEZ framework, electricity supplied from SEZ to DTA was regulated through neutralisation of duty-free inputs under Rule 47(3) of the SEZ Rules, without any independent customs duty on electricity itself.

In 2010, the Union Government issued Notification No. 25/2010-Cus., retrospectively imposing customs duty at 16% ad valorem on electricity cleared from SEZ to DTA. This was later replaced by specific-rate duties through Notification No. 91/2010-Cus. (₹0.10 per unit) and Notification No. 26/2012-Cus. (Rs. 0.03 per unit), applied prospectively.

HC’s Decision: The Gujarat High Court, in a 2015 judgment, struck down the levy holding that electricity generated within India and supplied from SEZ to DTA does not constitute “import into India” and that exemption notifications cannot be used to create a tax. This judgment attained finality after dismissal of SLP and review. But refund for the later period was denied by the High Court in 2019 on the ground that later notifications were not specifically challenged. Adani Power appealed to the Supreme Court.

Central Issue: Whether customs duty could be levied on electrical energy generated in an SEZ and supplied to the DTA through exemption notifications, and whether refund could be denied for subsequent periods despite a binding declaration of law holding the levy to be ultra vires.

SC’s Decision: The Supreme Court allowed the appeal and set aside the Gujarat High Court’s 2019 judgment. The Court held that the 2015 High Court judgment was a declaration of law on the very authority to levy customs duty on SEZ-to-DTA electricity clearances, not a decision confined to a single notification or period. There was no change in law or facts thereafter to justify a different outcome.

The Court ruled that Section 25 of the Customs Act empowers the Government only to grant exemptions from an existing levy and cannot be used to impose a new duty. The levy suffered from absence of a charging event under Section 12 of the Customs Act, violated the parity mandate under Section 30 of the SEZ Act, and offended Articles 14 and 265 of the Constitution. Subsequent notifications merely continued the same invalid levy in altered form and could not survive independently.

It was further held that a coordinate Bench of the High Court was bound by the 2015 judgment, which held that once a levy is declared without authority of law, the State cannot retain amounts collected under it, and restitution must follow. The Supreme Court directed refund of customs duty collected from Adani Power for the period 16.09.2010 to 15.02.2016, without interest, to be completed within eight weeks, and restrained the authorities from enforcing any further demand for the said period.

To Read Full Judgment, Download PDF Given Below