Supreme Court: Law Cannot Change with Bench Change; Upholds SEZ Customs Exemption

Introduction

In a significant ruling reinforcing the doctrine of stare decisis , the Supreme Court of India has held that the law cannot fluctuate with changes in judicial benches, particularly emphasizing the binding nature of decisions by coordinate benches within the same court. The bench comprising Justices Aravind Kumar and N.V. Anjaria allowed an appeal by Adani Power Ltd. against a 2019 Gujarat High Court order, setting it aside for failing to adhere to a 2015 coordinate bench ruling that declared customs duty on electricity supplied from a Special Economic Zone (SEZ) to the Domestic Tariff Area (DTA) as ultra vires and unconstitutional. This decision, delivered on January 5, 2026, in Adani Power Ltd. & Anr. v. Union of India & Ors. (2026 INSC 1), not only grants Adani Power relief from the disputed levy but also underscores institutional necessities for judicial consistency, predictability, and respect for precedents. The case originated from Adani Power's operations in the Mundra SEZ, Gujarat, where it challenged successive customs notifications imposing duties on power clearances, following an initial favorable High Court verdict in 2015 that was later disregarded.

The ruling comes at a time when fiscal policies surrounding SEZs—designed to boost exports and infrastructure under the Special Economic Zones Act, 2005—face scrutiny over their alignment with constitutional taxation principles. By faulting the 2019 High Court bench for narrowing the scope of the 2015 decision without referral to a larger bench, the Supreme Court reiterated that deviations from settled law by equal-strength benches undermine the rule of law. This appeal, arising from Special Leave Petition (Civil) No. 24729/2019, highlights tensions between executive fiscal maneuvers and judicial oversight, with implications for how lower courts handle taxation disputes in SEZ contexts.

Case Background

Adani Power Ltd., a major player in India's energy sector, operates a 5,200 MW coal-based thermal power plant within the Mundra SEZ in Gujarat, where it serves as a co-developer. Under the SEZ Act, 2005, SEZs enjoy fiscal incentives to promote manufacturing and exports, including duty-free imports of raw materials like coal. However, electricity generated in SEZs is often supplied to the DTA, which includes domestic consumers and state utilities. Section 30 of the SEZ Act deems such clearances "as if imported into India," subjecting them to customs duties equivalent to those on actual imports. Historically, imported electricity attracted nil customs duty, creating a baseline for parity.

The dispute traces back to 2010 when the Union Budget introduced changes via the Finance Act, 2010, imposing customs duty on SEZ-to-DTA electricity clearances retrospectively from June 26, 2009. Notification No. 25/2010-Cus., issued on February 27, 2010, ostensibly an "exemption" but in effect a levy, set the rate at 16% ad valorem. Adani Power challenged this in the Gujarat High Court via a writ petition in 2010, securing interim relief through a bank guarantee while arguing the levy violated Section 12 of the Customs Act, 1962 (which charges duty on "imported goods"), Article 265 of the Constitution (no tax without authority of law), and Article 14 (equality).

On July 15, 2015, a Division Bench of the Gujarat High Court allowed the petition, striking down the levy as lacking a charging event—since SEZ-generated electricity isn't truly "imported"—and deeming the notification a colorable exercise of power under Section 25 of the Customs Act (meant for exemptions, not impositions). It also highlighted double taxation: Rule 47(3) of the SEZ Rules, 2006, already neutralized duty benefits on inputs for DTA supplies. The Union appealed to the Supreme Court, which dismissed the SLP on November 20, 2015, and a review in April 2016, finalizing the 2015 ruling.

Post-2015, the Union issued prospective notifications: No. 91/2010-Cus. (September 16, 2010, at ₹0.10 per unit) and No. 26/2012-Cus. (April 18, 2012, reduced to ₹0.03 per unit). Adani paid these under protest for clearances from September 16, 2010, to February 15, 2016 (when Notification No. 9/2016-Cus. exempted large SEZ units like Adani's). Seeking refunds and a declaration against the levy, Adani filed Special Civil Application No. 2233 of 2016. On June 28, 2019, another Division Bench dismissed it, confining the 2015 ruling to the original notification and period, refusing to extend it without specific challenges to later ones. Adani appealed, arguing violation of judicial precedent.

The timeline underscores a protracted battle: from the 2010 levy to the 2026 Supreme Court verdict, spanning over 15 years, reflecting broader challenges in SEZ fiscal regimes and the need for consistent judicial application in taxation matters.

Arguments Presented

Adani Power, represented by senior counsel P. Chidambaram, contended that the 2015 High Court judgment was a binding declaration of law, not limited to one notification or period. They argued it established that no customs duty could be levied on SEZ-to-DTA electricity due to the absence of an "import" under Section 12, the misuse of Section 25 for imposing rather than exempting duties, and violations of Articles 14 and 265. Emphasizing no material change in law or facts post-2015—Section 30's parity with nil-duty imports persisted—Adani asserted the 2019 bench was bound by stare decisis to extend the ruling, or refer doubts to a larger bench. They highlighted the 2016 petition as a sequel for enforcement and refunds, not a fresh challenge, and decried the Union's successive notifications as indirect reimpositions of an ultra vires levy, creating arbitrary double burdens via Rule 47(3). Adani stressed finality in litigation, noting Supreme Court affirmation of 2015, and sought refunds without interest, arguing executive persistence eroded rule of law.

The Union of India, through Additional Solicitor General Raghavendra P. Shankar, defended the 2019 order, claiming the 2015 judgment addressed only Notification No. 25/2010-Cus. and the retrospective 16% levy up to September 15, 2010. Later notifications, they argued, were distinct prospective measures at nominal rates to recoup input duty benefits, not challenged in 2015 or adequately in 2016. The Union contended Adani paid post-2010 duties without consistent protest, and refunds required specific invalidation of each instrument. They viewed the per-unit duties as aligned with SEZ objectives, partially clawing back incentives, and noted the 2016 exemption resolved future issues. Dismissing broader precedent claims, the Union urged rejection, portraying the appeal as a belated monetary claim post-prospective relief.

Both sides invoked administrative law: Adani on colorable legislation and judicial finality; the Union on procedural specificity and fiscal policy discretion.

Legal Analysis

The Supreme Court's reasoning centered on four key issues: the scope of the 2015 judgment, absence of statutory changes, propriety of relief without fresh challenges, and binding precedent on coordinate benches. It affirmed the 2015 ruling's ratio decidendi as a structural invalidation of the levy, not temporal. The Court held that electricity from an SEZ to DTA lacks a true "import" under Section 12, rendering Section 30's deeming fiction for parity (with nil-duty imports) inapplicable to create a new charge. Notification No. 25/2010-Cus. was critiqued as inverting Section 25—using exemption power to impose duty—a "colorable exercise" ultra vires delegated limits, as affirmed in precedents like St. John's Teachers Training Institute v. Regional Director, NCTE (though not directly cited, aligning with principles).

No changes justified deviation: Sections 12, 25, and 30; SEZ Rule 47(3); and Customs Tariff (nil on electricity) remained static. Successive notifications merely altered rates/forms, not curing root flaws like double burden (input neutralization plus output duty), violating Article 14's equality and Article 265's authority requirement. The Court rejected the Union's "separate challenge" plea, viewing the 2016 petition as remedial enforcement; constitutional courts mold relief to prevent executive circumvention, per Union of India v. Major General Madan Lal Yadav principles on restitution post-invalidity.

Critically, the Court invoked State of Uttar Pradesh v. Ajay Kumar Sharma (2016) 15 SCC 289, holding coordinate benches bound by prior rulings on identical issues. The 2019 bench's narrowing—without larger bench referral—breached stare decisis et non quieta movere (stand by decided things), an "institutional necessity" for stability. This echoes Central Board of Dawoodi Bohra Community v. State of Maharashtra (2005) 2 SCC 673, mandating reference for doubts. The analysis distinguishes: exemption powers relax existing duties (beneficent), not create new ones (legislative). Implications extend to delegated legislation scrutiny, ensuring fiscal notifications don't usurp parliamentary taxing authority under Entry 83, List I, Seventh Schedule.

The judgment integrates broader SEZ policy critique: incentives aim at exports, not domestic arbitrage; unauthorized levies distort this. It clarifies no opinion on future legislation, confining to the framework.

Key Observations

The Supreme Court extracted pivotal insights reinforcing judicial discipline:

1. "The discipline of precedent is not a matter of personal predilection; it is an institutional necessity. Stare decisis et non quieta movere which means to stand by what is decided and not to disturb what is settled, is a working rule which secures stability, predictability and respect for judicial outcomes. The law cannot change with the change of the Bench." (Para 78, emphasizing stare decisis as foundational.)

2. "If the later Bench believes that the earlier view is so manifestly erroneous or inapplicable that it ought not to be followed, the later Bench must refer the matter to a larger Bench for reconsideration. What it cannot do is to sidestep or whittle down the earlier pronouncement by confining it artificially or by treating it as a fact-specific indulgence." (Para 77, citing Ajay Kumar Sharma , on coordinate bench obligations.)

3. "In the present case, if the Division Bench in 2019 was of the opinion that the 2015 decision could not, or ought not, apply to the later notifications or to the later period, the proper course was to request that the question be placed before a larger Bench of the High Court. The Bench in 2019 did not do so." (Para 79, critiquing the 2019 approach as impermissible.)

4. "A delegate cannot do indirectly what it has no authority to do directly. The power to exempt is not a power to tax. The two stand on opposite constitutional planes." (Para 55, on limits of Section 25.)

5. "Once the 2015 judgment had declared the levy to be ultra vires and this Court had declined interference, it was incumbent upon the administrative authorities to conform their conduct to that declaration. Judicial pronouncements are not advisory opinions; they are binding commands of law." (Para 84, on executive obedience.)

These quotes, drawn verbatim from the judgment authored by Justice Aravind Kumar, illuminate the Court's focus on systemic integrity over isolated disputes.

Court's Decision

The Supreme Court allowed the appeal, setting aside the Gujarat High Court's June 28, 2019, order in Special Civil Application No. 2233 of 2016. It declared the customs levy on Adani Power's SEZ-to-DTA electricity clearances—from Notification No. 25/2010-Cus. through Nos. 91/2010-Cus. and 26/2012-Cus.—ultra vires for the period September 16, 2010, to February 15, 2016. Directions include: refund of all deposits (cash, guarantees, or otherwise) paid under protest, verified and completed by the Commissioner of Customs within eight weeks, without interest; no future demands for that period; and Adani's cooperation in furnishing details.

Practically, this mandates restitution, estimated at amounts tied to per-unit payments (₹0.10 then ₹0.03), potentially significant for Adani's operations. Broader effects: reinforces stare decisis in High Courts, curbing bench-shopping perceptions and promoting uniformity in tax jurisprudence. SEZ operators gain clarity—no customs on domestic electricity clearances absent legislative change—bolstering investment predictability. For the Union, it signals limits on notification-based fiscal tweaks post-judicial invalidation, urging parliamentary action for taxing SEZ outputs. Future cases may cite this for challenging derivative levies, reducing litigation cycles via enforced finality ( interest reipublicae ut sit finis litium ). No costs awarded; pending applications disposed.

This 2026 verdict, aligning with the other source's summary, integrates the 2015 upholding to prevent "law changing with benches," fostering a stable fiscal-judicial ecosystem.