Can an exemption notification under Section 25 Customs Act be used to impose customs duty on SEZ–DTA electricity?

Summary

Practical Impact

What’s New / What Lawyers Should Note

• The power to exempt under Section 25 Customs Act cannot be recast as a duty-creating power; using exemption notifications to impose duty is ultra vires.
• Section 30 SEZ Act’s parity clause mandates that if imported electricity is nil-rated, SEZ-to-DTA electricity must also attract nil duty.
• Coordinate benches are bound by prior Division Bench rulings on the same legal questions or must refer to a larger Bench.
• No fresh challenge is required for subsequent notifications that perpetuate an already invalidated levy.
• Once a levy is finally declared ultra vires, the executive must implement the judgment; repeated enforcement under new notifications is impermissible.

Summary of Legal Reasoning

1. No Charging Event: Section 12 Customs Act levies duty only on goods “imported into India”; SEZ-to-DTA electricity is not an import.
2. Limits of Exemption Power: Section 25 authorizes exemption, not creation, of duty; Notification 25/2010-Cus was a colourable exercise imposing a fresh levy.
3. Constitutional Constraint: Retrospective imposition without a parliamentary charging provision violates Article 265.
4. Parity Principle: Section 30 SEZ Act requires that SEZ clearances bear the same duty as imports; imported electricity was nil-rated, so SEZ electricity must be nil-rated.
5. Stare Decisis: The 2015 HC ruling, affirmed by this Court, is binding on co-ordinate benches (per State of U.P. v. Ajay Kumar Sharma).
6. No Material Change: Subsequent notifications merely altered the rate and period; the underlying ultra vires basis remained unchanged.
7. Executive Obligation: Once a levy is declared unlawful, the authorities must cease enforcement and refund amounts collected under protest.

Arguments by the Parties

Petitioner (Adani Power Ltd.)

• The 15 July 2015 HC decision conclusively held no customs duty can be levied on SEZ-to-DTA electricity.
• Section 30 SEZ Act parity requires nil duty if imports are nil-rated; the levy violates Article 14.
• Section 25 exemptions cannot introduce a levy; successive notifications cannot cure a fundamentally unauthorised levy.
• No legal or factual change occurred between Sept 2010 and Feb 2016; the same principle applies.
• Litigation must end; once a levy is declared ultra vires, no fresh challenge is needed to maintain the benefit.

Respondent (Union of India & Customs Authorities)

• The 2015 decision was confined to Notification 25/2010-Cus and the period up to 15 Sept 2010.
• Notifications 91/2010-Cus and 26/2012-Cus are distinct fiscal measures with specific rates, not covered by the 2015 ruling.
• Those later notifications were not formally challenged in 2015 or 2016 petitions.
• The per-unit duties were paid without protest; belated refund claims are unsustainable.
• Notification 9/2016-Cus granted nil rate from Feb 2016, addressing future liability.

Factual Background

The appellant operates a 5,200 MW coal-based power plant in the Mundra SEZ (Gujarat), supplying electricity partly within the SEZ and substantially to the Domestic Tariff Area (DTA). In 2010, Notification 25/2010-Cus retrospectively imposed a 16% customs duty on SEZ-to-DTA electricity, later replaced by Notifications 91/2010-Cus (₹0.10/unit) and 26/2012-Cus (₹0.03/unit) applied prospectively. The Gujarat High Court in July 2015 quashed the retrospective levy and related provisions as ultra vires, and this Court declined review. A fresh writ in 2016 sought extension of that declaration and refund of duties paid up to Feb 2016; the HC in June 2019 confined relief to the 2015 period and dismissed the petition, leading to this appeal.

Statutory Analysis

• Section 12, Customs Act, 1962: Levies duty only on goods “imported into India”; no chargeable event for domestic SEZ clearances of electricity.
• Section 25, Customs Act, 1962: Empowers the Central Government to exempt goods from duty; does not authorize the creation of new duties.
• Section 30, SEZ Act, 2005: Mandates that goods removed from an SEZ to the DTA be chargeable to customs duties “as if imported”; imported electricity was nil-rated, so SEZ electricity must likewise be nil-rated.
• Rule 47(3), SEZ Rules, 2006: Neutralises duty relief on inputs when electricity leaves the SEZ; additional customs duty on the output constitutes double counting.

Alert Indicators

• 🚨 Breaking Precedent – Gujarat High Court’s 28 June 2019 decision overruled
• ✔ Precedent Followed – Gujarat High Court’s 15 July 2015 judgment; State of U.P. v. Ajay Kumar Sharma (2016) 15 SCC 289