No Customs Duty Without Clear Authority Of Law: Supreme Court Quashes Levy On SEZ Electricity Supplied To Domestic Tariff Area

“A delegate cannot do indirectly what it has no authority to do directly” – Supreme Court of India delivered a landmark ruling in Adani Power Ltd. & Anr. vs. Union of India & Ors., setting aside the Gujarat High Court’s 2019 judgment which had upheld the imposition of customs duty on electricity supplied from a Special Economic Zone (SEZ) to the Domestic Tariff Area (DTA) during the period 2010–2016. The Apex Court categorically held that the levy of customs duty on SEZ-generated electricity was ultra vires the Constitution and the statutory framework, and ordered a refund of the duty collected from the appellant during that period.

The Bench comprising Justice Aravind Kumar and Justice N.V. Anjaria emphatically ruled that the Government’s attempt to impose customs duty on electrical energy cleared from an SEZ to the DTA, without a valid charging provision, violated Section 12 of the Customs Act, 1962, Section 30 of the SEZ Act, 2005, and was in contravention of Articles 14 and 265 of the Constitution. The Court observed, “Finality of adjudication is an essential component of good governance. The repetition of an invalidated levy through successive notifications compels needless litigation, burdens the courts, and subjects citizens to prolonged uncertainty.”

Court Dismantles Colourable Use Of Delegated Power: "Exemption Power Is Not A Taxing Power"

The judgment originates from a long-standing fiscal controversy where Adani Power Ltd, a co-developer of the Mundra SEZ in Gujarat, had challenged the imposition of customs duty on the clearance of electricity to the DTA between 16 September 2010 and 15 February 2016. The dispute followed a 2015 ruling of the Gujarat High Court, which had already quashed an earlier levy of 16% ad valorem duty imposed through Notification No. 25/2010-Cus., holding it unconstitutional and without authority of law.

However, the Union of India continued to impose a revised duty of ₹0.10 and later ₹0.03 per unit through subsequent notifications (Nos. 91/2010-Cus. and 26/2012-Cus.), which Adani Power again contested. The Gujarat High Court in 2019 dismissed the company’s challenge, limiting the effect of its 2015 judgment only to the earlier notification.

The Supreme Court, taking strong exception to this approach, held that the 2015 judgment was not a fact-specific indulgence, but a binding declaration of law. “Its ratio decidendi covers the subsequent period unless a demonstrable change in the legal foundation is shown,” said the Court.

“What Could Not Be Done Directly, Cannot Be Done Indirectly”: Delegated Power Must Not Usurp Legislative Function

The Supreme Court’s decision turned decisively on the principle that delegated legislation cannot override or expand the scope of the parent statute, especially in matters of taxation. The Court noted that Section 25 of the Customs Act, which allows the Central Government to exempt goods from duty, was used in reverse to create a new duty under the guise of an exemption.

“This is a classic instance of a colourable exercise of delegated power. A delegate cannot use an exemption notification to create a duty where none exists,” the Court said, reinforcing its position that charging provisions must come directly from legislation, not by administrative fiat.

The Court also rejected the Union’s argument that SEZ-generated electricity attracted duty due to the deemed import provision in Section 30 of the SEZ Act. The Court clarified that Section 30 only prescribes parity with actual imports, and since imported electricity bore zero customs duty, SEZ electricity must also be treated at par. “Section 30 does not create a new customs levy; it mandates parity in treatment,” the judgment clarified.

Co-ordinate Benches Cannot Depart From Binding Precedent: High Court's 2019 Ruling Flawed

In a significant reaffirmation of judicial discipline and the doctrine of stare decisis, the Supreme Court criticized the Gujarat High Court’s 2019 Division Bench for failing to follow the binding precedent of its own co-ordinate Bench’s 2015 decision.

“The discipline of precedent is not a matter of personal predilection; it is an institutional necessity,” the Court warned. It held that a co-ordinate Bench is bound to follow earlier decisions, or must refer the matter to a larger Bench if it disagrees. “The law cannot change with the change of the Bench,” the judgment stated, invoking State of Uttar Pradesh v. Ajay Kumar Sharma (2016) 15 SCC 289 to reinforce the principle.

Refund Ordered For Unlawful Levy, Without Interest – “No Hyper-Technical Objections” To Be Raised

The Court further directed the customs authorities to refund the amount collected between 16 September 2010 and 15 February 2016, which had been paid under protest by the appellant. The refund is to be processed within 8 weeks, and no interest is to be paid.

“Authorities shall not raise hyper-technical objections so as to defeat the substance of this direction,” the Court ordered, emphasizing that procedural technicalities cannot defeat substantive relief, especially where the levy itself has been held unconstitutional.

The Court also declared that no further demand shall be enforced against the appellant in respect of customs duty for that period, firmly closing the chapter on the controversial levy.

Constitutional Supremacy Reaffirmed: Taxation Without Legal Authority Cannot Stand

In conclusion, the Supreme Court reaffirmed a bedrock principle of constitutional governance: no tax shall be levied or collected except by authority of law. The judgment is a resounding affirmation of constitutional discipline, the limits of delegated power, and the finality of judicial declarations.

“The State must exemplify obedience to judgments, not resistance to them,” the Court declared, underlining that once a levy is held invalid, the State cannot continue to enforce it through administrative re-engineering.

This ruling is not only significant for SEZ operators and the energy sector, but it also sends a broader message on fiscal federalism, judicial compliance, and administrative accountability.

Date of Decision: January 5, 2026