Supreme Court strikes down customs duty on SEZ power, Adani Power wins relief

NEW DELHI: In a major relief for Adani Power Ltd, the Supreme Court on Monday set aside the 2019 Gujarat High Court order and relieved the company from tax on electricity produced at its Mundra plant, ruling that no customs duty can be imposed on electricity supplied to the domestic market from Special Economic Zone (SEZ).

A bench of justices Aravind Kumar and NV Anjaria held that the tax did not have statutory authority and the government could not retain the amount collected under an invalid tax. The court directed the customs authorities to refund the duty collected from Adani Power and asked the competent Commissioner of Customs to complete the verification and issue the refund within eight weeks from the date of the decision.

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The decision resolved a long-running tax dispute dating back to 2010. 2019 Gujarat High Court, approx. ₹458 crore excluding interest.

The detailed decision was not available at the time of publication. An email sent to Adani Group seeking comment remained unanswered by press time.

tax overturned

Adani Power operates a coal-based thermal power plant in the Mundra Special Economic Zone in Gujarat’s Kutch district near Mundra Port. The plant has an installed capacity of 4,620 MW and supplies electricity to distribution companies in Gujarat and Haryana as well as the utility serving the Mundra SEZ under long-term power purchase agreements.

The origin of the dispute dates back to February 2010, when the Center changed customs rules to impose customs duty on electricity supplied from the SEZ to the Domestic Tariff Area (DTA); Authorities also want to apply the tax retroactively, starting from June 2009. At that time, electricity imported into India from foreign countries continued to attract zero customs duty.

Adani Power challenged the levy before the Gujarat High Court, which in July 2015 struck down parts of the duty framework and held that the company was entitled to exemption on supply of electricity from SEZ to DTA for a limited period between June 2009 and September 2010. The Supreme Court later refused to intervene in this decision.

Following the 2015 decision, SEZ officials took the view that the exemption was strictly time-bound and customs duty would continue to be paid on electricity supplied after September 2010. Customs officials continued to make the request based on subsequent notifications issued in 2010 and 2012, which reduced the duty rate from 10 paise per unit to 3 paise per unit.

Adani Power stopped paying the tax and sought a refund, arguing that since the tax was found to be illegal, subsequent notifications would not revive it. Officials opposed it, saying the exemption granted in 2015 was limited to a certain period and new objections were required for subsequent notifications.

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Disagreeing with this view, Adani Power went back to the Gujarat High Court in 2016 and sought a declaration that there was no liability to pay duty even beyond the previous period on electricity supply from SEZ to DTA and to continue refunding and refunding the amounts already paid.

In June 2019, the Gujarat High Court rejected Adani Power’s plea and held that the 2015 order limited the exemption to a specific period and could not be extended by a fresh petition. The court said a wider exemption could give an unfair advantage to Adani Power and held that tax exemptions on imported electricity cannot automatically apply to electricity produced in the Indian SEZ.

Adani Power challenged the 2019 decision before the Supreme Court. Now the Supreme Court has overturned this opinion. The panel said that once a tax is determined to be illegal, the government cannot keep the money collected under it, making refunds a necessary consequence.

The Mundra plant was previously owned by Adani Power (Mundra) Ltd, a special purpose vehicle, and has been merged with Adani Power Ltd under a merger plan effective from October 1, 2021.

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The decision comes as Adani Power accelerates expansion. The company has won competitive power supply tenders in Uttar Pradesh, Bihar, Madhya Pradesh and Assam and has announced several ultra-supercritical greenfield projects.

Major projects announced in 2025 include a 1,500 MW plant in Uttar Pradesh, a 2,274 MW project in Bihar, a 1,600 MW ultra-supercritical plant in Madhya Pradesh and a 3,200 MW greenfield project in Assam.

According to a PTI report, Adani Power has increased its long-term installed capacity target to 41.87 GW by FY32, adding approx. ₹2 trillion marks one of the most aggressive private sector expansion plans in India’s thermal power industry.

The revised target represents a sharp increase from its previous plan of 30.67 GW by FY 2030, as the company positions itself to meet India’s growing electricity demand in the coming decades.