Adani Power Wins: SC Rules No Export Duty on DTA to SEZ Transfers

Introduction: A Landmark Judgment for SEZs

The Supreme Court of India, on September 23, 2025, delivered a significant verdict that provides substantial relief to companies operating in and supplying to Special Economic Zones (SEZs). In a ruling that settles a long-standing dispute, the apex court held that the transfer of goods from a Domestic Tariff Area (DTA) to an SEZ does not constitute an export. Consequently, such transactions are not liable for export duty under the Customs Act, 1962. The decision came as a bench comprising Justice B.V. Nagarathna and Justice R. Mahadevan dismissed an appeal filed by the Union Government against Adani Power Limited and other entities, thereby affirming earlier judicial pronouncements on the matter.

The Core of the Dispute

The legal battle stemmed from the interpretation of transactions between the domestic market and SEZs. Customs authorities had been levying export duties on goods moved from DTAs into these special zones. Their argument was based on the premise that SEZs are treated as foreign territories for the purposes of trade and customs. This interpretation placed a significant financial burden on domestic suppliers and created operational uncertainty for businesses within the SEZ ecosystem. Companies, led by Adani Power, challenged this stance, contending that an SEZ is fundamentally a part of India's territory and a transfer of goods to it is merely a domestic supply, not an export to a foreign country.

The Supreme Court's Decisive Ruling

The Supreme Court's judgment provided definitive clarity on the issue. The bench categorically stated that customs authorities cannot treat the movement of goods to SEZs as export transactions. The court observed that such transfers qualify as domestic supplies. This reasoning dismantles the argument that SEZs are entirely foreign territories for all legal and tax purposes. By dismissing the government's appeal, the court upheld the principle that a transaction must involve goods leaving the geographical boundaries of India to be classified as an 'export' liable for duty. This affirmation reinforces the legal framework established by the SEZ Act, which aims to create a hassle-free environment for economic activity.

Summary of the Case

Implications for Industry and Commerce

This landmark decision has far-reaching positive implications for Indian industry. For companies supplying raw materials, components, and finished goods to units within SEZs, the ruling eliminates a significant cost component, making domestic sourcing more competitive. It removes a major point of friction and litigation between businesses and tax authorities, fostering a more predictable and stable regulatory environment. Legal experts note that the judgment strengthens the SEZ framework, which is a critical engine for India's export promotion and manufacturing goals. By clarifying this crucial aspect of tax law, the court has provided a boost to the 'Make in India' initiative, as it encourages SEZ units to procure goods from the domestic market rather than relying on imports.

Upholding Previous Rulings

The Supreme Court's decision did not emerge in a vacuum. It affirmed the legal position established by lower courts, including the High Court of Gujarat at Ahmedabad. The Union Government had appealed the High Court's verdict, which had also ruled in favor of the companies. The apex court's dismissal of this appeal lends finality to the matter, ensuring a consistent judicial interpretation across the country. This consistency is vital for businesses making long-term investment and operational decisions related to SEZs.

Broader Economic Context

Special Economic Zones were established to act as engines of economic growth, supported by a framework of fiscal incentives and simplified procedures. The primary objective is to boost exports, attract foreign investment, and generate employment. The ambiguity regarding the levy of duties on domestic procurement was a significant impediment to achieving these goals. By classifying DTA-to-SEZ transfers as domestic supplies exempt from export duty, the Supreme Court has aligned the legal interpretation with the underlying policy objectives of the SEZ Act. This decision is expected to enhance the attractiveness of SEZs and encourage greater integration between these zones and the broader domestic economy.

Conclusion

The Supreme Court's ruling in the Adani Power case is a watershed moment for India's SEZ policy. By definitively stating that goods supplied from a DTA to an SEZ are not exports, the court has resolved a critical tax dispute in favor of the industry. This judgment provides much-needed legal clarity, reduces the cost of operations for businesses, and strengthens the overall framework designed to promote trade and manufacturing. The decision is a significant victory for Adani Power and countless other companies that will benefit from this stable and favorable legal precedent.