Supreme Court Allows Customs Duty Exemption To Adani Power For Electricity Taken From Gujarat SEZ

The Supreme Court today(January 5) allowed an appeal preferred by Adani Power Limited against the Gujarat High Court's 2019 order, which refused to exempt the company from payment of the customs duty on electrical energy removed from the Special Economic Zone(SEZ) to the Domestic Tariff Area (DTA) by its coal-based thermal power plant situated in Mundra Port.

The petitioner(Adani Power) is engaged in the activity of generating, transmitting and selling electrical energy from the SEZ to the DTA. In 2010, the Government levied custody duty with retrospective effect from 26.6.2009, which the Gujarat High Court in 2015 held to be arbitrary and illegal.

It held that the petitioner was exempted from the levy of customs duty for the period 26.6.2009 to 15.9. 2019 as the levy of customs duty on electrical energy can only be levied prospectively through a substantive law. The High Court also stated that it amounted to double taxation as the petitioners had paid duty on raw materials. 

Adani again went to the Gujarat High Court after the authorities imposed custody duty for a period onwards. In 2019, the High Court denied the relief, stating that they had not challenged the subsequent notification imposing the duty, against which they came before the Supreme Court.

A bench comprising Justice Aravind Kumar and Justice NV Anjaria considered the following questions:

1. Firstly, what, if not, the Gujarat High Court decided in its judgment dated 15 July 2015, and what is the true scope of the decision?

2. Secondly, whether the period subsequent to 15 September 2010 and prior to 16 November 2016, there was any material changes in the statutory position or factual footing that would justify a different result from that arrived in 2015 judgment.

3. Thirdly, whether the High Court in its impugned judgment of 28 June 2019 was justified in holding that no relief could be granted to the applicant in the absence of a specific and fresh challenge to the notification numbers 91 of 2010 and 26 of 2012.

4. Fourthly, in view of 2015 declaration of law and its affirmation of the High Court in 2019, was at liberty being a coordinate bench to deny relief by narrowing the effect of the earlier pronouncement.

Findings Of The Court

Allowing the appeal, the Court held that the 2015 Gujarat High Court judgment had conclusively declared, as a matter of law, that customs duty could not be levied on electrical energy cleared from SEZ to DTA in the absence of a valid charging provision under Section 12 of the Customs Act.

The Bench ruled that this declaration was not confined to the specific notification or period considered in 2015 but went to the very authority of the State to impose such a levy under the statutory framework then prevailing, including the SEZ Act and constitutional constraints under Articles 14 and 265.

Rejecting the State's contention, the Court observed that subsequent notifications issued in 2010 and 2012 merely altered the rate of duty and did not create a fresh levy or a new legal footing. The absence of a lawful charging event continued to persist.

“The argument that no relief could be granted in the absence of a fresh and specific challenge to each later notification is untenable,” the Court held, noting that Adani Power's later writ petition was a sequel seeking enforcement of the earlier declaration of law and refund of amounts paid under protest.

Coordinate Bench Bound By Earlier Ruling

The Supreme Court further held that the 2019 Division Bench of the High Court, being a coordinate Bench, was bound to follow the 2015 judgment or refer the matter to a larger Bench if it doubted its correctness. It could not circumvent judicial discipline by artificially narrowing the scope of the earlier ruling.

“There was no material change in law or fact between September 2010 and February 2016 that justified a departure from the 2015 ruling,” the Bench observed.

Holding that the levy itself was without authority of law, the Court ruled that the State could not retain amounts collected under such levy. Restitution, it said, was a necessary consequence of the finding of illegality.

Accordingly, the Supreme Court set aside the Gujarat High Court's 2019 judgment and directed the jurisdictional Commissioner of Customs to complete the verification and refund exercise within eight weeks.

Summarising the pronouncement, the Court said: "The Gujarat High Court judgment dated 15 July 2015, as a matter of law, declared that customs duty could not be limited on electrical energy cleared from the applicant's SEZ unit to DTA, i.e., domestic traffic area. Having regard to the absence of a lawful charging event under Section 12 of the Customs Act, the limited scope of Section 25 of that Act, the parity requirement of Section 30 of the SEZ Act, and the constitutional constraints of Article 14 and Article 265, is squarely applicable to the judgment and order dated 28.06. 2019. That declaration was not confined in principle to notification of 25 of 2010 or to the period ending 15 September 2010. It went to the authority to limit customs duty on SEZ to DTA, electricity clearances in the statutory setting, then obtained."

It added: "The subsequent notifications, namely 91 of 2010 prescribing 10 paisa per unit and notification 26 of 2010 prescribing 3 paisa per unit, did not create a new levy or a new footing. They merely continued the same levy in altered form; the change in arithmetical rate by prospective character does not include the lack of authority in principle. The argument that no relief could be granted in the absence of a fresh and specific challenge to each later notification is untenable. The appellant's 2016 writ petition was a sequel, seeking enforcement of the prior declaration and refund of amounts deposited under protest."

The bench also observed that there was no material change to alter the 2015 ruling.

"Constitutional courts are empowered to secure compliance with their own pronouncements and are not bound to insist on repetitive challenges to substantially identical measures.  There was no material change in law or fact between September 2010 and February 2016 that justified a departure from 2015 ruling. The division bench of the High Court in 2019, being a coordinate bench, was bound either to follow the 2015 decision or, if it doubted its correctness or legality, it ought to have referred the question to a larger bench. It could not have circumvented that discipline by artificially narrowing down the earlier ruling. Its refusal to extend the 2015 declaration to a later period was therefore contrary to law.

Once it is held that the levy itself was without authority of law, the State cannot retain the amount collected under the levy. Restitution is a necessary incident of the finding of illegality. We declare that the levy of customs duty on electrical energy cleared by the appellant during the relevant period has been sought to be enforced through notifications 25 and 91 of 2010 and notification 26 of 2010, and similar instruments as without authority of law.

We accordingly hold that the impugned statement of the High Court dated 28-06-2019 cannot be sustained. In view of the foregoing discussion, the appeal is allowed and judgment and order dated 28-06-2019 of the High Court of Gujarat in CA 2233 of 2016 is set aside. The verification and refunding exercise shall be undertaken and be completed by the Jurisdictional Commissioner of Customs within a period of 8 weeks from the date of this judgment."

Case Details: ADANI POWER LTD. AND ANR.v UNION OF INDIA AND ORS|SLP(C) No. 24729/2019

Citation : 2026 LiveLaw (SC) 3

Click here to read the judgment