SC orders refund of customs duty to Adani Power for SEZ electricity supplies

The Supreme Court of India has allowed an appeal by Adani Power Limited, holding that the levy of customs duty on electricity supplied from its Special Economic Zone (SEZ) plant to the Domestic Tariff Area (DTA) lacked legal authority. The Court has directed the Union of India to refund the duties collected between 16 September 2010 and 15 February 2016.

The case relates to customs duty imposed on electricity supplied from Adani Power’s around 5,200 MW coal-based power plant located in the Mundra Special Economic Zone (SEZ) in Gujarat to the Domestic Tariff Area (DTA). The controversy arose from a series of government notifications. Notification No. 25/2010-Cus. dated 27 February 2010 imposed a 16 per cent ad valorem duty retrospectively from 26 June 2009. Notification No. 91/2010-Cus. dated 16 September 2010 replaced this with a specific rate of Rs 0.10 per unit. Notification No. 26/2012-Cus. dated 18 April 2012 reduced the duty to Rs 0.03 per unit. Notification No. 9/2016-Cus. dated 16 February 2016 finally granted exemption for such electricity supplied from large SEZ power plants.

Adani Power challenged the original 16 per cent levy. On 15 July 2015, the Gujarat High Court struck down Notification No. 25/2010-Cus., terming the levy ultra vires. The Supreme Court declined to interfere with this judgment in November 2015. Later, Adani Power sought refunds for the period after 15 September 2010 when duty was collected at Rs 0.10 per unit and Rs 0.03 per unit. However, the Gujarat High Court in its 28 June 2019 judgment refused the refund, holding that the earlier decision applied only to the earlier period and notification. Adani Power then appealed this 2019 ruling.

A Bench of Justices Aravind Kumar and N.V. Anjaria has now set aside the 2019 Gujarat High Court ruling. The Supreme Court held that the 2015 Gujarat High Court judgment was a general declaration of law and not restricted to a single notification or time period. It ruled that electricity supplied from an SEZ to the DTA did not attract customs duty because there was no valid taxable event of import into India. The Court found no change in the legal position between the earlier period and the period from 16 September 2010 to 15 February 2016. It stated that changing the rate of duty did not cure the absence of legal authority to levy it.

The Court also rejected the contention that each later notification required a separate legal challenge. It observed that once a levy is declared illegal, constitutional courts can grant relief against its continuation without repetitive litigation. It further noted that the Gujarat High Court Bench in 2019, being a coordinate Bench, should have followed the 2015 decision or referred the matter to a larger Bench.

The Supreme Court has directed the Union of India and the concerned customs authorities to verify and refund the customs duty collected from Adani Power for electricity supplied from the SEZ to the DTA during the period from 16 September 2010 to 15 February 2016. The refund will not carry interest. The jurisdictional Commissioner of Customs has been asked to complete this exercise within eight weeks. No further customs duty demands for this period will be enforced. The Court clarified that its ruling is confined to the legal framework relevant to the disputed period and does not comment on any future regime.

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