Supreme Court declares customs duty on electrical energy from Special Economic Zones illegal - Levy lacks lawful charging event, constitutes misuse of exemption power, and violates constitutional principles.
Can the government levy customs duty on electrical energy generated in a Special Economic Zone (SEZ) and supplied to the Domestic Tariff Area (DTA)?
No, the Supreme Court has declared such levy illegal and unconstitutional.
The Court ruled that customs duty on SEZ-generated electricity lacks a lawful charging event under Section 12 of the Customs Act, constitutes misuse of exemption power under Section 25, violates statutory parity requirements of Section 30 of the SEZ Act, and breaches constitutional principles under Articles 14 and 265. The Court ordered refund of all amounts collected.
Nil Duty Regime - Imported electricity bore no customs duty; SEZ-to-DTA transfers also duty-free
Notification 25/2010-Cus - Introduced 16% ad valorem duty on SEZ-to-DTA electricity with retrospective effect from June 26, 2009
Interim Relief Granted - Gujarat High Court allowed clearance without payment, subject to bank guarantee
Reduced Duty Rate - Notification 91/2010 reduced duty to ₹0.10 per unit (prospectively)
Further Reduction - Notification 26/2012 reduced duty to ₹0.03 per unit
Gujarat HC Judgment - Declared 16% levy ultra vires; struck down retrospective component
Exemption Granted - Notification 9/2016 exempted large SEZ units from duty
HC Denies Refund - Gujarat HC refused refund for later period, citing separate notifications
Supreme Court Verdict - Allowed appeal, declared entire levy illegal, ordered refund
| Legal Principle | What It Means | Application in This Case |
|---|---|---|
| Article 265 Constitution | No tax shall be levied except by authority of law | Executive cannot create tax via notification; requires parliamentary sanction |
| Section 12 Customs Act | Customs duty levied on goods imported into India | SEZ-to-DTA electricity is not "import"; no charging event exists |
| Section 25 Customs Act | Power to grant exemption from duty | Cannot be used to impose duty; misuse constitutes colourable exercise |
| Section 30 SEZ Act | Parity clause for SEZ-to-DTA clearances | Requires same duty as imports; imported electricity has nil duty |
| Article 14 Constitution | Equality before law and equal protection | Imposing duty on SEZ electricity while imported electricity duty-free is arbitrary |
Designated area treated as foreign territory for trade operations, duties, and tariffs, with separate economic laws to promote exports and investment.
Area within India outside SEZs, subject to normal customs duties and import regulations applicable to goods produced domestically.
Legal doctrine where authority exercises power under guise of one purpose to achieve another unauthorized purpose - misuse of delegated power.
Latin term meaning "beyond powers"; refers to actions taken beyond legal authority or power conferred by law.
Legal presumption that treats something as true for specific purposes, cannot be extended beyond legislative intent.
"The power conferred by Section 25 of the Customs Act is a power to exempt goods from duty otherwise leviable; it is not a power to create a fresh levy in the first place. The use of an exemption notification to impose duty was a colourable exercise of delegated legislation."
This landmark judgment establishes crucial constitutional principles: the executive cannot create taxes through notifications, delegated legislation has limits, and courts must look beyond form to examine substance. The Court emphasized that once a levy is declared ultra vires, subsequent notifications continuing the same levy in altered form cannot claim legitimacy.
This content is for informational purposes only and does not constitute legal advice. Consult a qualified legal professional for specific legal guidance. The information provided is based on judicial interpretation and may be subject to changes in law.
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This analysis decodes a complex constitutional and tax judgment to help businesses, SEZ units, and legal professionals understand the implications of customs duty on electricity generation and transmission.