Customs duty — SEZ to DTA clearance — Electrical energy — Limits of delegated legislation — Binding effect of precedent — Restitution
HEADNOTE (Consolidated, authoritative)
Customs duty on electricity generated in SEZ and supplied to DTA — Absence of charging event — Invalidity of levy through exemption notifications
Paras 15–19, 44–51, 58–65, 86–88
Electrical energy generated within India in a Special Economic Zone and supplied to the Domestic Tariff Area is not ‘goods imported into India’ so as to attract customs duty under Section 12 of the Customs Act, 1962. The legal fiction in Section 30 of the SEZ Act operates only for parity of rate and valuation and does not create a new charging event. Section 25 of the Customs Act empowers the Central Government only to grant exemptions from duty otherwise leviable and cannot be used, directly or indirectly, to impose a new customs levy. Notifications purporting to levy customs duty on SEZ-to-DTA electricity, whether retrospective or prospective and irrespective of the rate prescribed, are ultra vires Articles 14 and 265 of the Constitution and beyond the scope of delegated legislation. Once such levy has been declared without authority of law, subsequent notifications continuing the same levy in altered form are equally unenforceable, and amounts collected thereunder are liable to be refunded.
ANALYSIS (What the Supreme Court Precisely Held)
1. Nature of the 2015 Gujarat High Court decision (Paras 44–51)
The Court held that the 2015 judgment was a declaration of law, not a notification-specific or period-limited relief. The High Court had conclusively determined that:
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there was no charging event under Section 12 of the Customs Act for SEZ-to-DTA electricity;
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Section 25 could not be used to create a levy under the guise of exemption;
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retrospective imposition violated Article 265; and
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the levy resulted in arbitrary double incidence, given Rule 47(3) of the SEZ Rules.
These findings constituted the ratio, binding for all periods resting on the same statutory footing.
2. Absence of statutory authority to levy customs duty (Paras 45, 60–63)
The Court reaffirmed that:
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customs duty is attracted only on “goods imported into India”;
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an SEZ is not foreign territory, and electricity generated within India does not become imported goods merely because it crosses from SEZ to DTA;
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Section 30 of the SEZ Act is a parity provision, not a charging provision.
Where imported electricity bears nil customs duty, SEZ-generated electricity must receive identical treatment.
3. Colourable exercise of delegated legislation (Paras 52–58)
The Court characterised Notification No. 25/2010-Cus. as a classic colourable exercise:
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Section 25 authorises exemption from duty otherwise leviable;
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it does not authorise imposition of duty;
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an exemption power cannot be inverted into a taxing power.
What could not be done directly by Parliament could not be achieved indirectly through delegated legislation.
4. Subsequent notifications do not cure foundational illegality (Paras 58–65, 72–73)
The Court rejected the Union’s contention that later notifications (₹0.10/unit and ₹0.03/unit) constituted a different levy. It held that:
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changing the rate or form does not cure absence of legislative authority;
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if the root is ultra vires, the branch cannot survive;
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the same levy continued on the same taxable fiction.
5. No need for fresh challenge to each notification (Paras 66–74)
The Court held that:
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once a levy is declared without authority of law, the State cannot insist on separate challenges to each successor notification;
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the 2016 writ was a sequel proceeding, seeking enforcement of an existing declaration;
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constitutional courts must look to substance, not form.
To insist on repeated challenges would legitimise perpetuation of illegality.
6. Binding force of precedent on co-ordinate Benches (Paras 75–80)
The Court held that the 2019 Division Bench:
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was bound by the 2015 judgment;
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could not artificially narrow its scope;
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if in doubt, ought to have referred the matter to a larger Bench.
Failure to do so violated judicial discipline and stare decisis.
7. Restitution and executive obligation (Paras 81–84, 86–90)
The Court emphasised that:
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judicial declarations are binding commands, not advisory opinions;
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the State cannot retain amounts collected under an invalid levy;
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restitution is a necessary incident of illegality.
Refund was ordered for the entire period 16-09-2010 to 15-02-2016, without interest.
RATIO DECIDENDI
In the absence of a statutory charging event under Section 12 of the Customs Act, customs duty cannot be levied on electrical energy generated in an SEZ and supplied to the Domestic Tariff Area; Section 25 of the Customs Act cannot be used to impose such levy under the guise of exemption, and once the levy has been declared ultra vires, its continuance through subsequent notifications in altered form is equally unenforceable, entitling the assessee to restitution of amounts collected.
