Supreme Court Rules No Customs Duty on Electricity Supplied from SEZs, Grants Relief to Adani Power
Introduction
In a landmark judgment with far-reaching implications for India’s taxation framework, Special Economic Zones (SEZs), and the power sector, the Supreme Court of India has categorically ruled that customs duty cannot be levied on electricity generated within a Special Economic Zone and supplied to the Domestic Tariff Area (DTA).
The ruling came while deciding an appeal filed by Adani Power Limited, which had challenged the continued levy of customs duty on electrical energy generated in its SEZ-based power project and supplied to consumers in the DTA.
At its core, the judgment reinforces a foundational principle of Indian constitutional law: no tax can be imposed or collected without clear authority of law. The Court held that the absence of a statutory charging provision under the Customs Act, 1962 could not be cured through exemption notifications, delegated legislation, or changes in duty rates.
This decision is not merely about one company or one sector. It reasserts constitutional discipline under Articles 14 and 265 of the Constitution of India, strengthens judicial precedent, and provides much-needed clarity for SEZ developers, power generators, policymakers, and tax authorities across the country.
Background of the Dispute
Adani Power’s SEZ-Based Power Project
Adani Power Limited operates a thermal power generation unit located within a Special Economic Zone, a legally notified area established to promote exports, investment, and economic development through fiscal and regulatory incentives.
Electricity generated from this SEZ unit was supplied to the Domestic Tariff Area (DTA), i.e., the rest of India outside the SEZ. Under the SEZ framework, goods supplied from an SEZ to the DTA are treated as “imports” for limited purposes, primarily to determine applicable duties and taxes.
The Government’s Attempt to Levy Customs Duty
Despite the fact that imported electrical energy attracts a nil rate of customs duty, the Union Government issued a series of notifications starting from 2010, attempting to levy customs duty on electricity supplied from SEZs to the DTA on a per-unit basis.
These notifications sought to treat electricity generated within India—but inside an SEZ—as if it were imported goods, thereby making it liable for customs duty.
The First Round: Gujarat High Court’s 2015 Judgment
Adani Power challenged these notifications before the Gujarat High Court. In its landmark judgment dated 15 July 2015, the High Court struck down the levy.
Key Findings of the Gujarat High Court (2015)
The High Court held that:
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Electricity generated within India cannot be treated as “imported goods”
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There was no charging event under Section 12 of the Customs Act
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Delegated legislation under Section 25 (exemption notifications) cannot create a tax where none exists
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Levying customs duty in this manner violated Article 265 of the Constitution, which mandates that tax must be authorised by law
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The levy also offended Article 14, as it destroyed parity between imported electricity (nil duty) and domestically generated electricity
This declaration of law was later affirmed by the Supreme Court, thereby giving it binding force.
The Second Round: Continued Levy and the 2019 High Court Judgment
Despite the clear declaration of law in 2015, customs authorities continued to levy and collect duty for later periods, relying on subsequent notifications that revised the rate or structure of duty.
When Adani Power sought refunds and enforcement of the earlier judgment, a coordinate bench of the Gujarat High Court in 2019 denied relief. The High Court reasoned that since the later notifications were not specifically challenged, the benefit of the 2015 ruling could not be extended automatically.
This narrow interpretation led to the present appeal before the Supreme Court.
Issues Before the Supreme Court
The Supreme Court was called upon to decide:
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Whether customs duty could legally be levied on electricity supplied from an SEZ to the DTA
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Whether later notifications could revive a levy already declared illegal
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Whether a citizen must repeatedly challenge successive notifications based on the same invalid legal foundation
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Whether the 2015 judgment had continuing and binding effect
Supreme Court’s Analysis and Observations
A Bench comprising Justice Aravind Kumar and Justice N.V. Anjaria undertook a detailed constitutional and statutory analysis.
1. Absence of a Charging Event Under the Customs Act
The Court reaffirmed that Section 12 of the Customs Act is the charging provision for customs duty. It applies only when there is import into, or export out of, India.
The Court categorically held:
“Electrical energy generated within India and wheeled into the Domestic Tariff Area is not, in truth, a case of import into India.”
Since electricity was generated domestically, the fundamental taxable event itself was missing.
2. Electricity Is Not “Imported Goods” in This Context
Although the SEZ Act treats supplies from SEZs to the DTA as imports for certain purposes, this legal fiction cannot override constitutional or statutory limits.
The Court clarified that:
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Legal fictions must be strictly confined to the purpose for which they are created
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They cannot be expanded to create a tax where the charging provision does not exist
3. Limits of Delegated Legislation Under Section 25
The Union argued that subsequent notifications issued under Section 25 of the Customs Act justified the levy.
The Court rejected this argument outright, holding that:
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Section 25 only grants power to exempt or modify existing duties
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It cannot create a new levy
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Delegated legislation cannot cure the absence of legislative competence
The Court observed that what Parliament itself cannot do directly, cannot be done indirectly through subordinate legislation.
4. Parity Principle Under the SEZ Act
Under Section 30 of the SEZ Act, goods cleared from an SEZ to the DTA are chargeable to duties “as applicable to imported goods”.
The Supreme Court emphasised the parity principle:
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Imported electricity attracts nil customs duty
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Therefore, electricity supplied from an SEZ to the DTA cannot be subjected to a higher or different duty
Since this statutory position remained unchanged after 2015, the Court found no justification for a different outcome in later years.
5. Binding Nature of the 2015 Declaration of Law
One of the most significant aspects of the judgment is its reaffirmation of judicial discipline and precedent.
The Court held:
“Once a declaration of law is rendered and affirmed by this Court, it acquires binding normative force and governs all transactions resting on the same legal footing.”
The 2019 High Court decision was criticised for narrowing the scope of a coordinate bench’s judgment without referring the matter to a larger bench, which violated settled principles of judicial propriety.
6. No Need to Repeatedly Challenge Identical Illegality
The Supreme Court rejected the argument that Adani Power should have separately challenged every subsequent notification.
It held that:
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Courts do not function on “technical formalism”
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A citizen cannot be compelled to repeatedly litigate against the same illegality clothed in different forms
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Once the foundation of a levy is struck down, all derivative actions fall automatically
7. Colourable Exercise of Power
The Court characterised the impugned notifications as a “colourable exercise of delegated power”, observing that merely altering the rate or timing of the levy does not legitimise an unconstitutional tax.
Constitutional Dimensions of the Judgment
Article 265: Authority of Law
Article 265 of the Constitution mandates:
“No tax shall be levied or collected except by authority of law.”
The Supreme Court reaffirmed that executive convenience or revenue considerations cannot override constitutional mandates.
Article 14: Equality Before Law
The levy was also found to violate Article 14, as it created arbitrary discrimination between:
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Imported electricity (nil duty)
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Domestically generated electricity supplied from SEZs
Final Decision and Directions
The Supreme Court:
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Set aside the 2019 judgment of the Gujarat High Court
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Allowed the appeal filed by Adani Power Limited
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Declared that the customs duty levied on electricity supplied from SEZs to the DTA lacked authority of law
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Directed the Union of India and customs authorities to refund the amounts collected, after verification, without interest
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Ordered that no further demands be enforced for the period covered by the appeal
Importantly, the Court clarified that:
Its findings are confined to the existing statutory framework and do not prevent Parliament from enacting a future legislative regime, if it so chooses.
Broader Implications of the Judgment
For SEZ Developers and Power Producers
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Provides long-term tax certainty
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Prevents retrospective or indirect levies
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Reinforces investor confidence in SEZ policy
For Tax Administration
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Reaffirms limits of delegated legislation
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Emphasises constitutional compliance over revenue considerations
For Constitutional Jurisprudence
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Strengthens the doctrine of precedent
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Protects taxpayers from repetitive litigation
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Upholds the rule of law
Cause Title and Appearances
Case: Adani Power Limited & Anr. v. Union of India & Ors.
Neutral Citation: 2026 INSC 1
For the Appellant:
Senior Advocate P. Chidambaram
For the Respondents:
Raghvendra P. Shankar, Additional Solicitor General
Conclusion
The Supreme Court’s ruling in favour of Adani Power is a landmark affirmation of constitutional tax discipline. By holding that customs duty cannot be levied on electricity supplied from SEZs in the absence of a statutory charging event, the Court has reinforced the supremacy of law over executive action.
More importantly, the judgment sends a clear message: illegal levies cannot be sustained through procedural manoeuvres, altered rates, or repeated notifications. Stability, predictability, and respect for judicial outcomes remain central to India’s constitutional order.
For businesses, policymakers, and legal practitioners alike, this decision stands as a powerful reminder that taxation must always flow from law—not convenience.
