The Supreme Court ruled that electricity supplied from an SEZ to the DTA is not liable to customs duty, granting major relief to Adani Power and reaffirming that judicial discipline and settled law cannot change with different benches.
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NEW DELHI: In a landmark judgment delivered on 5 January 2026, the Supreme Court of India has held that no customs duty is leviable on electricity generated in a Special Economic Zone (SEZ) and supplied to the Domestic Tariff Area (DTA).
The Bench comprising Justice Aravind Kumar and Justice N.V. Anjaria set aside a 2019 judgment of the Gujarat High Court and granted customs duty exemption to Adani Power Ltd. on electricity supplied from its SEZ in Gujarat to the DTA.
The bench held that the Gujarat High Court violated judicial discipline by failing to follow a binding coordinate bench decision of 2015, which had already struck down the levy of customs duty on SEZ-to-DTA electricity as ultra vires and unconstitutional. The Court ruled that the levy lacked “authority of law” and violated the constitutional limits on taxation.
“The discipline of precedent is not a matter of personal predilection; it is an institutional necessity. The law cannot change with the change of the Bench,”
the Court observed.
Background: SEZ Electricity and Customs Duty Dispute
Adani Power operates a 5,200 MW power plant in the Mundra SEZ, Gujarat. While electricity generated in the SEZ was partly consumed within the zone, a substantial portion was supplied to buyers in the DTA.
Under Section 30 of the SEZ Act, 2005, goods cleared from an SEZ to the DTA are chargeable to customs duty “as if imported into India.” However, imported electricity attracts nil customs duty, a parity that became central to the dispute.
In 2010, the Union Government sought to impose customs duty on electricity supplied from SEZs to the DTA through Notification No. 25/2010-Cus., issued between 2009 and 2016, followed by later notifications prescribing per-unit duties.
2015 Gujarat High Court Ruling: Levy Declared Ultra Vires
In 2015, a Division Bench of the Gujarat High Court ruled in favour of Adani Power and held that customs duty could not be levied on SEZ-to-DTA electricity.
The Court found that:
- Electricity generated within India and supplied from an SEZ to the DTA is not an “import” under Section 12 of the Customs Act, 1962
- Section 25 of the Customs Act, which empowers the Government to grant exemptions, cannot be used to impose a tax
- Retrospective imposition of duty violated Article 265 of the Constitution
- The levy resulted in double taxation, as duty-free inputs were already neutralised under Rule 47(3) of the SEZ Rules
This ruling was challenged by the Union of India, but the Supreme Court declined to interfere, giving finality to the declaration of law.
2019 Gujarat High Court Judgment: A Coordinate Bench Error
Despite the 2015 judgment, customs authorities continued collecting duty under later notifications prescribing lower rates of ₹0.10 per unit and ₹0.03 per unit.
When Adani Power sought a refund for the period 2010–2016, a coordinate bench of the Gujarat High Court in 2019 declined to extend the benefit of the 2015 ruling to later periods and notifications, stating that those notifications had not been specifically challenged.
Adani Power challenged this decision before the Supreme Court.
Supreme Court Verdict: Stare Decisis Reaffirmed
Setting aside the 2019 judgment, the Supreme Court ruled decisively in favour of Adani Power.
Binding Effect of Coordinate Bench Decisions
Once a coordinate bench settles a question of law, a later bench must follow it or refer the matter to a larger bench. Citing State of Uttar Pradesh v. Ajay Kumar Sharma (2016) 15 SCC 289, the Court ruled:
“What it cannot do is to sidestep or whittle down the earlier pronouncement by confining it artificially.”
No Change in Law or Facts
The Court found no material change in the statutory framework between 2010 and 2016 that could justify a different outcome.
Exemption Notifications Cannot Create a Levy
The Court reiterated that Section 25 of the Customs Act only permits exemptions and cannot be used as a charging mechanism.
Restitution Is Mandatory
Once a levy is declared unconstitutional, the State cannot retain amounts collected under it.
Final Directions
The Supreme Court:
- Set aside the Gujarat High Court’s 2019 judgment
- Directed the refund of customs duty paid by Adani Power for the period 16 September 2010 to 15 February 2016 (without interest)
- Ordered the refund process to be completed within eight weeks
- Prohibited any further customs duty demand for the relevant period
Case Title:
ADANI POWER LTD. & ANR VERSUS UNION OF INDIA & ORS.
Special Leave Petition (Civil) No.24729/2019
READ JUDGMENT
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