The Supreme Court has allowed an appeal by Adani Power against a judgment of the Gujarat High Court that had denied broader relief in relation to the levy of customs duty on electricity supplied from its Special Economic Zone unit in Mundra to the Domestic Tariff Area. The Supreme Court set aside the 2019 Gujarat High Court ruling, which had held that Adani Power could not extend the benefit of a limited duty exemption granted for the period between June 2009 and September 2010 to subsequent years and had refused to entertain a wider challenge to the post-2010 customs duty regime. The controversy centres on whether customs duty is payable on electricity generated within an SEZ and cleared or supplied to distribution companies outside the SEZ, and on the scope of duty exemptions under the Special Economic Zones Act and related customs notifications. These issues had arisen after a sequence of changes in customs notifications that impacted the duty treatment of electrical energy supplied from SEZ units to the Domestic Tariff Area.
In an earlier round of litigation, the Gujarat High Court had struck down part of the levy framework and held that Adani Power was entitled to exemption from customs duty on electricity supplied from the SEZ to the DTA for the limited period specified in the 2015 judgment, but had declined to extend that relief to later years. When Adani Power returned to the High Court in 2016 seeking a declaration of no liability to pay customs duty for supplies beyond that period, the High Court in 2019 rejected the plea on the basis that the earlier judgment had consciously confined relief to a defined period and that Adani could not, through a subsequent writ framed as a declaratory claim, obtain broader relief that had not been granted earlier. The High Court also observed that extending the exemption could result in a situation where Adani Power enjoyed a double benefit by neither paying duty on inputs used to generate power nor on electricity supplied to the DTA, and that exemptions applicable to electricity imported from specific foreign sources could not be claimed by a domestic SEZ generator.
The Supreme Court’s recent order stayed the Gujarat High Court’s 2019 judgment and allowed the appeal filed by Adani Power. The apex court’s decision indicates that the High Court’s restrictive approach in limiting the period of exemption and refusing to entertain broader challenges to the customs duty regime was unsustainable. In allowing the appeal, the Supreme Court has effectively reopened the question of the proper legal interpretation of the statutory and regulatory framework governing customs duty on supplies from SEZs to the Domestic Tariff Area and the entitlements of SEZ developers under the Customs Act and the Special Economic Zones Act. The detailed reasoning of the Supreme Court is awaited, but the interim outcome represents a significant development in the long-running dispute over the levy of customs duty on SEZ electricity supplies and the scope of exemptions available to SEZ units.
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