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SC Verdict on SEZ Power Duty
The Supreme Court has delivered a significant ruling on the taxation of electricity generated within Special Economic Zones (SEZs) and supplied to Domestic Tariff Areas (DTAs). The apex court held that customs duty is not leviable on such power supplies, ordering refunds of duties previously paid. This decision clarifies a contentious point of law that has implications for SEZ operations and government revenue collection.
SEZ Framework and Duty Implications
Special Economic Zones were established as engines of economic growth, designed to foster exports through incentives like duty-free imports and income tax exemptions. Units within SEZs typically operate under a framework where goods cleared into the DTA are treated as if imported, subject to customs duties. Section 30 of the SEZ Act, 2005, mandates that goods removed from an SEZ to a DTA are chargeable to customs duties. However, the application of this to electricity has been a subject of dispute.
Legal Battle Over Electricity Levy
Historically, SEZ rules stipulated that if duty-free inputs were used to generate electricity supplied to the DTA, customs duty would apply to the portion of duty-free inputs consumed. A 2010 customs notification, later amended, attempted to impose customs duty on electrical energy cleared from SEZs to DTAs, with retrospective and prospective applications. This levy was challenged, leading to a series of High Court decisions. The High Court in 2015 ruled that an SEZ, while fiscally distinct, is not foreign territory and that intra-national electricity supply does not constitute an import. It also questioned the government's power to impose duties retrospectively under Section 25 of the Customs Act, which grants powers for exemptions.
Supreme Court Affirms High Court Ruling
Before the Supreme Court, the appeal stemmed from a 2019 High Court decision that upheld the prospective levy of duty on DTA clearances of electricity from SEZs. The Supreme Court has now affirmed the findings of the 2015 High Court judgment. The apex court emphasized that Section 25 of the Customs Act is for exemptions, not for imposing duties, terming the attempt to use it for levies as an 'inversion'. The court reiterated that if the intent is to charge duty, it must be done through the appropriate charging section, not the exemption route. The ruling also touches upon Rule 47(3) of SEZ rules, suggesting that once duty foregone on inputs is neutralized, further duty on the final product might be unwarranted.