New Delhi, January 5, 2026, 4:00 p.m. IST
In a landmark ruling that reshapes the taxation framework for power producers operating within Special Economic Zones (SEZs), the Supreme Court has upheld Adani Power Limited’s (APL) claim for exemption from customs duty on electricity supplied from its Mundra SEZ unit to the domestic tariff area (DTA).
A bench comprising Justices Aravind Kumar and N.V. Anjaria overturned a 2019 Gujarat High Court order that had denied the benefit, declaring that the levy of customs duty on electricity was “without authority of law.”
The apex court directed customs authorities to verify APL’s claims and issue refunds within eight weeks.
Background of the Dispute
The controversy dates back to 2010, when the central government imposed a retrospective customs duty on electricity generated in SEZs and sold in the domestic market, effective from June 26, 2009.
Adani Power challenged the levy before the Gujarat High Court, arguing that it amounted to double taxation since customs duty was already paid on imported coal used for power generation.
In July 2015, the High Court sided with Adani Power, striking down the retrospective levy as unconstitutional and arbitrary, and granting exemption for the period between 2009 and 2010.
Despite this, SEZ authorities continued to demand duty for subsequent years, prompting APL to file another petition in 2016 seeking broader relief.
In June 2019, a division bench of the High Court dismissed the plea, holding that each notification had to be challenged separately. This decision led to APL’s appeal before the Supreme Court.
Supreme Court’s Reasoning
The Supreme Court rejected the High Court’s 2019 stance, clarifying that the 2015 judgment was not limited to a specific timeframe but addressed the fundamental legality of imposing customs duty on electricity.
The bench noted that electricity, by its very nature, does not fall within the taxable ambit of the Customs Act, 1962 or the SEZ Act, 2005.
Section 12 of the Customs Act does not authorize duty on electricity, while Articles 14 and 265 of the Constitution prohibit taxation without a valid legal basis.
Notifications issued in 2010 and 2012 were deemed mere modifications of rates, not fresh charging provisions, meaning the earlier reasoning remained binding.
The Court emphasized that requiring separate petitions for each notification was untenable, and faulted the 2019 division bench for disregarding the coordinate bench’s 2015 ruling or referring the matter to a larger bench.
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Implications for SEZ Developers and Power Producers
This judgment provides long‑awaited clarity on indirect taxation for SEZ‑based power generation units.
Legal experts highlight that electricity cannot be treated as a “good” under customs law, given its intangible and non‑storable nature.
For the Adani Group, the ruling delivers both financial relief and validation of its long‑standing position that retrospective duties on SEZ power generation lack constitutional support.
The Union government has been instructed to complete verification and refund procedures within two months, bringing closure to a dispute that has stretched over 15 years.
