Supreme Court Ruling on SEZ Electricity Duty
In a significant decision for Adani Power Limited, the Supreme Court ruled on January 5, 2026, that customs duty on electricity supplied from Special Economic Zones (SEZs) to the Domestic Tariff Area (DTA) cannot be enforced. This ruling effectively overturned a 2019 judgment from the Gujarat High Court, which had upheld the imposition of such taxes on electricity produced at the Mundra plant in Gujarat.
The Supreme Court’s Bench, led by Justices Aravind Kumar and N.V. Anjaria, stated that the levy imposed on electricity from SEZs lacked statutory authority. Consequently, amounts collected under this invalid tax must be refunded, and the court directed the concerned Commissioner of Customs to process these refunds within eight weeks.
Background of the Dispute
The legal dispute began back in February 2010 when the Union Government amended customs regulations, requiring customs duties on electricity supplied from SEZs. This amendment was intended to be retroactive to June 2009, leading to substantial financial implications for companies like Adani Power, which operates a coal-based thermal power plant with an installed capacity of 4,620 MW located in Mundra, Kutch district.
Initially, the Gujarat High Court intervened in 2015, ruling that Adani Power was entitled to customs duty exemption for a specific period—between June 2009 to September 2010. The full extent of the customs duty obligation beyond this context remained a matter of contention.
Legal Proceedings and Court’s Reasoning
After the 2015 ruling, SEZ authorities adopted a stance that the exemption granted by the High Court was limited to defined timelines, which implied that customs duties were to be paid on electricity supplied post-September 2010. This prompted Adani Power to challenge this interpretation, leading to further litigation. In 2016, the company filed a petition with the Gujarat High Court, seeking clarity on its liability regarding customs duty for SEZ-to-DTA electricity beyond the exempted period.
However, the Gujarat High Court’s June 2019 decision denied the company’s request, asserting that the previous rulings did not extend the relief sought by Adani Power and maintained that later regulatory frameworks mandated the continued payment of customs duties.
The Supreme Court’s recent ruling countered this interpretation, asserting that the lawyers’ arguments suggesting continuity of subsequent notifications were invalid. The Bench indicated that the 2019 judgment from the High Court had erroneously accepted the government’s stance on the continuous imposition of duties merely because they had not been expressly revoked earlier.
Judicial Clarification and Future Implications
“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,” stated the court. By nullifying the later notifications that attempted to impose similar levies, the Supreme Court acknowledged that the invalidity of the original customs duty goes directly to its foundational legality.
The Supreme Court emphasized that when a levy has been deemed unlawful, any future petitions that confront the same levy—especially those under new notifications—should not be treated as separate legal challenges. This interpretation establishes a clear legal precedent, ensuring effective relief can be granted without requiring repetitive legal action against similar notifications.
Response from Adani Power and Industry Stakeholders
Following the ruling, Adani Power expressed relief and satisfaction with the court’s decision. A spokesperson for Adani Power remarked, “This ruling reinforces our position that the customs duties imposed on SEZ electricity lacked proper authority. We appreciate the Supreme Court’s clarity on this matter and are optimistic about the implications it carries for the industry as a whole.”
Industry analysts noted that the Supreme Court’s decision would not only benefit Adani Power but could set a precedent impacting other power companies operating within SEZs. They argued that a legal framework aligned with the original intention behind SEZs—namely, to encourage investment and economic activity—would stimulate growth in the sector.
Next Steps Following the Ruling
The ruling puts the onus on the jurisdictional Commissioner of Customs to expedite the refund process. The court warned against raising “hyper-technical objections” that could hinder the relief granted to Adani Power. Experts expect that the customs authorities will comply swiftly to mitigate further legal confrontations.
Legal observers also noted that this decision might lead to reviews of similar instances where customs and other duties have been imposed on power generation from SEZs. The Supreme Court’s comprehensive rationale could invite re-evaluation of existing duties imposed without appropriate statutory backing across various sectors.
Conclusion: Broader Implications for SEZ Operations
The Supreme Court’s decision marks a significant turning point in the legal landscape surrounding customs duties on electricity from SEZs. By asserting that improper levies cannot be sustained through successive notifications, the court has underscored fundamental principles of tax law and governance.
This ruling could also pave the way for policy reviews at the government level, ensuring that similar statutes governing SEZs will now align more closely with their intended economic benefits. Observers anticipate necessary discussions on how such changes could bolster investor confidence and promote a favorable investment environment in India.