In a relief to Adani Power Limited, the Supreme Court on Monday (January 5, 2025) held that customs duty cannot be imposed on electricity supplied from a Special Economic Zone (SEZ) to the Domestic Tariff Area (DTA), setting aside a 2019 judgment of the Gujarat High Court and relieving the company of the levy on power generated at its Mundra plant.

A Bench comprising Justices Aravind Kumar and N.V. Anjaria ruled that the levy lacked statutory authority and that the State could not retain amounts collected under an invalid tax. Directing the jurisdictional Commissioner of Customs to verify the claim and issue refunds within eight weeks, the Court cautioned the authorities against raising “hyper-technical objections” that could frustrate the relief granted.

“Once a levy has been held to be beyond the authority of law, a constitutional court is not expected to remain a silent spectator while the very same levy is sought to be continued through successive or similar notifications. The jurisdiction of a constitutional court is remedial in nature and extends to ensuring that what has been declared unlawful is not brought back in another form,” the Bench held.

Adani Power operates a coal-based thermal power plant within the Mundra SEZ in Gujarat’s Kutch district, with an installed capacity of 4,620 MW. The plant supplies electricity under long-term power purchase agreements to distribution companies in Gujarat and Haryana, apart from meeting the power requirements of the SEZ.

The dispute traces its origins to February 2010, when the Centre amended customs rules to impose duty on electricity supplied from an SEZ to the DTA, while also seeking to apply the levy retrospectively from June 2009. In the first round of litigation, the Gujarat High Court in July 2015 had struck down a part of the levy framework and held that Adani Power was entitled to exemption from customs duty on SEZ-to-DTA electricity supplies for a limited period between June 2009 and September 2010. The Supreme Court had subsequently declined to interfere with that ruling.

Following the 2015 judgment, SEZ authorities took the position that the exemption recognised by the High Court was confined strictly to that defined window and that customs duty remained payable on electricity supplied thereafter. Challenging this interpretation, Adani approached the Gujarat High Court again in 2016, seeking a declaration that it had no liability to pay customs duty on SEZ-to-DTA electricity supplies beyond September 2010, along with a refund of the amounts already paid.

In its June 2019 judgment, the High Court rejected the plea, holding that the earlier ruling had consciously restricted relief to a specific period and that Adani could not subsequently secure broader relief that had not been granted earlier. The High Court also relied on the post-2010 regulatory framework, observing that extending the exemption could result in a double benefit, as Adani would neither pay duty on inputs used to generate power nor on the electricity supplied to the DTA. It further held that later levy regimes could not be invalidated without being independently challenged.

Reversing this view, the Supreme Court held that there was no factual distinction between the levy struck down in 2015 and the levy sought to be enforced thereafter for the period between September 16, 2010 and February 15, 2016.

“In our view, the High Court, in its judgment of 2019, fell into error in accepting the submission of the Union that the later notifications continued to operate merely because they were not specifically set aside in the decision of 2015. Once the levy itself had been held to be without authority of law, its continuance through subsequent notifications could not be sustained. The invalidity goes to the root and does not depend upon the form or sequence of the notifications,” the Bench said.

The Court further clarified that where a levy has already been declared unlawful, a subsequent petition seeking enforcement of that declaration and consequential relief cannot be treated as a fresh challenge merely because the levy is sought to be continued through later or similar notifications.

“We accordingly hold that where a levy has been declared to be without authority of law, a subsequent petition seeking enforcement of that declaration and consequential relief cannot be treated as a fresh challenge merely because the levy is sought to be continued under later or similar notifications. In the absence of any new statutory basis, such notifications do not create a new cause of action. A constitutional court is entitled to grant effective relief without insisting upon separate challenges to each such notification,” the ruling stipulated.