Introduction

The Supreme Court's landmark judgment on January 5, 2026, in Adani Power Ltd. & Anr. v. Union of India & Ors. represents a pivotal moment in Indian customs and SEZ law. This ruling clarifies whether customs duty can be imposed on electricity supplied from a Special Economic Zone (SEZ) to the Domestic Tariff Area (DTA) without a clear statutory charging provision under the Customs Act, 1962. The decision holds significant implications for SEZ-based power producers, executive taxation powers, and judicial precedent in India.

In this case, the Hon'ble Supreme Court examined the legality of customs duty levied on electrical energy supplied from an SEZ to the DTA. It held that such duties, imposed through exemption notifications, lack statutory authority, violate constitutional principles of equality under Article 14, and contravene Article 265, which mandates that no tax shall be levied without authority of law. The Court emphasized that the government cannot create tax liabilities via executive notifications and provided clarity on customs duty applicability in SEZ-to-DTA transactions.

Background of the Case

Adani Power Limited operates a coal-based thermal power plant with approximately 5,200 MW capacity within the Mundra SEZ in Gujarat. As a co-developer in this notified SEZ, the company supplies electricity partly within the SEZ and substantially to buyers in the DTA, including state utilities.

In 2010, the Central Government attempted to impose a 16% ad valorem customs duty on electrical energy cleared from SEZs to the DTA through Notification No. 25/2010-Cus., issued under Section 25 of the Customs Act, 1962. Notably, imported electrical energy attracted no customs duty at the time. Adani Power challenged this levy before the Gujarat High Court, arguing that SEZ-generated electricity cannot be treated as an "import into India."

In its 2015 judgment, the Gujarat High Court struck down the levy as ultra vires, holding that the exemption power under Section 25 could not be used to impose a new tax. Despite this, authorities continued demanding duty under subsequent notifications with revised rates (ten paise per unit via Notification No. 91/2010-Cus. and three paise per unit via Notification No. 26/2012-Cus.). The High Court, in its June 28, 2019, judgment, declined to grant refunds, reasoning that these later notifications were not specifically challenged. Aggrieved, Adani Power appealed to the Supreme Court, leading to the 2026 decision.

Key Legal Questions Addressed

The Supreme Court framed and resolved the following core issues:

1. What was the true scope and effect of the Gujarat High Court's 2015 judgment declaring the customs duty levy ultra vires?
2. Was there any material change in statutory provisions or facts between September 15, 2010, and February 15, 2016, justifying a different outcome from the 2015 ruling?
3. Could relief be denied due to the absence of a specific challenge to subsequent notifications (Nos. 91/2010-Cus. and 26/2012-Cus.)?
4. Was a coordinate Bench of the High Court empowered to limit the scope of the 2015 binding precedent without referring it to a larger Bench?
5. What appropriate directions or relief should be granted?

Contentions of the Parties

Appellant's Arguments (Adani Power Ltd.)

Led by Senior Counsel Shri P. Chidambaram, the appellant argued that electricity generated in an SEZ does not constitute an "import into India" under Section 12 of the Customs Act, 1962. They contended that an SEZ is not foreign territory, and Section 30 of the SEZ Act, 2005, merely ensures duty parity without creating a new charging provision. The power under Section 25 of the Customs Act is limited to exemptions and cannot impose fresh tax liabilities. Since the 2015 High Court judgment declared the levy ultra vires, subsequent notifications could not revive the same illegality merely by altering rates or applying prospectively.

Respondents' Arguments (Union of India)

Represented by Additional Solicitor General Shri Raghav Shankar, the respondents claimed the 2015 judgment was limited to Notification No. 25/2010-Cus. and the period up to September 15, 2010. They argued that later notifications with lower, specific rates were independent fiscal measures and could not be struck down without direct challenges. Refunds, they asserted, could not be granted absent such impugnment.

Supreme Court's Reasoning and Decision

The Supreme Court, in a detailed analysis, held that customs duty can only be levied under a clear charging provision like Section 12 of the Customs Act, 1962. It observed that an SEZ is not foreign territory, and supplying electricity from an SEZ to the DTA does not constitute an "import into India." Section 30 of the SEZ Act, 2005, ensures parity in duty treatment but does not create an independent charge.

The Court further ruled that the power under Section 25 of the Customs Act is confined to granting exemptions and cannot impose levies. Notifications attempting this are a colorable exercise of delegated legislation and violate Article 265 of the Constitution. Once a levy is declared unlawful, it cannot be revived via subsequent notifications with revised rates.

Accordingly, the Supreme Court allowed the appeal, set aside the Gujarat High Court's June 28, 2019, judgment, and declared the customs duty levy on SEZ-to-DTA electricity clearances ultra vires. It directed the refund of amounts collected for the period from September 16, 2010, to February 15, 2016, without interest, to be processed within eight weeks after verification.

Critical Analysis and Implications

This judgment reaffirms the constitutional principle that taxes cannot be levied arbitrarily and must stem from clear legislative authority. By curbing the misuse of exemption notifications, the Supreme Court limits executive overreach in delegated legislation. It also emphasizes judicial consistency, stating that coordinate Benches cannot narrow prior binding precedents without referral to a larger Bench.

The ruling restricts the government's flexibility to impose duties on SEZ operations via executive actions, particularly in energy sectors. It clarifies that SEZ-to-DTA supplies do not constitute "imports," and future duties would require explicit parliamentary amendments. Administratively, this decision impacts pending refund claims and disputes involving SEZ-to-DTA transactions, prompting authorities to realign their policies.

For businesses in SEZs, especially power generators, it provides fiscal relief and certainty, potentially reducing costs and encouraging investments. However, it underscores the need for robust statutory frameworks to balance revenue goals with economic incentives.

Conclusion

In Adani Power Ltd. v. Union of India, the Hon'ble Supreme Court reinforced constitutional discipline in fiscal matters by ruling that no taxes can be imposed without explicit legislative authority. The judgment strengthens judicial consistency, ensuring that once a levy is declared illegal, similarly situated parties cannot be denied relief. Overall, this ruling offer clarity in the SEZ framework, promotes adherence to the rule of law in tax administration, and serves as a precedent for challenging unauthorized executive levies in India.