The Supreme Court's ruling on customs duty on SEZ electricity reaffirms the principle that no tax can be levied without statutory authority. Discuss the legal and economic implications of this judgment for India's SEZ policy.

Q. The Supreme Court's ruling on customs duty on SEZ electricity reaffirms the principle that no tax can be levied without statutory authority. Discuss the legal and economic implications of this judgment for India's SEZ policy. (15 marks, 250-350 words)

Article 265 mandates that no tax shall be levied or collected except by authority of law [1]. Applying this, the Supreme Court on 5 January 2026, in Adani Power Ltd. v. Union of India, held that customs duty cannot be imposed on electricity supplied from a Special Economic Zone (SEZ) to the Domestic Tariff Area (DTA), setting aside the 2019 Gujarat High Court ruling [2].

Legal implications - Limits of delegated legislation: the February 2010 amendment to the Customs Rules could not create a charging event absent in the parent Customs Act, 1962; subordinate rules cannot expand a levy the statute never authorised [2]. - A legal fiction is not a charging provision: Section 53, SEZ Act 2005 deems an SEZ outside India's customs territory and Section 30 treats SEZ-to-DTA clearance as import [3], but this fiction alone cannot sustain duty on electricity. - Restitution against unjust enrichment: the Court directed the Commissioner of Customs to refund within eight weeks, cautioning against "hyper-technical objections" [2]. - Retrospectivity: the levy operated from June 2009, unsettling investment decisions taken under a duty-free regime — echoing the Vodafone–Cairn concerns [2].

Economic implications - Removes a hidden cost in power procurement; the 4,620 MW Mundra plant supplies Gujarat and Haryana DISCOMs under long-term PPAs, where duty ultimately loaded consumer tariffs [2]. - Restores fiscal predictability for SEZ infrastructure, benefiting other SEZ-based generators and lowering litigation costs. - Sharpens the SEZ–DTA fiscal boundary at a time when the Centre is deliberately calibrating it — the 2026 concessional duty on SEZ manufactured goods cleared to DTA, capped at 30% of the highest annual FOB export value of the preceding three years [4].

The judgment thus disciplines executive taxing power while stabilising SEZ economics. India's SEZ policy should now codify DTA-supply tax treatment through clear statutory provisions rather than rule-level improvisation, since tax certainty is itself an incentive — advancing ease of doing business and the export-led competitiveness SEZs were designed to deliver.

(~320 words)

Sources: 1. The Constitution of India — Article 265 (India Code) — no tax except by authority of law 2. Adani Power Ltd. v. Union of India, Supreme Court of India, judgment dated 5 January 2026 (Justices Aravind Kumar & N.V. Anjaria) — no statutory authority/charging event for duty on SEZ electricity; Gujarat HC 2019 set aside; 8-week refund; February 2010 rules amendment retrospective to June 2009; Mundra 4,620 MW plant and PPAs 3. The Special Economic Zones Act, 2005 (India Code) — Section 53 (outside customs territory), Section 30 (SEZ-to-DTA clearance treated as import) 4. PIB — Government notifies Conditional Concessional Customs Duty for SEZ to Domestic Tariff Area sales (2026) — 30% of highest annual FOB export value cap on concessional DTA sales