Supreme Court: Finally putting rest to the controversy arose from the levy of customs duty on Adani Power Limited for generating electrical energy within a Special Economic Zone (SEZ) and suppling to the Domestic Tariff Area (DTA), a levy of Customs Duty on Electricity which had earlier been declared to be without authority of law by the Gujarat High Court in Adani Power Ltd. v. Union of India, 2015 SCC OnLine Guj 6720, however, the Union continued to sought recovery of duty for subsequent periods under later notifications, a Division Bench of Aravind Kumar* and N.V. Anjaria, JJ., held that once the very authority to levy customs duty on electricity had been negated, the State could not reassert the same impost in altered form, nor could a Co-ordinate Bench dilute the binding effect of an earlier declaration of law. The Court directed for the refund of such collected custom duty on electricity to Adani Power.
Factual Matrix
In the instant matter, the appellant, Adani Power Limited, operates a coal-based thermal power plant of approximately 5,200 MW capacity situated within the Mundra Special Economic Zone (SEZ), Gujarat, where it functions as a co-developer. Electricity generated at the plant is partly consumed within the SEZ and substantially supplied to purchasers located in the Domestic Tariff Area (DTA), including State distribution utilities.
Under the Special Economic Zones Act, 2005, goods removed from an SEZ into the DTA are chargeable to customs duties “as if such goods had been imported into India” under Section 30. Historically, imported electrical energy attracted a nil rate of customs duty, and consequently, electricity supplied from an SEZ to the DTA did not suffer any independent customs duty. Instead, Rule 47(3) of the SEZ Rules, 2006 ensured that the customs duty benefit on duty-free inputs used for power generation (such as imported coal) was neutralised to the extent electricity was supplied to the DTA.
A significant shift occurred in 2010. By Notification No. 25/2010-Cus. dated 27-02-2010, the Central Government purported to impose customs duty at 16% ad valorem on electrical energy cleared from an SEZ to the DTA, with retrospective effect from 26-06-2009. This notification, though framed as an “exemption”, effectively introduced a new levy. Subsequent notifications altered the rate and structure of duty: Notification No. 91/2010-Cus. prescribed a specific duty of ₹0.10 per unit with effect from 16-09-2010, which was further reduced to ₹0.03 per unit by Notification No. 26/2012-Cus. with effect from 18-04-2012.
The appellant challenged the levy before the Gujarat High Court. By judgment dated 15-07-2015 in Adani Power Ltd. v. Union of India, 2015 SCC OnLine Guj 6720, the High Court allowed the writ petition and held that customs duty on electricity generated within India and supplied from an SEZ to the DTA was without authority of law. The High Court found that there was no taxable event under Section 12 of the Customs Act, that the exemption power under Section 25 could not be used to impose a levy, that retrospective taxation through subordinate legislation violated Article 265, and that the levy resulted in an arbitrary double burden. The Union’s challenge to this decision failed before the Supreme Court, and review was also dismissed.
Despite this, for the period between 16-09-2010 and 15-02-2016, the appellant had paid customs duty at the per-unit rates prescribed under the subsequent notifications. Seeking refund and enforcement of the 2015 declaration, the appellant again approached the Gujarat High Court in 2016. By judgment dated 28-06-2019 in Adani Power Ltd. v. Union of India, 2019 SCC OnLine Guj 7126, the High Court declined relief and held that the 2015 judgment was confined to Notification No. 25/2010-Cus. and that the later notifications had not been specifically challenged. Aggrieved the appellant approached this Court in appeal
Moot Points
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What was the true scope and effect of the Gujarat High Court’s judgment dated 15 July 2015?
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Whether there was any change in law or facts after 15 September 2010 justifying a different conclusion?
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Whether relief could be denied in the absence of a specific challenge to subsequent notifications?
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Whether a coordinate Bench of the High Court could narrow or dilute the effect of an earlier binding declaration?
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What consequential directions ought to follow?
Court’s Analysis
Scope and Effect of judgment dated 15-07-2015 (Supra)
The Court observed that the earlier judgment dated 15-07-2015 (Supra) identified “the absence of a taxable event”, “the misuse of the exemption power”, and “the inherent arbitrariness of the scheme”, and that these conclusions went to the root of the taxing power. The Court rejected the contention that the 2015 ruling confined merely to Notification No. 25/2010-Cus. or to the period ending on 15-09-2010 and held that the declaration of law was structural rather than temporal.
The Court reiterated that customs duty is attracted only on goods “imported into India”, and that electricity generated within an SEZ and supplied to the DTA does not constitute an import in substance. The Court held that the deeming fiction under Section 30 of the SEZ Act is intended to ensure parity of duty treatment, not to create a fresh charging event.
Whether any change in statutory or factual footing justified a different result
The Court found that Section 12 of the Customs Act remained unchanged; Section 30 of the SEZ Act continued to operate as a parity provision, not a charging provision, imported electrical energy continued to attract nil customs duty and Rule 47(3) of the SEZ Rules already neutralised the duty benefit on inputs used for power generation.
The Court criticised the executive’s use of exemption notifications to impose duty and observed that “What could not be done directly has been sought to be achieved indirectly, which is impermissible in law.” The Court described Notification No. 25/2010-Cus. as a “classic instance of a colourable exercise of delegated power” and noted that “the power to exempt is not a power to tax”.
“A delegate cannot do indirectly what it has no authority to do directly. The power to exempt is not a power to tax. The two stand on opposite constitutional planes. The essential legislative function of imposing a tax or duty rests with Parliament and must be located in a charging provision. The executive cannot, by subordinate instrument, enlarge the field of taxation under the pretext of tailoring an exemption.”
The Court asserted that, “where the root is ultra vires, the branch cannot claim legitimacy by altering its foliage.” The Court held that the subsequent notifications, which merely altered the rate or method of levy, incapable of curing the foundational illegality.
“The only difference lies in the numerical rate and the period for which it applies. Those differences do not cure the fundamental absence of a lawful charging event and the misuse of an exemption mechanism to impose duty. The levy is the same in character, and it is that character which was condemned.”
Grant of relief in the absence of a separate challenge to the exemption notifications
The Court rejected the respondents’ contention that since Notification Nos. 91/2010-Cus. and 26/2012-Cus., were not specifically challenged, no relief could be granted. The Court clarified that the 2016 writ petition was not a fresh constitutional challenge, but a sequel proceeding seeking enforcement of a declaration already made in 2015.
The Court asserted that insisting on a fresh challenge to each subsequent notification would elevate form over substance. The Court held that once the levy itself had been declared without authority of law, constitutional courts were duty-bound to ensure that the same illegality was not perpetuated “through successive or similar notifications.”
“Once a levy has been held to be beyond the authority of law, a constitutional court is not expected to remain a silent spectator while the very same levy is sought to be continued through successive or similar notifications. The jurisdiction of a constitutional court is remedial in nature and extends to ensuring that what has been declared unlawful is not brought back in another form.”
The Court further held that “in the absence of any new statutory basis, such notifications do not create a new cause of action. A constitutional court is entitled to grant effective relief without insisting upon separate challenges to each such notification. The High Court, in the impugned judgment of 2019, erred in taking a contrary view.”
Effect of a binding declaration on a later Co-ordinate Bench
Relying on State of U.P. v. Ajay Kumar Sharma, (2016) 15 SCC 289, the Court held that if a later Bench doubts the correctness or applicability of an earlier judgment, the only permissible course is a reference to a larger Bench. The Court stated that “what it cannot do is to sidestep or whittle down the earlier pronouncement by confining it artificially.”
The Court observed that the Judicial discipline of precedent is not a matter of etiquette but an institutional necessity, ensuring coherence, predictability and legitimacy in adjudication. The Court held that the 2019 Division Bench of the Gujarat High Court, being a coordinate Bench, was bound to follow the 2015 judgment or refer the matter to a larger Bench. The Court further held that by narrowing the scope of the earlier decision without such reference, it acted contrary to the doctrine of stare decisis and settled principles governing Co-ordinate Bench decisions.
The Court also underscored the obligation of the State to give full effect to judicial pronouncements, observing that judgments are not “one-time indulgences” and that continued enforcement of a levy already struck down undermines the rule of law and finality in litigation.
Having held that the levy itself was without authority of law, the Court observed that “once it is held that the levy itself was without authority of law, the State cannot retain the amount collected under such levy. Restitution is a necessary incident of the finding of illegality.”
Court’s Direction
The Court issued the following directions —
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Declared that customs duty levied on electrical energy cleared from the appellant’s SEZ unit to the DTA under Notification Nos. 25/2010-Cus., 91/2010-Cus., 26/2012-Cus. and similar instruments was without authority of law.
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Set aside the judgment of the Gujarat High Court dated 28-06-2019.
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Directed refund of all amounts deposited under protest for the period 16-09-2010 to 15-02-2016, without interest, within eight weeks.
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Directed that no further demand shall be enforced for the said period.
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Clarified that the decision was confined to the statutory framework applicable to the period in question.
[Adani Power Ltd. v. Union of India, 2026 SCC OnLine SC 11, Decided on 05-01-2026]
*Judgment by Justice Aravind Kumar
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