Retrospective customs levy on SEZ power clearances invalid where exemption notification could not create a fresh fiscal burden.

A Gujarat High Court decision on SEZ customs treatment held that a proviso to Customs Notification No. 25/2010, which excluded electrical energy cleared from an SEZ to the Domestic Tariff Area and operated retrospectively from 26.06.2009, was invalid. The Court reasoned that an exemption notification under the Customs Act cannot create a fresh substantive levy or impose a retrospective fiscal burden without clear legislative authority, and that taxing provisions are ordinarily prospective. It also accepted that, once the retrospective levy failed, the corresponding customs demand could not survive and the interim bank guarantee furnished to secure it had to be returned.

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Issues: (i) Whether the proviso to Notification No. 25/2010-Customs dated 27.02.2010, which excluded electrical energy removed from a Special Economic Zone to the Domestic Tariff Area or non-processing areas, and its retrospective operation from 26.06.2009, were valid. (ii) Whether the petitioners were entitled to exemption from customs duty for the relevant period and consequential return of the bank guarantee.

Issue (i): Whether the proviso to Notification No. 25/2010-Customs dated 27.02.2010, which excluded electrical energy removed from a Special Economic Zone to the Domestic Tariff Area or non-processing areas, and its retrospective operation from 26.06.2009, were valid.

Analysis: The levy of duty on clearances from a Special Economic Zone to the Domestic Tariff Area operates under Section 30 of the Special Economic Zones Act, 2005, which adopts customs duty rates by reference for valuation and quantification. A notification issued under Section 25(1) of the Customs Act, 1962 can grant exemption, but it cannot be used to create a new substantive levy or impose an onerous burden retrospectively unless the legislative intent is clear. The Court also applied the settled principle that taxing statutes are ordinarily prospective and that ambiguity in fiscal imposition must be resolved against the revenue. Since electrical energy imported into India was already exempt, the impugned proviso singled out SEZ clearances for a fresh duty burden and operated retrospectively without a sufficient legal basis.

Conclusion: The proviso and its retrospective operation were held invalid and ultra vires, and the challenge succeeded.

Issue (ii): Whether the petitioners were entitled to exemption from customs duty for the relevant period and consequential return of the bank guarantee.

Analysis: Once the retrospective levy was found illegal, the demand for customs duty for the period 26.06.2009 to 15.09.2010 could not survive. The Court further accepted that the petitioners should not be subjected to double taxation where duty had already been borne on raw materials and consumables used for generation of power under the SEZ framework. The interim bank guarantee furnished only to secure the disputed levy had no further basis after the levy was struck down.

Conclusion: The petitioners were held entitled to exemption for the relevant period and to return of the bank guarantee.

Final Conclusion: The writ petition was allowed, the impugned proviso was quashed, and the consequential customs demand could not be sustained.

Ratio Decidendi: A notification issued under the exemption power cannot retrospectively impose a new customs burden where the charging framework does not clearly authorise such levy, and fiscal imposts are presumed prospective unless the contrary intent is unmistakably expressed.

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