Retrospective taxation has long been a concern for investors in India. In light of the Adani Power–Mundra SEZ case, critically examine how retrospective levies affect investor confidence and India's ease of doing business.

Q. Retrospective taxation has long been a concern for investors in India. In light of the Adani Power–Mundra SEZ case, critically examine how retrospective levies affect investor confidence and India's ease of doing business. (15 marks, 250-350 words)

Article 265 permits no tax except by authority of law. The Supreme Court's January 2026 ruling in the Adani Power case — setting aside customs duty imposed on Mundra SEZ electricity supplied to the Domestic Tariff Area (DTA), retrospectively from June 2009 — illustrates why retrospective levies remain a persistent drag on India's investment climate, though the critique must be calibrated.

How retrospective levies erode investor confidence - Legitimate expectation defeated: the 4,620 MW coal-based plant contracted long-term PPAs with Gujarat and Haryana DISCOMs under a regime where no such duty existed; the levy was formalised only by a February 2010 rules amendment [1]. - Sunk-cost trap: infrastructure has long gestation and irreversible capital, so a backdated levy cannot be priced in or passed through, distorting tariffs ultimately borne by consumers [1]. - Reputational spillover: the Vodafone and Cairn disputes forced the government to nullify the 2012 retrospective amendment through the Taxation Laws (Amendment) Act, 2021 — an admission of the credibility cost [4].

Impact on ease of doing business - Prolonged litigation: a dispute running from 2009 to 2026, through the Gujarat High Court's 2019 order, locked capital and management bandwidth [1]. - Fiscal uncertainty in SEZs: Section 53, SEZ Act 2005 deems an SEZ outside India's customs territory — a legal fiction whose tax consequences must be predictable if SEZs are to attract investment [2]. - Administrative friction: the Court's eight-week refund deadline and its caution against "hyper-technical objections" signal that even a won case does not guarantee timely relief [1].

A balanced view - Retrospective clarification is not inherently illegitimate; the State may plug avoidance, and here the levy failed because delegated rules lacked a charging provision in the parent Customs Act, 1962 — a defect of legality, not of policy intent [1]. - Judicial review itself restores confidence, and SEZ policy continues to evolve prospectively, as with the 2026 conditional concessional duty on SEZ-to-DTA clearances [3].

Retrospective levies buy short-term revenue at the cost of long-term credibility. A prospective-only taxation norm, pre-legislative consultation on fiscal rules, and time-bound refund mechanisms would convert judicial correction into administrative certainty — advancing both Article 265's discipline and India's manufacturing and export ambitions.

(~330 words)

Sources: 1. The Hindu — "SC grants relief to Adani, sets aside levy on SEZ electricity" (January 6, 2026) — SC ruling, 2010 rules amendment and June 2009 retrospectivity, 4,620 MW Mundra plant and PPAs, 2019 Gujarat HC order, eight-week refund direction, absence of a charging event under the Customs Act, 1962 2. The Special Economic Zones Act, 2005 (India Code) — Section 53: SEZ deemed outside the customs territory of India 3. PIB — "Government notifies Conditional Concessional Customs Duty for SEZ to Domestic Tariff Area sales" (2026) — prospective SEZ-to-DTA duty concession 4. PIB — "Framing of rules for the amendments made by the Taxation Laws (Amendment) Act, 2021" — rollback of the 2012 retrospective taxation amendment