Adani Power v. Union of India: SEZ-to-DTA customs duty without authority of law

The facts in brief

Adani Power Limited operates a coal-based thermal power station inside the Mundra Port Special Economic Zone in Gujarat. Electricity generated within the zone is supplied to the Domestic Tariff Area (DTA) of mainland India through a long-term power purchase arrangement. The Department of Revenue, relying on Customs Notification No. 25/2010-Cus and the amending instruments that followed in 2010 and 2012, demanded customs duty on such SEZ-to-DTA transfers, treating each transfer as a deemed import.

The dispute had a long prior history. In 2015, a coordinate Division Bench of the Gujarat High Court had ruled in Adani's favour for an earlier period, holding that the levy was not sustainable under the parent statute. The Revenue treated the 2015 holding as confined to its narrow factual window and continued demanding duty for subsequent supplies. Adani returned to the Gujarat High Court in 2016 seeking a declaration that it had no continuing liability under the same notifications, an injunction against recovery, and a refund of amounts already collected.

On 28 June 2019, a different Division Bench of the Gujarat High Court declined relief, refusing to follow the 2015 reasoning. The bench did not refer the matter to a larger bench; it simply took a contrary view on the merits. Adani appealed to the Supreme Court. After hearings spread over more than five years, the appeal was allowed on 5 January 2026.

The questions before the Court

The Court was called upon to answer two distinct questions, one substantive and one institutional. The substantive question was whether the impugned customs notifications could levy duty on electrical energy cleared from an SEZ unit into the DTA when the parent statute did not unambiguously authorise such a levy on electricity as a class of goods. The institutional question was whether a Division Bench of a High Court was free to take a contrary view on the same legal question without referring the matter to a larger bench when a coordinate Division Bench had already ruled on it.

Both questions sit at the centre of well-settled doctrine but had been allowed to fray in the SEZ-electricity context. The Court used the appeal to restate first principles on each.

What the Court held

The levy was without authority of law

The bench struck down the duty regime as it had been applied to Adani's SEZ-to-DTA electricity supplies. The reasoning is austere: customs notifications cannot enforce a levy that the parent Act, read with the Special Economic Zones Act 2005 and the SEZ Rules 2006, does not clearly authorise. Subordinate legislation cannot enlarge the field of charge.

The declaration is unqualified. The Court did not read down the notifications, did not preserve a narrow class of transfers, and did not direct prospective application. It set aside the Gujarat High Court's 2019 order and restored the earlier coordinate-bench position.

Coordinate-bench discipline restated

On the institutional question the Court was equally firm. A Division Bench of a High Court that disagrees with the reasoning of an earlier coordinate Division Bench is not free to record its own contrary view; the proper course is to refer the matter to a larger bench so that the conflict may be authoritatively resolved.

That sentence is the institutional pivot of the judgment. Coordinate-bench discipline is treated not as a matter of judicial courtesy but as a constitutional discipline that protects litigants from outcomes that turn on the roster of judges hearing the matter. The Gujarat High Court's 2019 departure from its own 2015 reasoning, without a reference to a larger bench, drew explicit reproach.

The doctrinal architecture

The judgment knits together two long-standing strands of public-law doctrine and applies them to a contemporary indirect-tax dispute.

First, the authority-of-law principle in taxation. The principle has antecedents stretching to Govind Saran Ganga Saran v. Commissioner of Sales Tax (1985) and Mathuram Agrawal v. State of Madhya Pradesh (1999) — the four-ingredient analysis of a valid taxing statute (subject, person, rate, measure) and the rule that a tax cannot be imposed without express statutory authority. SEZ-to-DTA electricity transfers, the Court reasoned, were not unambiguously brought within the customs charge by the parent Act. The 2010 and 2012 notifications could not, on their own, supply the legislative authority that the parent statute did not contain.

Second, the stare decisis doctrine as applied within a High Court. The Indian doctrine on horizontal precedent at the Division-Bench level is settled: a Division Bench is bound by an earlier Division Bench of the same High Court, and the only constitutional pathway to a different result is a reference to a larger bench. The judgment treats this as a discipline that flows from the rule of law itself, not merely from internal court convention.

The two strands meet in the SEZ-electricity context. The 2015 coordinate-bench ruling had held the levy unauthorised; the 2019 bench was bound by that conclusion unless the matter went to a larger bench. By taking a contrary view on its own, the 2019 bench produced an outcome that the Supreme Court has now reversed on both substantive and institutional grounds.

What the judgment did not decide

The Court did not strike down the impugned notifications in their entirety or for all SEZ-DTA transactions; the declaration of unauthorised levy was anchored to electrical energy as a class of supply and to the period before the Court. SEZ-to-DTA transfers of other goods continue to be governed by the customs and SEZ frameworks as they stand.

The judgment did not address the constitutionality of any provision of the Customs Act 1962 or the SEZ Act 2005. The vice was located in the absence of statutory authority for the specific levy on electricity, not in any unconstitutionality of the parent statutes themselves.

It also did not lay down a formula for refund of amounts already collected. The refund pathway will be worked out in light of Mafatlal Industries Ltd. v. Union of India (1997) and the established restitution jurisprudence in indirect tax. Whether unjust-enrichment defences will be available to the Revenue, and how the pass-through analysis applies to electricity tariffs, remains for the implementing authorities and the tribunals to work through.

After the judgment

The immediate consequence is a refund pathway for Adani Power and, by extension, for other SEZ-based electricity generators whose duty was collected under the same notifications. Refund claims will work their way through the Customs authorities and CESTAT in the coming months. The Revenue will need to decide whether to issue clarificatory notifications consistent with the Court's reasoning or to pursue legislative amendment to bring SEZ-to-DTA electricity transfers within an express duty net.

The institutional pronouncement on coordinate-bench discipline will travel well beyond the SEZ-electricity context. The "law cannot change with the change of the Bench" observation is likely to be cited in High Courts confronting fact patterns where Division Benches have taken divergent views without referring the conflict to a larger bench. Litigants disadvantaged by such departures now have a clean Supreme Court authority to invoke.

Pending Article 226 writs that were dismissed in reliance on the 2019 Gujarat High Court reasoning will need to be revisited. CESTAT proceedings that turned on the same notifications, particularly in eastern and western India where SEZ-based generation capacity is concentrated, will be governed by the Court's declaration. The doctrinal stability that the 2015 coordinate-bench ruling had introduced — and that the 2019 departure had disrupted — is now restored at the apex level.

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Sources

1. LiveLaw judgment page (2026 LiveLaw SC 3): https://www.livelaw.in/sc-judgments/2026-livelaw-sc-3-adani-power-ltd-v-union-of-india-and-others-516935
2. LiveLaw top-story coverage: https://www.livelaw.in/top-stories/supreme-court-allows-customs-duty-exemption-to-adani-power-for-electricity-taken-from-gujarat-sez-516878
3. Bar and Bench coverage: https://www.barandbench.com/news/litigation/supreme-court-allows-adani-power-appeal-against-gujarat-hc-ruling-on-sez-electricity-customs-duty
4. SCC OnLine Law Reports (SCO.LR 2026 Vol. 1 Issue 2) case-note on the judgment.