The Supreme Court has relieved Adani Power Limited (appellant) of the levy on power generated at its Mundra plant, and ruled that the customs duty cannot be imposed on electricity supplied from a Special Economic Zone (SEZ) to the Domestic Tariff Area (DTA). Essentially, the Apex Court negated the levy of customs duty on electrical energy cleared from the thermal power plant to the DTA, in the absence of any lawful charging event under Section 12 of the Customs Act.
The Court clarified that the electrical energy generated within India and wheeled into the Domestic Tariff Area is not an incidence of import into India. If, on actual import, electrical energy attracts no customs duty, then, by force of Section 30 of the SEZ Act, no customs duty must follow for SEZ clearances of electrical energy.
The Court also explained that Section 25 of the Customs Act confers the power to exempt, and using it as an instrument of levy transgresses the limits of delegated legislation and amounts to the usurpation of legislative function. Once the court of competent jurisdiction has struck down the foundation of the levy as ultra vires, that declaration renders all successive and derivative attempts to enforce the same levy equally unenforceable. Thus, the Executive cannot, by subordinate instrument, enlarge the field of taxation under the pretext of tailoring an exemption.
A Two-Judge Bench comprising Justice Aravind Kumar and Justice N.V. Anjaria observed that the 2015 judgment of the Gujarat High Court was not confined, in principle, to a single notification or to a particular cut-off date. Rather, the declaration of law extended to the very authority to levy customs duty on electrical energy cleared from an SEZ to the DTA in the statutory setting then prevailing.
Emphasising that the function of an exemption notification is to relax or remit a duty already otherwise attracted by law, the Bench pointed out that what Notification No. 25/2010-Cus. did, however, was precisely the reverse, and it purported to declare, for the first time, that electrical energy cleared from an SEZ to the DTA would be subjected to customs duty at the rate of 16% ad valorem. The Bench said that this instrument was dressed in the garb of an exemption, but its true operation was to create a duty where none existed, to quantify that duty, and to apply it retrospectively, and called it a classic instance of a colourable exercise of delegated power.
The Bench went on to observe that the High Court in 2015 correctly detected that inversion: a provision designed to grant relief (exemption) had been inverted to impose a burden (levy), and such inversion is not a mere irregularity; it is an illegality at source. Further, the deeming fiction of Section 30 of the SEZ Act is intended to align duty treatment, not to expand the scope of the charging section beyond what Parliament has enacted. Section 30 of the SEZ Act does not create a new customs levy. It only says that if (and to the extent that) such goods would have attracted customs duty had they physically crossed the border, then the same incidence will apply when those goods move from the SEZ to the DTA.
The Bench found 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, were without the authority of law.
Accordingly, the Bench directed the jurisdictional customs authorities to refund to the appellant such amount that has been deposited in cash or through encashment of security or otherwise under protest by the appellant, towards customs duty on the clearance of electrical energy from the SEZ unit into the DTA for the period in question.
Briefly, the appellant is operating a coal-based thermal power plant within the Mundra Special Economic Zone (SEZ) in the State of Gujarat, and the electricity generated at this plant is partly consumed within the SEZ and substantially supplied to buyers in the DTA, including State utilities. Before 2009, electrical energy per se did not attract customs duty on import, and the relevant tariff entry treated imported electricity at a nil rate. In consequence, though Section 30 of the SEZ Act deems removals from the SEZ into the DTA to be subject to customs duty “as if imported”, electrical energy moving from an SEZ to the DTA bore, in practical terms, no customs duty.
Matters changed in 2010, when the Central Government introduced a fiscal measure designed to impose customs duty on electrical energy cleared from an SEZ to the DTA, and issued Notification No. 25/2010-Cus, which stipulated that electrical energy cleared from an SEZ to the DTA would suffer customs duty at 16% ad valorem, with retrospective effect from 26 June 2009. On the very footing of this notification, the authorities raised demands upon the appellant for payment of duty at 16%, not merely prospectively but going back to June 2009.
The matter reached the High Court of Gujarat, which found that electrical energy generated within India in an SEZ and wheeled to buyers in the DTA is not, in substance, a case of “import into India”. The High Court opined that the legal fiction in Section 30 of the SEZ Act (“as if imported”) allows ascertainment of the rate of duty applicable to comparable imports; it does not convert intra-national supply of electricity into an act of import. The High Court also clarified that Section 25 of the Customs Act is a power to relax, not a power to create or levy tax, and thus, the Union could not, under the colour of exercising an exemption power, introduce a new levy at 16% ad valorem and then apply it retrospectively.
The High Court in 2015, therefore, struck down the levy of customs duty on electrical energy cleared by the appellant from its SEZ unit into the DTA for the period 26 June 2009 to 15 September 2010. As the appellant had paid per-unit customs duty at ten paise and three paise pursuant to Notification Nos. 91/2010-Cus. and 26/2012-Cus. respectively, the appellant sought a refund of those amounts, contending that once the High Court had declared that no customs duty could be imposed on SEZ–to–DTA electricity clearances, any amount collected under the same head, though at a different rate and prospectively, was liable to be refunded. The High Court, however, refused to direct a refund and declined to extend the protective declaration of 2015 into the later period.
Appearances:
Senior Advocate P. Chidambaram, and AOR E.C. Agrawala, along with Advocates Mahesh Agarwal, Anshuman Srivastava, Rohan Talwar, and Naman Agarwal, for the Appellant
ASG Raghvendra P. Shankar, and AOR Gurmeet Singh Makker, along with Advocates Sharath Nambaiar, Diwakar Sharma, Satvika Thakur, B. Sunita Rao, and Ishaan Sharma, for the Respondents
