Unlawful Customs Levy Cannot Be Revived Through Executive Notifications: Supreme Court In Adani Power SEZ Case

The Supreme Court has held that the Union government cannot revive a customs duty levy that has already been declared unlawful by issuing subsequent or amended notifications imposing the same levy in a different form or at a different rate.

A Bench of Justice Aravind Kumar and Justice N.V. Anjaria allowed an appeal filed by Adani Power Limited and set aside a 2019 judgment of the Gujarat High Court, which had refused to grant refunds of customs duty paid on electricity supplied from a Special Economic Zone (SEZ) to the domestic tariff area (DTA).

Rejecting the government's attempt to sustain the levy through later notifications, the Court held that once a levy has been declared unlawful, the authorities are bound to give effect to that declaration.

It observed, “When a High Court of competent jurisdiction declares a levy to be ultra vires and unconstitutional, and this Court declines to interfere, that declaration cannot be treated as a one-time indulgence for a closed period. It is incumbent upon the authorities thereafter to conform their conduct to the law so declared. They cannot, consistent with constitutional discipline, continue to enforce the same levy for a later period on the strength of slightly altered subordinate instruments and then resist restitution on grounds of technical pleading.”

The dispute concerned whether customs duty could be levied on electrical energy generated at Adani Power's plant in the Mundra SEZ and supplied to buyers in the DTA.

In 2015, the Gujarat High Court had struck down a 16% customs duty imposed through a notification issued under the Customs Act. It held that electricity generated within India and supplied from an SEZ to the DTA did not constitute “imports” so as to attract customs duty. The Supreme Court declined to interfere with that ruling, allowing it to attain finality.

Despite this, the Union government continued to collect customs duty on such electricity for later periods under subsequent notifications prescribing lower, per-unit rates.

When Adani Power sought refunds of these later payments, the Gujarat High Court in 2019 declined relief, holding that the 2015 ruling was confined to the specific notification and period it had examined.

Reversing that view, the Supreme Court held that the 2015 judgment was not a limited or period-specific ruling. It was a declaration of law going to the very authority of the State to levy customs duty on electricity cleared from an SEZ to the DTA.

The court clarified that exemption notifications under the Customs Act cannot be used as instruments to impose a new tax and that subsequent notifications continuing the same levy rested on the same unlawful foundation.

It also ruled that a coordinate bench of the High Court was bound by the 2015 decision and could not narrow its effect without referring the issue to a larger bench.

Allowing the appeal, the Supreme Court set aside the 2019 Gujarat High Court judgment and directed the Union of India to refund the customs duty collected from Adani Power for the period between 16 September 2010 and 15 February 2016, without interest, after verification.

The court also restrained the authorities from enforcing any further demand of customs duty on such electricity for the period covered by the dispute.