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Introduction: Why This Supreme Court Ruling Matters

The question of whether heavy industrial and mining machinery should be treated as “motor vehicles” under Indian law has troubled industries, tax authorities, and courts for decades. With increasing mechanisation, factories and mines routinely use dumpers, excavators, loaders, dozers, surface miners, and drills—all of which are mechanically propelled and capable of movement, yet rarely, if ever, touch public roads.

In a landmark judgment, the Supreme Court of India has now decisively clarified that heavy machinery used exclusively within factories or enclosed industrial premises is not liable for motor vehicle registration or road tax. This ruling brings long-awaited certainty to industries across India and reinforces the constitutional limits on State taxation powers.

The decision came in Ultratech Cement Ltd. v. State of Gujarat, where the Court examined the scope of the Motor Vehicles Act, 1988 and the taxing power of States under the Constitution.

Background of the Dispute

How the Issue Arose

The dispute originated in the State of Gujarat, where transport authorities issued directions requiring registration under Section 39 of the Motor Vehicles Act, 1988 and payment of motor vehicle tax under Section 3 of the Gujarat Motor Vehicles Tax Act, 1958 for various categories of heavy machinery.

These machines included:

1. Dumpers

2. Loaders

3. Excavators

4. Dozers

5. Surface miners

6. Drilling equipment

Crucially, all these machines were used exclusively within factory and mining premises, which were fenced, controlled, and not accessible to the public. They were never driven on public roads.

Despite this, the authorities issued show-cause notices demanding:

1. Registration of the machinery

2. Payment of motor vehicle tax

3. Interest and penalty for alleged non-compliance

The Gujarat High Court upheld the State’s action, prompting the affected industries to approach the Supreme Court.

Legal Questions Before the Supreme Court

The appeals raised fundamental questions of constitutional and statutory interpretation:

1. Do heavy industrial machines used only inside factories qualify as “motor vehicles” under Section 2(28) of the Motor Vehicles Act, 1988?

2. Can a State levy motor vehicle tax on equipment that is not used or intended for use on public roads?

3. Does mere mechanical propulsion or theoretical mobility make machinery taxable as a motor vehicle?

Contentions of the Appellants (Industries)

Senior counsel appearing for the appellants advanced a structured and evidence-based argument.

1. Exclusion Under Section 2(28) of the Motor Vehicles Act

Section 2(28) defines a “motor vehicle” but expressly excludes:

“a vehicle of a special type adapted for use only in a factory or in any other enclosed premises.”

The appellants argued that:

1. The machinery was specially designed and manufactured for off-road industrial use

2. It was certified by manufacturers as unsuitable for ordinary road use

3. It lacked essential road-use features such as lighting systems, speed regulation, suspension suitable for highways, and compliance with road safety norms

2. Constitutional Limitation Under Entry 57, List II

The power of States to levy motor vehicle tax flows from Entry 57 of List II of the Seventh Schedule to the Constitution, which permits taxation only on:

“vehicles suitable for use on roads.”

The appellants emphasised that constitutional entries define the outer boundary of legislative power. A State statute cannot expand this scope by clever wording.

3. Actual and Intended Use Is Decisive

Evidence showed that the machinery:

1. Operated only within enclosed premises

2. Never used public roads

3. Did not derive any benefit from road infrastructure maintained by the State

Therefore, imposing road tax would be arbitrary and unconstitutional.

Contentions of the Respondent State of Gujarat

The State took a broader interpretation of both the statute and its taxing power.

1. Wide Language of the Gujarat Motor Vehicles Tax Act

The State relied on Section 3(1) of the Gujarat Motor Vehicles Tax Act, 1958, which authorises tax on:

“all motor vehicles used or kept for use in the State.”

According to the State, the provision does not distinguish between on-road and off-road usage.

2. Mechanical Propulsion as the Test

The State argued that:

1. The machinery was mechanically propelled

2. It could move from one place to another

3. Some machines could theoretically be driven short distances on roads

Therefore, they fell within the broad definition of “motor vehicle” and attracted tax.

Constitutional Framework: The Foundation of the Judgment

Before interpreting statutes, the Supreme Court turned to the constitutional source of taxing power.

Entry 57, List II – A Built-In Limitation

Entry 57 authorises States to tax:

“vehicles, whether mechanically propelled or not, suitable for use on roads.”

The Court stressed that:

1. This phrase is not ornamental

2. It places a substantive constitutional limitation on State taxation

3. Any State law exceeding this limit is invalid to that extent

A taxing statute cannot enlarge the constitutional field by redefining what qualifies as a taxable vehicle.

Interpreting Section 2(28) of the Motor Vehicles Act, 1988

The Court undertook a careful textual and purposive interpretation of Section 2(28).

Two Distinct Parts of the Definition

1. Inclusive Part – Covers mechanically propelled vehicles adapted for use on roads

2. Exclusionary Part – Expressly excludes special-type vehicles adapted only for factory or enclosed premises use

The Court held that:

1. The exclusion is deliberate and substantive

2. It must be given full legal effect

3. Treating it as incidental would render the exclusion meaningless

Key Judicial Observations

1. Capability Is Not the Same as Suitability

The Court made a crucial distinction:

A vehicle may be capable of movement, but that does not make it suitable for ordinary road use.

Design intent, certification, and actual use are decisive factors.

2. Actual Use Cannot Be Ignored

Where consistent evidence shows that machinery:

1. Is designed for off-road use

2. Is certified as such

3. Is actually confined to enclosed premises

…it cannot be artificially pulled into the tax net.

3. Warning Against Overbroad Interpretation

The Court cautioned that accepting the State’s argument would lead to absurd consequences, such as:

1. Military tanks being taxed as motor vehicles

2. Aircraft towing vehicles being treated as road vehicles

Such outcomes could never have been intended by the Constitution or Parliament.

Reliance on Landmark Precedents

Bolani Ores Ltd. v. State of Orissa

The Court reaffirmed the principle from Bolani Ores Ltd. v. State of Orissa:

1. “Adapted for use upon roads” means suitable for ordinary road use

2. Vehicles confined to enclosed premises are not taxable

Tarachand Logistic Solutions Ltd. v. State of Andhra Pradesh

In Tarachand Logistic Solutions Ltd. v. State of Andhra Pradesh, the Court had held that:

1. Where a vehicle does not operate in a public place

2. And does not benefit from public roads

…imposing motor vehicle tax is unjustified.

The present judgment builds directly on these settled principles.

The Final Decision of the Supreme Court

The Supreme Court allowed the appeals and held that:

1. Heavy construction and industrial machinery used only within factories or enclosed premises

2. Is excluded from the definition of “motor vehicle” under Section 2(28)

3. Is not liable for registration under Section 39 of the Motor Vehicles Act, 1988

4. Is not subject to motor vehicle tax under the Gujarat Motor Vehicles Tax Act, 1958, unless actually used on public roads

The judgment was delivered by:

1. Justice Pankaj Mithal

2. Justice Prasanna B. Varale

Practical Impact of the Judgment

1. Relief for Industries and Manufacturers

Industries involved in:

1. Cement

2. Mining

3. Infrastructure

4. Power generation

5. Heavy manufacturing

will benefit from significant cost savings and reduced compliance burdens.

2. Clear Compliance Framework

Companies should now focus on:

1. Maintaining manufacturer certificates

2. Documenting exclusive off-road use

3. Ensuring machinery does not operate on public roads

3. Limits on State Tax Powers

States cannot expand motor vehicle taxation beyond the constitutional boundary of road suitability.

What If Such Machinery Is Occasionally Used on Roads?

The Court clarified that actual use matters. If:

1. Machinery is regularly or substantially used on public roads

2. Or modified for road suitability

…it may attract registration and tax for that period.

Conclusion: A Constitutionally Sound and Industry-Friendly Ruling

The Supreme Court’s ruling in Ultratech Cement Ltd. v. State of Gujarat is a decisive reaffirmation of constitutional discipline in taxation. By holding that heavy machinery used exclusively within factories is not liable for road tax, the Court has:

1. Protected industries from arbitrary taxation

2. Clarified the scope of the Motor Vehicles Act

3. Reinforced the principle that taxation must align with constitutional authority and practical reality

For industries, compliance professionals, and policymakers alike, this judgment sets a clear, fair, and legally sound benchmark for the future.

Quick Case Reference

• Case Title: Ultratech Cement Ltd. v. State of Gujarat & Ors.

• Case No.: Civil Appeal Nos. 3352–3353 of 2017

• Court: Supreme Court of India

• Coram: Justice Pankaj Mithal & Justice Prasanna B. Varale

Receiving a legal notice can be unsettling. For many people and businesses, it raises immediate anxiety and a crucial question — “Is it compulsory to reply to a legal notice?”

In India, legal notices are a formal and well-recognised part of the legal process. They are usually sent before initiating court proceedings and act as a final opportunity to resolve disputes without litigation. While the law does not always make replying mandatory, ignoring a legal notice can have serious legal, financial, and reputational consequences.

What Is a Legal Notice?

A legal notice is a formal written communication sent by one party to another to notify them of a legal grievance, claim, or demand. It clearly states that if the issue is not resolved within a specified time, the sender may initiate legal proceedings.

In simple terms, a legal notice is a formal warning before approaching the court.

Purpose of a legal notice

A legal notice serves two important purposes:

First, it gives the recipient a fair opportunity to resolve the issue without going to court.

Second, it creates a written record showing that the sender attempted to settle the dispute legally and responsibly before litigation.

Courts often view the sending and replying to a legal notice as a sign of good faith and procedural fairness.

Common situations where legal notices are issued

Legal notices are commonly used in matters involving:

1. Property and land disputes

2. Cheque bounce cases

3. Recovery of money or outstanding dues

4. Breach of contract

5. Employment and service disputes

6. Consumer complaints

7. Family and matrimonial disputes

8. Tax and regulatory issues

Is It Compulsory to Reply to a Legal Notice?

The general legal position in India

No, replying to a legal notice is not legally mandatory in all cases.

There is no blanket provision under Indian law that requires a person to reply to every legal notice they receive. In many civil disputes, the recipient may legally choose not to respond.

However, this does not mean that ignoring a legal notice is safe or advisable.

Courts do not penalise a person merely for not replying to a notice, but silence can weaken the recipient’s legal position if the matter later reaches court.

Why ignoring a legal notice can be risky

Although non-reply is not always illegal, it may:

1. Be interpreted as indifference or lack of defence

2. Allow allegations to remain unchallenged

3. Strengthen the sender’s case at the initial stage

4. Reduce settlement opportunities

For this reason, legal professionals strongly recommend replying to most legal notices, even when the law does not expressly compel it.

When Replying to a Legal Notice Becomes Legally Mandatory

There are certain categories of legal notices where the law specifically requires a response within a fixed time. Ignoring such notices can lead to direct legal action, penalties, or loss of rights.

Cheque Bounce Notices Under the Negotiable Instruments Act

Under Section 138 of the Negotiable Instruments Act, 1881, cheque bounce cases follow a strict statutory process.

When a cheque is dishonoured by the bank, the payee must send a legal notice to the drawer within 30 days of receiving the return memo. Once the notice is received, the drawer gets 15 days to either:

1. Pay the cheque amount, or

2. Respond with a valid explanation or defence

If no payment or response is made within this period, the payee can initiate criminal proceedings.

The punishment in cheque bounce cases may include:

1. Imprisonment up to two years

2. Fine up to twice the cheque amount

3. Or both

In cheque bounce matters, replying to the notice is practically mandatory, as silence directly exposes the drawer to criminal liability.

Statutory and Government Notices

Legal notices issued by government departments or statutory authorities must be responded to within the prescribed time limits.

These include notices under:

1. Income Tax laws

2. GST laws

3. Customs and Excise laws

4. Municipal and development authority regulations

5. Regulatory bodies under the Companies Act

Failure to reply to such notices can result in:

1. Ex-parte assessment orders

2. Monetary penalties and interest

3. Attachment of bank accounts or property

4. Prosecution in serious cases

In statutory matters, non-reply is treated as non-compliance, making a response legally essential.

Insolvency and Bankruptcy Code Demand Notices

Under Section 8 of the Insolvency and Bankruptcy Code, 2016, an operational creditor may issue a demand notice for unpaid dues.

The debtor is required to respond within 10 days by:

1. Paying the claimed amount, or

2. Raising a legitimate dispute supported by evidence

If the debtor fails to respond, the creditor can approach the National Company Law Tribunal (NCLT) to initiate insolvency proceedings.

Once insolvency is admitted:

1. Management control may be taken away

2. A resolution professional may be appointed

3. Business operations may be severely affected

In IBC matters, failing to reply can have irreversible consequences.

Consumer Disputes

Under the Consumer Protection Act, 2019, replying to a consumer legal notice is not strictly mandatory, but it is highly advisable.

If a business or service provider ignores a consumer notice:

1. The consumer may approach the Consumer Commission

2. The commission may pass ex-parte orders

3. The business may lose the chance to explain or settle

A timely reply can often resolve the dispute before formal proceedings begin.

Employment and Service-Related Notices

In employment and service matters, legal notices often take the form of:

1. Show-cause notices

2. Disciplinary notices

3. Termination or suspension notices

Ignoring such notices can be interpreted as:

1. Acceptance of allegations

2. Lack of interest in defending oneself

Courts frequently rely on an employee’s reply (or lack thereof) while assessing fairness in termination or disciplinary actions.

Why Is It Advisable to Reply to a Legal Notice?

Even when the law does not make replying compulsory, sending a reply is considered a best legal practice.

Preventing Negative Legal Inference

Silence can create a negative impression. Courts may question why a party failed to deny allegations when given the opportunity. While silence is not proof of guilt, it can weaken the recipient’s position in the early stages of litigation.

Recording Your Defence Early

A legal notice reply allows the recipient to:

1. Deny false allegations

2. Clarify misunderstandings

3. Place their version of facts on record

This reply often becomes an important document if the dispute later reaches court.

Encouraging Settlement and Negotiation

Many legal notices are sent with the intention of avoiding litigation. A calm, well-reasoned reply can:

1. Open dialogue between parties

2. Reduce exaggerated claims

3. Lead to amicable settlement

This saves time, money, and stress.

Strengthening Your Legal Record

A properly drafted reply demonstrates:

1. Legal awareness

2. Good faith

3. Willingness to resolve disputes responsibly

Courts generally appreciate parties who attempt resolution before litigation.

Avoiding Escalation of Disputes

Ignoring a notice often escalates minor disputes into full-scale lawsuits. Responding early can prevent unnecessary legal battles and reputational harm.

How to Draft a Proper Reply to a Legal Notice

While anyone can technically send a reply, legal drafting requires precision. A poorly worded reply may cause more harm than good.

A professionally drafted reply generally includes:

Acknowledgment of the Notice

The reply should clearly reference:

1. Date of the notice

2. Name of the sender

3. Mode of receipt

This confirms that the notice has been received and considered.

Preliminary Objections

If the notice contains incorrect assumptions, false allegations, or lacks legal basis, preliminary objections may be raised without admitting any liability.

Reply on Merits

Each allegation should be addressed clearly:

1. Admitted facts should be stated carefully

2. False claims should be expressly denied

3. Ambiguous statements should be clarified

Statement of Facts

This section presents the recipient’s version of events in a logical and factual manner, supported by documents where necessary.

Legal Grounds

Relevant legal provisions, contractual clauses, or settled legal principles may be cited to support the defence.

Conclusion and Disclaimer

The reply usually concludes by:

1. Denying unwarranted claims

2. Reserving the right to take legal action

3. Indicating willingness to resolve the dispute, if applicable

Proper Mode of Sending the Reply

Replies should always be sent through a mode that provides proof of delivery, such as registered post or speed post. Copies should be sent to both the sender and their lawyer.

Consequences of Not Replying to a Legal Notice

Ignoring a legal notice may lead to several disadvantages.

Presumption of Admission

Courts may view silence as implied acceptance, especially in money recovery or contractual disputes.

Ex-Parte Proceedings

If litigation begins, courts may pass interim or ex-parte orders before hearing the non-responding party.

Loss of Early Defence Opportunity

A reply allows early recording of defence. Not replying delays and weakens your legal narrative.

Escalation of Legal Costs

What could have been resolved through correspondence may turn into lengthy litigation with higher costs.

Reputational Damage

In professional and business environments, ignoring legal communications can damage credibility and trust.

Immediate Legal Action in Statutory Cases

In cheque bounce, insolvency, and tax matters, non-reply directly enables the other party to initiate proceedings without further notice.

Final Conclusion

In India, replying to a legal notice is not always legally mandatory, but it is almost always legally prudent.

Certain notices — especially those under cheque bounce laws, insolvency proceedings, and statutory regulations — must be replied to within strict timelines.

In all other cases, a timely and well-drafted reply:

1. Protects legal rights

2. Strengthens defence

3. Prevents unnecessary litigation

4. Demonstrates professionalism and good faith

Silence may be permitted by law, but it rarely works in your favour.

If you receive a legal notice, treat it seriously and seek professional legal advice before responding. What you write — or fail to write — can significantly impact the outcome of your case.

When a person passes away, transferring their property or assets to their family members becomes a necessary legal process. However, this process is not always simple. The heirs of the deceased often need official documents to prove their legal right to inherit property or assets. One such important document is the Legal Heir Certificate.

A common and practical question arises — is a legal heir certificate mandatory for property transfer in India?
The answer is not always. It depends on several factors such as:

1. Whether the deceased left behind a will

2. The type of property involved

3. Whether the property is movable or immovable

4. Applicable state laws and local revenue rules

5. Whether there are disputes among heirs

This detailed guide explains the meaning, purpose, legal importance, and real-world applicability of a legal heir certificate, along with clear answers on when it is mandatory and when it is not.

Meaning of Legal Heir Certificate

A Legal Heir Certificate is an official document issued by a local government authority — usually the Tehsildar, Revenue Officer, or Municipal Corporation — that identifies the lawful heirs of a deceased person.

It establishes:

1. The relationship between the deceased and the surviving family members

2. The list of persons legally recognised as heirs

Importantly, a legal heir certificate:

1. Does not itself transfer ownership

2. Serves as prima facie evidence of succession

3. Is often used as a supporting document for property transfer, mutation, and claims

In simple terms, it answers the basic legal question:
“Who are the rightful heirs of the deceased?”

Purpose of Legal Heir Certificate

A legal heir certificate serves multiple legal and financial purposes in India:

Key Uses

• Property Transfer: Helps transfer houses, plots, land, or flats standing in the deceased’s name

• Mutation of Property Records: Required by municipal and revenue authorities

• Claiming Bank Accounts & Investments: Fixed deposits, savings accounts, shares

• Insurance & Pension Claims: Life insurance, family pension, government benefits

• Employment Benefits: Gratuity, provident fund, salary arrears

• Legal Proceedings: Evidence of heirship in property or succession disputes

In essence, it acts as an official bridge between death and lawful succession.

Who Can Apply for a Legal Heir Certificate?

Generally, the following close family members are recognised as legal heirs:

1. Spouse of the deceased

2. Children (sons and daughters, including adopted children)

3. Parents

4. Siblings (in the absence of spouse, children, or parents)

The final determination of heirs depends on the personal law applicable to the deceased (Hindu, Muslim, Christian, etc.), but the above categories are commonly included across states.

Procedure to Obtain a Legal Heir Certificate in India

The process is administrative and relatively straightforward.

Step 1: Application Submission

1. Apply at the Tehsildar / Revenue Office / Municipal Corporation

2. Many states also allow online applications through official portals

3. A prescribed application form must be filled carefully

Step 2: Required Documents

Commonly required documents include:

1. Death certificate of the deceased

2. Aadhaar / voter ID / passport of applicant

3. Proof of relationship (birth certificate, ration card, Aadhaar)

4. Address proof of the deceased

5. Affidavit declaring all legal heirs

6. Passport-size photographs

Step 3: Verification Process

1. Local verification by revenue officials

2. Statements from neighbours or village officers

3. Cross-checking of records to ensure no heir is omitted

Step 4: Issuance of Certificate

1. If satisfied, the authority issues the certificate

2. Timeframe usually ranges from 15 to 30 days

Importance of Legal Heir Certificate in Property Transfer

1. Establishing Legal Heirship

It officially identifies who is legally entitled to succeed the deceased’s property.

2. Requirement for Property Mutation

Municipal and land revenue departments generally insist on a legal heir certificate for mutation.

3. Legal Compliance

Banks, registrars, and government offices rely on this certificate to avoid illegal transfers.

4. Supporting Legal Proceedings

In disputes, courts treat it as strong supporting evidence of heirship.

When Is a Legal Heir Certificate Mandatory for Property Transfer?

1. Intestate Succession (No Will)

If the deceased died without a will, a legal heir certificate becomes essential to identify heirs.

2. Property Mutation and Land Records

Most revenue authorities require it to update ownership records.

3. Claiming Financial Assets

Banks and insurance companies routinely insist on this certificate.

4. Agricultural Land Transfer

In many states, transfer of agricultural land cannot proceed without it.

5. Court Proceedings and Disputes

Courts often direct parties to produce a legal heir certificate to establish standing.

When Is a Legal Heir Certificate Not Mandatory?

A legal heir certificate may not be required in the following situations:

1. Registered and valid will exists (probate may be required instead)

2. Joint ownership with survivorship clause

3. Nomination in housing society records

4. Registered family settlement deed

5. Succession certificate obtained for movable assets

Difference Between Legal Heir Certificate and Succession Certificate

Alternatives to a Legal Heir Certificate

1. Probate of Will

Court validation of a will, mandatory in some states.

2. Letter of Administration

Issued when there is no will but court intervention is required.

3. Registered Family Settlement Deed

A mutually agreed and registered distribution among heirs.

Types of Property and Transfer Rules

1. Self-Acquired Property

Transfer depends on will or legal heir certificate if intestate.

2. Ancestral Property

All heirs have rights by birth; certificate helps identify them.

3. Movable Assets

Often claimed using succession certificate.

4. Immovable Property

Usually requires legal heir certificate or probate.

5. Co-Ownership with Defined Shares

Deceased’s share must be transferred through legal process.

Challenges in Obtaining a Legal Heir Certificate

1. Family disputes

2. Omission of heirs

3. Bureaucratic delays

4. Objections during verification

5. Lack of awareness of procedure

Legal Framework Governing Succession in India

Succession in India is governed by personal laws, including:

1. Hindu succession law

2. Muslim personal law

3. Indian succession law for Christians and others

These laws determine who qualifies as a legal heir, while the legal heir certificate acts as administrative proof.

Tips to Avoid Legal Complications in Property Transfer

1. Make a registered will

2. Keep property records updated

3. Maintain clear family documentation

4. Opt for family settlements where possible

5. Seek professional legal advice in complex cases

Conclusion

A Legal Heir Certificate is not universally mandatory, but it is critically important in many real-life property transfer situations in India — especially when there is no will, when mutation is required, or when government or financial institutions are involved.

While alternatives like wills, probate, succession certificates, and family settlements may sometimes replace it, having a legal heir certificate often simplifies the process, prevents disputes, and ensures lawful transfer of property.

In inheritance matters, clarity today prevents conflict tomorrow — and a legal heir certificate remains one of the most practical tools to achieve that clarity.

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:

1. Electricity generated within India cannot be treated as “imported goods”

2. There was no charging event under Section 12 of the Customs Act

3. Delegated legislation under Section 25 (exemption notifications) cannot create a tax where none exists

4. Levying customs duty in this manner violated Article 265 of the Constitution, which mandates that tax must be authorised by law

5. 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:

1. Whether customs duty could legally be levied on electricity supplied from an SEZ to the DTA

2. Whether later notifications could revive a levy already declared illegal

3. Whether a citizen must repeatedly challenge successive notifications based on the same invalid legal foundation

4. 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:

1. Legal fictions must be strictly confined to the purpose for which they are created

2. 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:

1. Section 25 only grants power to exempt or modify existing duties

2. It cannot create a new levy

3. 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:

1. Imported electricity attracts nil customs duty

2. 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:

1. Courts do not function on “technical formalism”

2. A citizen cannot be compelled to repeatedly litigate against the same illegality clothed in different forms

3. 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:

1. Imported electricity (nil duty)

2. Domestically generated electricity supplied from SEZs

Final Decision and Directions

The Supreme Court:

1. Set aside the 2019 judgment of the Gujarat High Court

2. Allowed the appeal filed by Adani Power Limited

3. Declared that the customs duty levied on electricity supplied from SEZs to the DTA lacked authority of law

4. Directed the Union of India and customs authorities to refund the amounts collected, after verification, without interest

5. 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

1. Provides long-term tax certainty

2. Prevents retrospective or indirect levies

3. Reinforces investor confidence in SEZ policy

For Tax Administration

1. Reaffirms limits of delegated legislation

2. Emphasises constitutional compliance over revenue considerations

For Constitutional Jurisprudence

1. Strengthens the doctrine of precedent

2. Protects taxpayers from repetitive litigation

3. 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.