TaxTMI 
TaxTMI 
2026 (1) TMI 224
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....al refund of amounts deposited towards such duty. The High Court took the view that its earlier judgment delivered in 2015 in favour of the appellant was confined to a particular notification and period, and could not be extended to the later period or to subsequent notifications issued by the Union. Aggrieved, the appellant has approached this Court. 3. The controversy is not merely fiscal. It raises, in our view, questions that bear upon three foundational aspects of our legal order: first, the limits of delegated legislation in matters of taxation; secondly, the discipline of judicial precedent and the obligation of co-ordinate Benches to adhere to settled law; and thirdly, the obligation of the State to give effect to judicial declarations instead of reasserting, in altered form, a levy already declared to be without authority of law. 4. We have heard Mr. Chidambaram, learned senior counsel appearing on behalf of the appellant and the learned Raghav Shankar Additional Solicitor General appearing on behalf of the Respondents and before proceeding to consider their arguments it would be of relevance to note the factual background and it reads: I. FACTUAL BACKGROUND 5.....
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....come liable to duty. What is of significance is that this was stated to operate retrospectively from 26 June 2009. 10. In anticipation of this change, on 27 February 2010, the Central Government issued Notification No. 25/2010-Cus. What this notification purported to do was, in form, to "grant an exemption"; in substance, it introduced a liability. It stipulated that electrical energy cleared from an SEZ to the DTA would suffer customs duty at 16% ad valorem, with retrospective effect from 26 June 2009. On the very footing of this notification, the authorities raised demands upon the appellant for payment of duty at 16%, not merely prospectively but going back to June 2009. 11. The appellant challenged this levy by filing a writ petition before the High Court of Gujarat in 2010. The challenge was to the legality and constitutional validity of the impost on electrical energy so cleared. During the pendency of the writ petition, the High Court granted interim relief on 6 May 2010. The appellant was permitted to continue to clear electricity from the SEZ into the DTA without payment of the disputed duty, subject to furnishing a bank guarantee to secure the amount in dispute. The....
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....t intra-national supply of electricity into an act of import. There was, therefore, no identifiable charging event to attract customs duty under Section 12 in respect of such electricity. 16. The High Court held, secondly, that Notification No. 25/2010-Cus., though couched as an "exemption" notification, in truth operated as an instrument to impose duty. Section 25 of the Customs Act empowers the Central Government to exempt, in whole or in part, goods from duty that is otherwise leviable. That provision is beneficent in nature. It is a power to relax, not a power to create or levy tax. The High Court concluded that the Union could not, under the colour of exercising an exemption power, introduce a new levy at 16% ad valorem and then apply it retrospectively. The notification was, therefore, beyond the source of power: a colourable exercise of delegated authority. 17. The High Court held, thirdly, that the retrospective fastening of a 16% levy from 26 June 2009 violated the discipline of Article 265 of the Constitution which declares that no tax shall be levied or collected except by authority of law. The Court found that the executive could not, by subordinate legislation, r....
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....the appellant had paid per-unit customs duty at ten paise and three paise pursuant to Notification Nos. 91/2010-Cus. and 26/2012-Cus. respectively. After the 2015 judgment, the appellant sought refund of those amounts, contending that once the High Court had declared that no customs duty could be imposed on SEZ-to-DTA electricity clearances, any amount collected under the same head, though at a different rate and prospectively, were liable to be refunded. 23. The appellant thereafter instituted Special Civil Application No. 2233 of 2016 before the High Court of Gujarat. In the said writ petition, the appellant prayed for (i) a declaration that no customs duty was leviable on clearances of electricity from its SEZ unit to the DTA for the subsequent period as well; (ii) directions restraining the authorities from seeking to recover such duty; and (iii) consequential refund of the amounts already deposited under protest towards such levy for the period after 15 September 2010 and prior to 16 February 2016. 24. The writ petition of 2016 came to be adjudicated by a Division Bench of the High Court and by judgment dated 28 June 2019, which is the subject of this appeal, the High Co....
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....atment directly defeats the object of the SEZ Act and violates Article 14 of the Constitution. 29. It was next contended for the appellant that the Union could not, by issuing successive notifications at progressively lower rates (16% ad valorem; thereafter ten paise per unit; thereafter three paise per unit), achieve indirectly that which the High Court had already pronounced to be ultra vires. The appellant referred to the doctrine that a levy which is fundamentally unauthorised does not become lawful merely because the rate is altered, or because it is framed as prospective rather than retrospective. If the source is bad, every derivative iteration is equally bad. 30. Learned senior counsel also drew attention to the manner in which the levy was originally structured. Notification No. 25/2010-Cus. purported, on its face, to be an "exemption" notification. In reality, it operated as a charging instrument, introducing for the first time a 16% duty on electricity routed from the SEZ to the DTA, and doing so with retrospective effect. It was submitted that the power conferred by Section 25 of the Customs Act is a power to exempt goods from duty otherwise leviable; it is not a ....
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....e learned Additional Solicitor General contended that the subsequent notifications, namely Notification No. 91/2010-Cus. (ten paise per unit) and Notification No. 26/2012-Cus. (three paise per unit), operated prospectively for later periods and at nominal specific rates. According to the Union, those notifications represented a different fiscal measure with a distinct objective: namely, to recoup, in part, the customs duty benefit on duty-free inputs where power so generated was supplied into the DTA. It was urged that these later notifications were not placed under specific challenge in the first writ petition decided in 2015. 35. The Union further submitted that even in the appellant's 2016 writ petition, the later notifications were not, in form, separately impugned. On that basis, it was contended that the High Court in 2019 was correct in refusing to quash those notifications or to direct refund of the amounts paid pursuant thereto, as no court can strike down a statutory instrument or direct restitution on its basis unless that instrument is first subjected to judicial review. 36. It was also submitted on behalf of Union of India that the appellant had, for years, paid ....
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....ll be levied at such rates as may be specified under the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, on goods imported into, or exported from, India. (2) The provisions of sub-section (1) shall apply in respect of all goods belonging to Government as they apply in respect of goods not belonging to Government. 41. Section 30 of The Special Economic Zones Act, 2005 for reference: 30. Domestic clearance by Units.-Subject to the conditions specified in the rules made by the Central Government in this behalf,- (a) any goods removed from a Special Economic Zone to the Domestic Tariff Area shall be chargeable to duties of customs including anti-dumping, countervailing and safeguard duties under the Customs Tariff Act, 1975 (51 of 1975), where applicable, as leviable on such goods when imported; and (b) the rate of duty and tariff valuation, if any, applicable to goods removed from a Special Economic Zone shall be at the rate and tariff valuation in force as on the date of such removal, and where such date is not ascertainable, on the date of payment of duty. 42. Rule 47 of The Special Economic Zones Rules, 2006 for reference....
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....he Development Commissioner shall be examined in consultation with the State Electricity Board, wherever considered necessary: Provided that consultation with State Electricity Board shall not be required for sale of power within the same Special Economic Zone; (b) norms for production of a unit of power shall be approved by the Approval Committee; (c) sale of surplus power to other Unit or Developer in the same or other Special Economic Zone or to Export Oriented Unit or to Electronic Hardware Technology Park Unit or to Software Technology Park Unit or Bio-technology Park Unit, shall be without payment of duty; (d) for sale of surplus power in Domestic Tariff Area, the Unit shall obtain permission from the Specified Officer and the State Government authority concerned; (e) duty on sale of surplus power to the Domestic Tariff Area shall be as provided for in this rule. (4) Valuation and assessment of the goods cleared into Domestic Tariff Area shall be made in accordance with Customs Act and rules made there under. 160 (5) Refund, Demand, Adjudication, Review and Appeal with regard to matters relating to authorised operations un....
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....eed the statutory duty. Explanation.- "Form or method", in relation to a rate of duty of customs, means the basis, namely, valuation, weight, number, length, area, volume or other measure with reference to which the duty is leviable. (4) Every notification issued under sub-section (1) or sub-section (2A) shall, unless otherwise provided, come into force on the date of its issue by the Central Government for publication in the Official Gazette. * * * * * (6) Notwithstanding anything contained in this Act, no duty shall be collected if the amount of duty leviable is equal to, or less than, one hundred rupees. (7) The mineral oils (including petroleum and natural gas) extracted or produced in the continental continental shelf of India or exclusive economic zone of India as referred to in section 6 and section 7, respectively, of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (80 of 1976), and imported prior to the 7th day of February, 2002 shall be deemed to be and shall always be deemed to have been exempted from the whole of the duties of customs leviable on such mineral oils and acco....
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....erely that Notification No. 25/2010-Cus. Suffered from a drafting defect. It said, in substance: (i) there is no lawful charging event in respect of this commodity when cleared from an SEZ to the DTA; (ii) the Union cannot use an exemption notification to create a duty that Parliament has not imposed; (iii) retrospective demand without statutory sanction violates Article 265; and (iv) the structure produces arbitrary double burden. 50. We are of the clear view that these four propositions together constitute the ratio decidendi of the 2015 judgment. It follows that the 2015 judgment was not confined, in principle, to a single notification or to a particular cut-off date. The declaration of law extended to the very authority to levy customs duty on electrical energy cleared from an SEZ to the DTA in the statutory setting then prevailing. Absence a change in that setting, that declaration governed all periods standing on the same footing. 51. Accordingly we hold that the judgment of the Gujarat High Court dated 15 July 2015 was not a limited adjudication confined to the validity of one notification or to a closed span of time. It was a declar....
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....nction of imposing a tax or duty rests with Parliament and must be located in a charging provision. The executive cannot, by subordinate instrument, enlarge the field of taxation under the pretext of tailoring an exemption. 56. We consider it necessary to state this principle clearly. Delegated legislation is subject to judicial review not only for substantive unreasonableness, but also for purpose. Where the dominant purpose for which a delegated power is conferred is departed from, and the power is pressed into service to achieve an end for which it was never granted, the exercise is ultra vires. The immunity of a fiscal notification from scrutiny is no greater than that of any other form of subordinate legislation. 57. The High Court in 2015 correctly detected that inversion: a provision designed to grant relief (exemption) had been inverted to impose a burden (levy). Such inversion is not a mere irregularity; it is an illegality at source. The said finding of the High Court is in consonance with settled principles of law declared by this Court. Hence, we affirm said finding. 58. That conclusion has a direct bearing on the respondent's present defence. If the very manne....
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....attracts no customs duty, then, by force of Section 30, the same result i.e., no customs duty must follow for SEZ clearances of electrical energy. Nothing in Section 30 either authorises or contemplates the imposition of a fresh or differential levy singling out SEZ-generated power. 63. This parity logic sits at the centre of the scheme. Imported electricity bore no customs duty. SEZ electricity a like commodity was nonetheless subjected to duty. That differential treatment violates both the statutory parity mandated by Section 30 of the SEZ Act and the equality guarantee under Article 14. The High Court in 2015 captured this, and we reaffirm it. 64. The Union urged before us that the per-unit duties of ten paise and three paise were meant to recoup, in part, the benefit of duty-free inputs such as imported coal. That argument does not survive scrutiny. Rule 47(3) of the SEZ Rules already obliges the SEZ power generator, when electricity leaves the SEZ, to neutralise the customs duty foregone on inputs to that extent. The scheme already accounts for input duty benefit. Having so neutralised, to then impose an additional customs duty on the electricity output itself is to doub....
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.... said contention. It proceeds on a misconception of what was before the High Court in 2016 and what was finally decided in 2015. 68. The appellant's 2016 writ petition was not an abstract attempt to launch a fresh constitutional challenge to each successive notification in isolation. It was a sequel proceeding. 69. In administrative law, where a court of competent jurisdiction has struck down the foundation of a levy as ultra vires, that declaration renders all successive and derivative attempts to enforce the same levy equally unenforceable, unless the statutory or factual basis has materially changed. The State cannot defend the continuation of the same vice by saying, this is a different notification number. The Court is bound to look past the label and examine the substance. 70. To insist that the appellant ought to have challenged Notification No. 91/2010-Cus. and Notification No. 26/2012-Cus. afresh, when those notifications do no more than perpetuate the same unauthorised levy in altered denomination, is to elevate form over substance. Constitutional adjudication does not proceed on technical formalism when illegality has already been declared in principle. 71. T....
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....ge merely because the levy is sought to be continued under later or similar notifications. In the absence of any new statutory basis, such notifications do not create a new cause of action. A constitutional court is entitled to grant effective relief without insisting upon separate challenges to each such notification. The High Court, in the impugned judgment of 2019, erred in taking a contrary view. RE: QUESTION IV - EFFECT OF A BINDING DECLARATION ON A LATER CO-ORDINATE BENCH 75. There remains one further aspect of principle. The High Court's judgment of 15 July 2015 striking down the levy of customs duty on SEZ- to-DTA electrical energy was delivered by a Division Bench of that Court. The Union of India challenged that judgment before this Court. This Court declined interference. The High Court's judgment thereby attained finality, both as between the parties and as a binding declaration of law within that jurisdiction. 76. The writ petition filed in 2016 by the appellant came to be heard in 2019 by another Division Bench of the same High Court. That Bench, while noting the existence of the 2015 judgment, proceeded on the basis that the earlier decision was confined to ....
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....ine of stare decisis ensures coherence and predictability in law, which are indispensable to the legitimacy of adjudication. The 2019 Bench, by confining the earlier decision to a narrow time frame without referring the matter to a larger Bench, effectively unsettled a settled proposition and undermined the authority of precedent. Such a course was impermissible. The coordinate Bench was duty-bound to apply the ratio of the 2015 judgment to the appellant's case, and its failure to do so vitiates the impugned decision. 81. We now turn to an aspect which goes beyond the immediate dispute between the parties. The case also concerns the obligation of the administration to give full effect to judicial decisions once they have attained finality. The authority of the rule of law rests not only in the pronouncement of judgments but equally in their proper implementation. It is therefore necessary to briefly recall the principles that govern the conduct of the executive after a court has finally settled the legal position. 82. When a High Court of competent jurisdiction declares a levy to be ultra vires and unconstitutional, and this Court declines to interfere, that declaration canno....
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....ld be imposed on electrical energy cleared from an SEZ into the DTA? And, according to our observations above it stood answered in 2015 and that answer withstood scrutiny by this Court also. What ought to have followed thereafter was faithful implementation, not renewed resistance. 86. Accordingly, we summarise our conclusions as follows: (i) The Gujarat High Court's judgment dated 15 July 2015, as a matter of law, declared that customs duty could not be levied on electrical energy cleared from the appellant's SEZ unit to the DTA, having regard to the absence of a lawful charging event under Section 12 of the Customs Act, the limited scope of Section 25 of that Act, the parity requirement of Section 30 of the SEZ Act and the constitutional constraints of Articles 14 and 265 is squarely applicable to the judgment and order dated 28.06.2019. (ii) That declaration was not confined in principle to Notification No. 25/2010-Cus. or to the period ending 15 September 2010. It went to the authority to levy customs duty on SEZ-to-DTA electricity clearances in the statutory setting then obtaining. (iii) The subsequent notifications namely, Notification No. 91/201....