The Supreme Court on Monday set aside the Gujarat High Court’s June 28, 2019 judgment by which it had denied relief to Adani Power on the levy of customs duty on electricity supplied from its SEZ unit in Mundra to the Domestic Tariff Area (DTA). [Adani Power v. Union of India]

A Bench of Justices Aravind Kumar and NV Anjaria held "We declare that the levy of customs duty on electrical energy cleared by the appellant from its SEZ unit to the DTA during the relevant period, as sought to be enforced through Notification No. 25/2010-Cus., Notification No. 91/2010-Cus., Notification No. 26/2012-Cus., and similar instruments, was without authority of law."

The Court was considering whether the Gujarat High Court was correct in limiting the effect of a 2015 ruling and in refusing to entertain Adani’s broader challenge to the post-2010 levy on SEZ power supplies.

Adani Power operates a large coal-based thermal power plant within the Mundra SEZ, where it functions as a co-developer. Electricity generated at the plant is supplied both within the SEZ and to distribution companies in Gujarat and other states. The controversy arose after changes in the Customs framework sought to impose a duty on electricity cleared from an SEZ to the DTA, even though electricity imported into India from abroad attracted no such levy.

In an earlier round of litigation, the Gujarat High Court in July 2015 struck down a part of the levy framework and held that Adani was entitled to exemption from customs duty on electricity supplied from the SEZ to the DTA for a limited period between June 2009 and September 2010. That decision was allowed to stand after the Supreme Court declined to interfere.

Following the 2015 judgment, the SEZ authorities took the position that Adani’s exemption was confined strictly to that limited period and that duty remained payable on electricity supplied thereafter. Challenging this stand, Adani returned to the Gujarat High Court in 2016, seeking a declaration that it had no liability to pay customs duty on SEZ-to-DTA electricity supplies even beyond the earlier period. It also sought an injunction against recovery and a refund of amounts already paid.

In its June 2019 decision, the Gujarat High Court rejected Adani’s plea. The Court held that the 2015 judgment had consciously restricted relief to a defined time window and that Adani could not, through a subsequent writ framed as a declaratory claim, obtain broader relief that had been sought but not granted earlier. The Bench also relied on the regulatory context after September 2010, noting that extending the exemption further could result in Adani enjoying a double benefit - where it would neither pay duty on inputs used to generate power nor on the electricity supplied to the DTA.

The High Court further held that Adani could not invalidate later levy regimes without directly challenging them and that exemptions applicable to electricity imported from specific foreign countries could not be claimed by a domestic SEZ generator.

The Supreme Court also held the Gujarat High Court’s 2019 decision was vitiated for breach of judicial discipline. It said that since the issue had already been decided by a coordinate Division Bench in 2015, the 2019 Bench could not have narrowed the earlier ruling on its own. If it doubted the correctness or applicability of the 2015 view, “the only permissible course” was to refer the matter to a larger Bench. By confining the 2015 judgment to a limited period without such a reference, the 2019 Bench “acted contrary to the settled doctrine of judicial discipline” and its approach was therefore impermissible.

Adani Power was represented by Senior Advocate P Chidambaram along with Advocates Mahesh Agarwal, Anshuman Srivastava, Rohan Talwar, Naman Agarwal and EC Agrawala.

The Union of India was represented by Additional Solicitor General Raghvendra P Shankar, along with Advocates Gurmeet Singh Makker, Sharath Nambiar, Diwakar Sharma, Satvika Thakur, B Sunita Rao and Ishaan Sharma.

[Read Judgment]