The Supreme Court has set aside a 2019 judgment of the Gujarat High Court, declaring that no customs duty is leviable on electrical energy removed from a Special Economic Zone (SEZ) to the Domestic Tariff Area (DTA). The Court held that the levy was without authority of law as there is no charging provision under Section 12 of the Customs Act, 1962, for such an imposition. Consequently, the Court has directed the Union of India to refund the duties collected from Adani Power Ltd. for the period between September 16, 2010, and February 15, 2016.
Background of the Case
The appellant, Adani Power Ltd., operates a thermal power plant within the Mundra SEZ in Gujarat. The electricity generated is supplied partly within the SEZ and substantially to buyers in the DTA. Under Section 30 of the SEZ Act, 2005, goods removed from an SEZ to the DTA are chargeable to customs duties “as if such goods had been imported into India.” However, prior to 2009, imported electrical energy attracted a nil rate of duty, meaning SEZ-to-DTA clearance also bore no customs duty.
In 2010, the Central Government issued Notification No. 25/2010-Cus., purporting to exempt electrical energy but effectively imposing a 16% ad valorem duty with retrospective effect from June 26, 2009. This was later replaced by Notification No. 91/2010-Cus. (10 paise per unit) and Notification No. 26/2012-Cus. (3 paise per unit).
Adani Power challenged the 16% levy before the Gujarat High Court, which, in a judgment dated July 15, 2015, struck down the levy as ultra vires. The Supreme Court affirmed this decision in November 2015. However, for the period between September 16, 2010, and February 15, 2016, the authorities continued to collect duty under the subsequent specific-rate notifications. Adani Power filed a fresh writ petition in 2016 seeking a refund for this period, relying on the 2015 judgment. The Gujarat High Court dismissed this petition in 2019, holding that the earlier relief was confined to the specific notification and period challenged therein.
Arguments of the Parties
For the Appellant (Adani Power Ltd.): Senior Advocate P. Chidambaram, appearing for the appellant, argued that the High Court failed to give effect to its own 2015 declaration of law. He submitted that the legal foundation—that no customs duty could be levied on SEZ-to-DTA power—remained unchanged. He contended that the Union could not achieve indirectly, by altering the rate to 10 paise or 3 paise, what had been declared ultra vires. He argued that the “exemption” notifications were a colourable exercise of power used to create a fresh levy.
For the Respondents (Union of India): Additional Solicitor General Raghav Shankar, representing the Union of India, argued that the 2015 judgment was explicitly limited to Notification No. 25/2010-Cus. and the period ending September 15, 2010. He contended that the subsequent notifications (Nos. 91/2010-Cus. and 26/2012-Cus.) were distinct fiscal measures that were not specifically impugned in the earlier proceedings, and thus no refund could be granted without a fresh challenge to their validity.
Court’s Analysis
The Bench of Justice Aravind Kumar and Justice N.V. Anjaria observed that the controversy raised foundational questions regarding the limits of delegated legislation and judicial discipline.
1. Nature of the 2015 Judgment The Court held that the 2015 Gujarat High Court judgment was not a limited adjudication but a general declaration of law. It had established that:
- There was no lawful charging event under Section 12 of the Customs Act as SEZ-to-DTA supply of power is not an “import into India.”
- The executive cannot use Section 25 (power to exempt) to introduce a new levy.
- The structure of the levy created an arbitrary double burden, as input duties were already neutralized under Rule 47(3) of the SEZ Rules.
2. Colourable Exercise of Power The Court termed the government’s action a “colourable exercise of delegated power.” Justice Kumar, writing for the Bench, observed:
“The power to exempt is not a power to tax… The executive cannot, by subordinate instrument, enlarge the field of taxation under the pretext of tailoring an exemption.”
The Court rejected the Union’s argument that the subsequent notifications were valid because they were not specifically struck down. The Bench stated:
“Where the root is ultra vires, the branch cannot claim legitimacy by altering its foliage.”
3. Judicial Discipline On the issue of judicial discipline, the Supreme Court criticised the 2019 Division Bench of the High Court for narrowing the effect of the binding 2015 precedent. The Court stated that a coordinate Bench cannot sidestep settled law by treating it as a “fact-specific indulgence.” If the 2019 Bench doubted the correctness of the earlier ruling, the only permissible course was to refer the matter to a larger Bench.
Decision
The Supreme Court allowed the appeal and set aside the Gujarat High Court’s judgment dated June 28, 2019. The Court declared that the levy of customs duty on electrical energy cleared from the SEZ to the DTA during the relevant period was “without authority of law.”
The Court issued the following directions:
- The respondents shall refund the amount deposited by the appellant towards customs duty for the period from 16 September 2010 to 15 February 2016.
- The refund shall be verified and completed within eight weeks by the jurisdictional Commissioner of Customs.
- The refund shall not carry any interest.
- No further demand shall be enforced against the appellant in respect of customs duty on electrical energy for the period covered in the appeal.
Case Details
- Case Title: Adani Power Ltd. & Anr vs. Union of India & Ors.
- Case Number: Civil Appeal arising out of SLP (Civil) No. 24729/2019
- Coram: Justice Aravind Kumar and Justice N.V. Anjaria
