Legal Review and Analysis of Adani Power Ltd & Anr vs Union of India & Ors 2026 INSC 1
Case Synopsis
Case Name & Citation: Adani Power Ltd. & Anr. vs. Union of India & Ors., 2026 INSC 1 (Supreme Court of India).
Synopsis: The Supreme Court struck down the levy of customs duty on electricity generated in a Special Economic Zone (SEZ) and supplied to the Domestic Tariff Area (DTA). It held that the government's use of an "exemption" notification to impose this duty was a colourable exercise of power and ultra vires the Customs Act. The Court reaffirmed the binding force of judicial precedent, ruling that a coordinate High Court bench could not narrow an earlier final judgment. It also emphasized the State's constitutional duty to fully implement judicial declarations and not re-litigate settled issues through fresh notifications.
1. Heading of the Judgment
Case Name: Adani Power Ltd. & Anr. versus Union of India & Ors.
Citation: 2026 INSC 1
Court: Supreme Court of India
Jurisdiction: Civil Appellate Jurisdiction
Civil Appeal No.: _____ of 2026 (Arising out of SLP(C) No.24729 of 2019)
Judges: Justice Aravind Kumar and Justice N.V. Anjaria
Date of Judgment: January 5, 2026
2. Related Laws and Sections
The judgment extensively interprets and applies the following statutory provisions:
Section 12 of the Customs Act, 1962 – The charging section for customs duty on goods imported into India.
Section 25 of the Customs Act, 1962 – Power of the Central Government to grant exemption from duty.
Section 30 of the Special Economic Zones Act, 2005 – Treatment of goods removed from an SEZ to the Domestic Tariff Area (DTA) as chargeable to customs duty "as if imported".
Rule 47(3) of the SEZ Rules, 2006 – Mechanism for adjustment of duty on inputs when electricity generated in an SEZ is supplied to the DTA.
Article 265 of the Constitution of India – Prohibition on levy or collection of tax except by authority of law.
Article 14 of the Constitution of India – Right to equality and prohibition of arbitrary state action.
3. Basic Judgment Details
Facts of the Case
The appellant, Adani Power Ltd., operates a thermal power plant within the Mundra SEZ in Gujarat.
It supplied electricity generated in the SEZ to the Domestic Tariff Area (DTA).
Prior to 2009, imported electricity attracted nil customs duty. Consequently, electricity supplied from an SEZ to the DTA also bore no duty, as Section 30 of the SEZ Act mandates parity with imported goods.
In 2010, through Notification No. 25/2010-Cus. (styled as an exemption notification), the Central Government imposed a 16% ad valorem customs duty on electricity cleared from an SEZ to the DTA, with retrospective effect from June 26, 2009.
This was later replaced by specific-rate duties: 10 paise per unit (Notification No. 91/2010-Cus.) and subsequently 3 paise per unit (Notification No. 26/2012-Cus.), applicable prospectively.
The appellant challenged the levy. The Gujarat High Court, in its 2015 judgment, struck down Notification No. 25/2010-Cus. as ultra vires. The Supreme Court declined to interfere, making the declaration final.
However, for the period from September 16, 2010, to February 15, 2016, the appellant had paid duty under the subsequent notifications (10 paise/3 paise per unit). The appellant sought a refund, arguing that the 2015 judgment applied to the entire levy in principle.
The Gujarat High Court, in its 2019 judgment, denied relief, holding that the 2015 decision was limited to Notification No. 25/2010-Cus. and the period ending September 15, 2010, and that the later notifications were not specifically challenged.
The appellant appealed to the Supreme Court.
Issues Framed by the Supreme Court
I. What is the true scope and effect of the Gujarat High Court’s 2015 judgment?
II. Whether any change in statutory or factual footing between September 15, 2010, and February 15, 2016, justified a different result?
III. Whether relief could be denied merely because the subsequent notifications (Nos. 91/2010-Cus. and 26/2012-Cus.) were not specifically challenged?
IV. Whether the 2019 Bench of the High Court, as a coordinate Bench, was justified in narrowing the effect of the 2015 judgment?
V. What final order/directions should follow?
Ratio Decidendi (Court’s Reasoning)
The Supreme Court allowed the appeal, setting aside the 2019 High Court judgment. Its core reasoning is as follows:
The 2015 judgment was a declaration of law, not confined to one notification. It held that the levy was ultra vires due to: (a) absence of a charging event under Section 12 of the Customs Act (as SEZ-to-DTA supply is not an "import into India"); (b) colourable use of the exemption power under Section 25 to impose a new tax; (c) violation of Article 265 due to retrospective application without Parliamentary sanction; and (d) arbitrariness from double burden under Rule 47(3) and the output duty. This declaration was binding and governed all periods unless the legal foundation changed.
No material change in law or facts occurred post-2010. Section 30 of the SEZ Act, the nil duty on imported electricity, and the constitutional constraints remained unchanged. Subsequent notifications merely altered the rate and applied prospectively but did not cure the fundamental absence of a lawful charging event or the misuse of the exemption power.
No separate challenge to subsequent notifications was required. Where a levy has been declared unlawful at its root, the State cannot perpetuate the same illegality through successive notifications and then insist on fresh challenges for each. Constitutional courts have the remedial power to grant relief without such procedural formalism, ensuring effective enforcement of their declarations.
The 2019 High Court Bench violated judicial discipline. As a coordinate Bench, it was bound by the ratio of the 2015 judgment. If it doubted its applicability, the proper course was to refer the matter to a larger Bench, not to artificially narrow its scope. Its failure to do so vitiated the 2019 decision.
The executive is obligated to give full effect to final judicial declarations. The State cannot, consistent with the rule of law, continue to enforce a levy already struck down by merely repackaging it through later notifications. Such conduct defeats finality and compels repetitive litigation.
4. Core Principles of the Judgment: Analysis
Title: Judicial Censure of Colourable Tax Legislation and the Binding Force of Precedent
A. The Limits of Delegated Legislation in Taxation
The Supreme Court firmly restated that the power to tax is a legislative function. Section 25 of the Customs Act confers a power to exempt goods from a duty that is otherwise leviable under a charging provision like Section 12. It is not a power to create a new tax. Using an exemption notification to impose a duty for the first time is a colourable exercise of power and ultra vires the parent statute. This principle is vital to prevent the executive from usurping the legislature’s essential function. The 16% duty under Notification No. 25/2010-Cus. was a textbook example of this misuse, and the vice infected the subsequent notifications as they were derivatives of the same unauthorized levy. (Paras 52-58, 65)
B. The Doctrine of Precedent and Judicial Discipline
The judgment strongly emphasises the doctrine of stare decisis. The 2015 High Court decision was a binding declaration of law. A subsequent coordinate Bench was obligated to follow it. By confining the 2015 ruling to a specific notification and period without referring the matter to a larger Bench, the 2019 Bench undermined judicial consistency, predictability, and the authority of precedent. The Supreme Court cited State of U.P. v. Ajay Kumar Sharma to reinforce that this discipline is a structural safeguard, not mere etiquette. (Paras 75-80)
C. The State’s Obligation to Implement Judicial Decisions
A final judicial pronouncement is a binding command of law. Once the levy was declared illegal in 2015, the executive was constitutionally obligated to cease its enforcement in all forms and refund amounts collected. Attempting to sustain it through slightly altered, subsequent notifications amounted to defiance of the court’s authority and eroded the rule of law. The Court highlighted the public interest in finality of litigation (interest reipublicae ut sit finis litium) and held that the State must exemplify obedience to judgments. (Paras 81-85)
D. The Constitutional and Statutory Scheme for SEZs
The Court interpreted Section 30 of the SEZ Act as a parity clause, not a charging provision. It requires that goods moving from an SEZ to the DTA bear the same duty as physically imported goods. Since imported electricity consistently attracted nil duty, the logical and legal consequence was that SEZ-origin electricity must also bear nil duty. Imposing a duty created an artificial and arbitrary classification violative of Article 14. Furthermore, Rule 47(3) already neutralized the duty benefit on inputs used for power supplied to the DTA; an additional duty on the output electricity constituted an unfair double burden. (Paras 60-64)
5. Final Outcome and Directions
The Supreme Court
Allowed the appeal and set aside the Gujarat High Court’s judgment dated June 28, 2019.
Declared that the levy of customs duty on electricity cleared from the appellant’s SEZ to the DTA (under Notifications Nos. 25/2010-Cus., 91/2010-Cus., and 26/2012-Cus.) for the period from September 16, 2010, to February 15, 2016, was without authority of law.
Directed the respondents (Union of India and customs authorities) to refund the amounts deposited by the appellant (without interest) within eight weeks.
Barred any further demand for customs duty on such electricity for the said period.
Made no order as to costs. (Paras 87-92)
6. MCQs Based on the Judgment
Question 1: In Adani Power Ltd. vs. Union of India (2026 INSC 1), the Supreme Court held that using a notification under Section 25 of the Customs Act, 1962, to impose a customs duty on electricity supplied from an SEZ to the DTA was invalid primarily because?
A. The duty rate of 16% was excessively high and confiscatory.
B. Section 25 confers a power to grant exemption from an existing levy, not a power to create a new tax.
C. The notification was issued without prior consultation with the State Electricity Board.
D. The levy was imposed retrospectively, which is always prohibited.
Question 2: What was the Supreme Court's ruling regarding the obligation of a later coordinate Bench of the High Court faced with its own 2015 judgment in this case?
A. It could distinguish the earlier judgment on factual grounds if the later period involved different notifications.
B. It was bound to follow the ratio of the 2015 judgment, and if it doubted its correctness, the only permissible course was to refer the matter to a larger Bench.
C. It had the discretion to decide the case afresh since the later Bench comprised different judges.
D. It could modify the earlier judgment if it felt the law had evolved.
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