New Delhi: The Supreme Court on Monday set aside a 2019 Gujarat High Court judgment and held that customs duty levied on electricity generated in a Special Economic Zone (SEZ) and supplied to the Domestic Tariff Area (DTA) was without authority of law, directing the Union government to refund the amounts collected from Adani Power Ltd for the period between September 2010 and February 2016.
A Bench of Justices Aravind Kumar and N.V. Anjaria ruled that there was no legal basis under the Customs Act, 1962, to impose customs duty on electricity generated within India, even if supplied from an SEZ to the domestic market .
Allowing Adani Power’s appeal, the Court held that the levy sought to be enforced through a series of customs notifications issued between 2010 and 2012 was unconstitutional and unsustainable.
Background of the case
Adani Power operates a 5,200 MW coal-based thermal power plant at the Mundra SEZ in Gujarat. While a portion of the electricity generated is consumed within the SEZ, a substantial quantity is supplied to buyers in the DTA, including state electricity utilities.
In 2010, the Union government introduced a customs duty on electricity cleared from SEZs to the DTA through Notification No. 25/2010-Cus., initially imposing a retrospective ad valorem duty of 16 per cent. The duty structure was subsequently modified to a specific rate of 10 paise per unit in September 2010 and further reduced to 3 paise per unit in April 2012.
Adani Power challenged the levy before the Gujarat High Court. In July 2015, the High Court struck down the retrospective levy, holding that customs duty could not be imposed on electricity generated within India and supplied from an SEZ to the DTA. The Union government’s challenge to that ruling failed before the Supreme Court.
However, in 2019, another Division Bench of the Gujarat High Court declined to extend relief for the period after September 2010, leading Adani Power to approach the Supreme Court again.
Supreme Court’s findings
The Supreme Court held that customs duty under Section 12 of the Customs Act can be levied only on goods “imported into India” and that electricity generated within an SEZ does not qualify as an import.
The Court also ruled that the Centre could not use its power under Section 25 of the Customs Act—meant for granting exemptions—to effectively create a new levy through subordinate legislation.
Setting aside the 2019 Gujarat High Court judgment, the Court directed the customs authorities to refund the duty collected from Adani Power for the period between September 16, 2010, and February 15, 2016, within eight weeks. The refund will not carry interest.
The Court further clarified that no further demand for customs duty could be enforced against the company for the said period, while noting that it was not expressing any opinion on any future legislative regime Parliament may enact.
