Customs duty cannot be levied on electricity supplied from a special economic zone (SEZ) to the domestic market, ruled the Supreme Court on Monday while upholding Adani Power’s appeal against a 2019 judgment of the Gujarat high court.
Illustration: Dado Ruvic/Reuters
The 2019 judgment had denied relief to Adani Power from Customs duty on electricity supplied from its Mundra SEZ unit to the domestic tariff area (DTA).
A Bench comprising Justice Aravind Kumar and Justice N V Anjaria held that the Customs department lacked the statutory authority to impose duty on power sent from the SEZ to the DTA.
While detailed reasons are awaited, the court ruled that the levy had no “valid charging event” under the Customs Act, 1962, and could not be sustained merely based on executive notifications.
The dispute centred on electricity generated by Adani Power at its coal-based thermal plant within the Mundra SEZ, where the company operates as a co-developer.
Power generated at the facility is supplied both within the SEZ and to distribution companies in Gujarat and other states.
The levy was sought to be imposed though there is no duty on electricity imported into India.
In an earlier round of litigation, the Gujarat high court in July 2015 had struck down part of the levy framework and held that Adani Power was entitled to exemption from Customs duty on SEZ-to-DTA electricity supplies for a limited period — between June 2009 and September 2010.
That ruling was allowed to stand after the Supreme Court declined to interfere.
However, when Adani returned to the high court, seeking similar relief beyond September 2010, the court rejected the plea in June 2019, holding that the benefit could not be extended beyond the earlier time window and that later levy regimes had not been directly challenged.
The Supreme Court has now overturned that approach, holding that the absence of statutory authority could not be cured through procedural limitations.
According to Anshuman Chowdhury, advocate at the Delhi high court, the decision reinforces the constitutional mandate under Article 265 that no tax can be imposed without the authority of law, and aligns with the settled principle that fiscal statutes must be strictly construed.
The court found that while the department had relied on executive notifications issued in 2010 to prescribe duty rates, the parent statute did not contemplate the levy of Customs duty on electricity generated in Indian territory and supplied to the domestic market, he said.
Commenting on its wider significance, Shri Venkatesh, founding partner at SKV Law Offices, said the ruling went beyond the facts of Adani Power’s case and underscored the discipline expected of constitutional courts in following settled law.
“Once a declaration of law has been rendered, a subsequent Bench cannot narrow it by treating it as discretionary relief tied to specific dates,” Venkatesh said, adding that if doubts existed, the issue ought to have been referred to a larger Bench.
Explaining the broader implications of the verdict, Supreme Court advocate-on-record B Shravanth Shanker said the judgment made clear that the constitutional infirmity identified in 2015 could not be artificially confined to a limited period.
Shanker said the decision was likely to have wider implications for SEZ units supplying goods or services to the domestic market, reinforcing the point that procedural doctrines could not dilute substantive constitutional protections in fiscal matters.
