Author: Ashwarya Sharma, Advocate & Co-Founder, RB LawCorp
Date: 29/01/2026
The Supreme Court on Taxing Power, Delegated Legislation, and Limits
In Adani Power Ltd. v. Union of India (2026), the Supreme Court of India delivered a landmark ruling clarifying the constitutional discipline governing taxation, particularly in the context of Special Economic Zones (SEZs). The Court held that electricity generated within an SEZ and supplied to the Domestic Tariff Area (DTA) cannot be subjected to customs duty in the absence of a valid charging provision, reaffirming that taxation must rest on clear statutory authority.
Core Issue and Background
The dispute arose when the Union Government, through Notification No. 25/2010-Cus., sought to impose customs duty on electricity cleared from an SEZ to the DTA by labelling it as an “exemption” notification under Section 25 of the Customs Act. This levy was imposed retrospectively, despite the fact that electricity generated in India is not an imported good, and imported electricity itself attracted nil customs duty.
Key Constitutional Findings
The Supreme Court reaffirmed that:
- Section 12 of the Customs Act requires a clear taxable event of import into India, which does not occur in SEZ-to-DTA electricity supplies.
- Section 25 (exemption power) cannot be used to create or impose a tax—doing so amounts to a colourable exercise of delegated legislation.
- Section 30 of the SEZ Act is a parity provision, not a charging section; it cannot convert domestic supplies into imports.
- Retrospective levy through subordinate legislation violates Article 265 of the Constitution (“no tax without authority of law”).
Binding Nature of Judicial Precedent
The Court strongly criticised attempts to dilute or confine earlier judicial declarations. It held that once a court has ruled on the absence of authority to levy a tax, the State cannot reintroduce the same levy through subsequent notifications with altered rates or prospective application, unless the law itself is substantively amended. Judicial discipline requires coordinate benches and the executive to respect settled law.
Restitution and Taxpayer Protection
Having found the levy unconstitutional, the Supreme Court directed refund of all amounts collected for the subsequent period as well, holding that restitution is a necessary consequence of an illegal tax. The judgment reinforces that nomenclature cannot override substance, and executive convenience cannot substitute legislative authority.
Conclusion
The decision stands as a constitutional milestone, reaffirming that taxation must be grounded in law, not executive improvisation. It strengthens taxpayer protections, reinforces limits on delegated legislation, and restores balance between State power and constitutional accountability in fiscal governance.
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(The author is a practicing advocate, Co-Founder and Legal Head of RB LawCorp.
He specializes in GST law. Suggestions or queries can be directed to
ashsharma@rblawcorp.in. The views expressed in this article are strictly
personal.)
