Case Law Details
In re United Breweries Limited (CAAR Mumbai)
In a notable ruling by the Customs Authority for Advance Rulings (CAAR), Mumbai, the case of M/s. United Breweries Limited raises critical questions about the classification and customs treatment of International Renewable Energy Certificates (I-RECs). The ruling, sought on February 15, 2024, delves into whether I-RECs, acquired electronically, are subject to customs duties and how they should be classified under the Customs Tariff Act, 1975.
Detailed Analysis
Background of the Case
M/s. United Breweries Limited, a prominent entity in the renewable energy sector, sought clarification on the import and classification of I-RECs, which are digital tokens representing one megawatt-hour (MWh) of renewable energy generated and added to the grid. These certificates, typically in electronic form, are used to offset carbon emissions and are purchased from international suppliers.
The applicant’s main queries were:
1. Whether I-RECs in electronic form are classified as goods under the Customs Act, 1962.
2. Whether I-RECs must be imported in physical form to be subject to customs duty.
3. The classification of I-RECs under the Customs Tariff Act, 1975.
Key Points from the Ruling
1. Classification of I-RECs as Goods
- According to Section 2(22) of the Customs Act, 1962, ‘goods’ includes movable property, which can be tangible or intangible. The Supreme Court’s decision in Tata Consultancy Services vs. State of Andhra Pradesh confirmed that intangible properties, such as software, qualify as goods if they have attributes like utility, capability to be bought and sold, and transferability.
- The CAAR Mumbai ruling draws a parallel between software and I-RECs, concluding that I-RECs, when electronically transmitted, qualify as intangible goods.
2. Customs Duty on Intangible Goods
- The ruling highlights that the current Customs Act lacks mechanisms to levy and collect duties on intangible goods. The provisions of the Act, which include the determination of duty rates and procedures for unloading and inspection, apply to tangible goods only.
- Citing the CESTAT judgment in Oracle India Pvt Ltd, the CAAR concludes that the absence of a collection mechanism means that electronically downloaded I-RECs cannot be subjected to customs duties.
3. Import Requirements for Physical Form
- If I-RECs were to be imported physically, they would fall under Heading 49.07 of the Customs Tariff Act, 1975, which covers documents of title such as share and bond certificates. This heading includes documents that confer ownership or entitlement to goods or benefits, which would encompass I-RECs in physical form.
Conclusion
The CAAR Mumbai’s ruling in the case of M/s. United Breweries Limited provides clarity on the treatment of I-RECs under Indian customs law. The decision underscores that:
- I-RECs, when downloaded electronically, are classified as intangible goods.
- Due to the absence of a collection mechanism for customs duties on intangible goods, such I-RECs are not subject to customs duties.
- If imported in physical form, I-RECs could be classified under Heading 49.07 of the Customs Tariff Act, 1975.
FULL TEXT OF THE ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, MUMBAI
M/s. United Breweries Limited (having INC No. 0788(13785 and hereinafter referred to as ‘the applicant’, in short) filed an application (CAAR-1) for advance ruling before the Customs Authority for Advance Rulings, Mumbai (CAAR in short). The said application was received in the secretariat of the CAAR, Mumbai on 15.02.2024 along with its enclosures in terms of Section 2811 (1) of the Customs Act, 1962 (hereinafter referred to as the ‘Act’ also). The applicant is seeking advance ruling on the following questions:
Question 1: Whether I-RHCs arc intangible goods, taxable under the Customs Act, 1962 when imported in the electronic form and consequently subject to duties of Customs?
Question 2: Whether the I-R1…Cs arc mandated under the Customs Act, 1962 to be imported in a physical form?
Question 3: Whether the I-RIX:s are classifiable as goods tinder the Custf»ns Tariff Act. I.975 when they, are imported into India in the physical 1.6.m?
2. Applicant has submitted as follows with the CHAR-1 application:
2.1 The Applicant has entered into an agreement with a foreign supplier based outside India for purchase of 90,000 MWh of International Renewable Energy Certificates (“1-RECs”). An I-REC represents transferrable proof that one megawatt-hour (MWh) of electricity was produced from renewable energy sources and added to an electrical grid. Purchasing an IRE(‘ allows the buyer to claim consumption of one MWh of renewable energy. 1-RECs can originate from-.wind, solar, ocean energy. biomass, hydropower, aerothermal, geothermal, and landfill gas projects. They can be used by organizations to offset their carbon emissions. l-RECs arc issued by authorized entities in the form of a digital token and as such, no physical form of the same is available. This token can he transferred multiple times until final redemption. Thus. Renewable knell*, Certificates (R I-1Cs) are a market-based instrument that certifies that the bearer owns. one MWh of-electricity generated from a renewable energy resource. Once the power provider has fed the energy into the grid, the REC received can then be sold on the open market as an energy commodity. In the instant case, the Applicant has purchased I-RECs once, vide invoice number 14018130109888A dated 14.12.2023, issued by International Organisation based out of India and would be paying to such foreign supplier an all-inclusive amount in foreign exchange. As these 1-RECs arc not in the physical form, the Applicant has downloaded the same into India in an electronic form. The Applicant wishes to continue importing I-RECs in a similar fashion in the future.
2.2 The 1-RECs will not be physically imported into India and thus, the essential question is whether .1-RIX7s downloaded in an electronic form or sent through e-mail \VI 11 he classified as goods under the Customs Tara Act, 1975 and consequently, would this be subjected to duties of Customs. Section 2(22) of the Customs Act, 1962 defines goods as below:
“goods’. includes-
(a) vessels. aircrafts is and vehicles;
(h) stores;
(c) baggage,.
(d) currency and negotiable instruments; and
(e) any other kind of movable property;
2.3 In the case of Tata Consultancy Services v/s State of Andhra Pradesh 2004 (11) TM1 11, the Hon’ble Supreme Court of India in the context of levying Sales Tax on computer software, held as under:
A ‘goods’ may be a tangible property or an intangible one. It would become goods provided it has the attributes there having regard to (a) its utility; (b) capable of being bought and sold; and to capable of transmitted, transferred, delivered, stored and possessed. If a software whether customized or non-customized satisfies these attributes. the mime he goods.
Applying the above test of Tata Consultancy Services v/s State of Andhra Pradesh to the instant case, it can be seen that 1-RECs qualify as goods and when electronically, transmitted, and downloaded, the same would be intangible goods. In this context, reference can be made to the decision of the CESTAT, Delhi in the case of SI MIAMI., KAUSI-IIK, SHRI MUSH/1N DI IAWAN, M/S. ORACLE INDIA PVT. LTD. VERSUS C.C. (EXPORT), NEW DELHI,2015 (9) TMI 317 – CESTAT NEW The relevant portion of the decision rendered in the context of download of software is reproduced herein-as under:
“12. We shall now discuss whether the software electronically downloaded via Internet will qualify to he called goods imported and if so, whether the same will be liable to Customs duty leviable on such software imported as media pack. In the case of Digital equipment’s India (supra), CESTAT held that e-mail transfers not being transfer of movable property are not to be regarded as goods. The WTO Ministerial Conference Declaration on Global Electronic Commerce No. (98)./Dec/2, dates 25.05.1998 also stated that …. Members will Continue their current practice of not imposing Customs Duties on electronic transmission. The General Council was to review this declaration and its extension was to be decided by consensus. Ld. Departmental Representative strenuously argued that electronic download of the impugned software tantamount to import of goods and relied heavily on the judgement of the Supreme Court in the case of Tala Consultancy Services (supra). The Hon’ble Supreme Court in para 24 of its judgement slated as under:-
“24. In our view, the term goods as used in Article 366(12) of the Constitution of India and as defined under the said Act are very wide and include all types of movable properties, whether those properties be tangible or intangible. We are in complete agreement ‘with the observations Made by this Court in Associated Cement Companies Ltd. (supra). A software programme may consist of various commands which enable the co computer to per form a designated task.
The copyright in that programme may remain with the originator of the programme. But the moment copies’ are made and marketed, it becomes goods, which are susceptible to sales lax. Even intellectual properly. once it is put 011 to a media, whether it he in the form of books or canvas (in case of painting) or computer discs or cassettes, and marketed would become goods. We see no difference between a sale of a software program on a CD/floppy disc from a sale of Music on it cassette/CD’or a sale of a film on a video cassette/CD. in all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot he split up. What the buyer purchases and pays for is not the disc or. the CD. As in the case of paintings on books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc’ or (I). Thus, a transaction sale of sale of computer software is clearly a sale of goods within the Meaning of the term as defined in the said term all materials articles and commodities include both tangible and intangible /incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered stored, possessed- etc. .The software programmes have- all these attributes.”
It further observed in paras 34 and 74 as under:-
“34. The definition of goods in Sale of Goods Act is also of wide import which means every kind of moveable property Property has not been defined therein to mean the general property in goods and not merely a special property h is not much in dispute that goods would comprehend tangible and intangible properties, materials, commodities and articles and also corporeal and incorporeal materials articles and commodities. If a distinction is sought to be made between tangible and intangible properties, materials, commodities and articles and also corporeal and incorporeal materials,’ the definition of goods will have to be rewritten,. of comprising tangible goods only which is impermissible.
74. It is not in dispute. that when a programme is created it is necessary. to encode it, upload the scum and thereafter unloaded. Indian law, as noticed by no. learned Brother, Variava, does not make any distinction between tangible property and intangible property. A goods may be a tangible property or an intangible one. It would become goods provided it. has the attributes thereof having regard.to (a) its utility; (b) capable of being bought and sold; and (c) capable of transmitted, transferred, delivered, stored and possessed. If a software whether customized or non-customized satisfies these attributes, the same .would be goods. Unlike the. American Courts, Supreme Court of India have also, not gone into the question of severability..”
From this judgement, it is clear that software even. in its intangible firm has been declared to be goods by the Supreme Court and therefore electronic download of software from a serve,- located abroad would get captured in the scope of import of goods. A Ministerial Declaration at a It-10 conference does not have legal force of overruling a legislated mandate. However, in case of electronic downloads of software, it has not been ascertained whether server from where it was downloaded was actually located abroad Even presuming it to be so, we need to see whether mechanism exists to levy and collect Customs duly on such downloads. The Customs Act, 1962 contains several provisions for operationalising the levy and collection of Customs Duty. For example, for the date for determination of rate of duty and tariff valuation of imported goods, Section 15 provides that in case of goods entered for home consumption under Section 46, it will the date on which Bill of Entry for such goods is presented. As per Section 7, CI3EC appoints ports and airports which alone shall be Customs ports and airports for loading and unloading of goods. Section 8 provides for approval of proper places in any Customs ports, airports for loading or unloading of goods and for specifying the limits of any customs area. Section 31 provides that imported goods are not to be unloaded from any vessel unless entry inward is granted Section 32 provides that no imported goods can be unloaded unless they are mentioned in the import manifest or import report. Section 33 provides for loading and unloading of goods at approved places only and Section 34 provides that goods are not to he unloaded or loaded except under supervision of Customs officer. Section 36 puts restrictions for loading and unloading of goods on holidays, etc. From the above (illustrative) provisions. of Customs Act, 1962, it is evident that the entire Customs Act in the present form provides mechanism/procedure for levy and collection of duty only in respect of tangible goods. Software is intangible, can be downloaded anywhere, from anywhere, at any time and none of the above referred provisions of Customs Act, 1962 are capable of being applicable/ enforceable in respect of such downloads. Indeed, anyone having even a nodding acquaintance with the Customs Act, 1962 will not dispute that in its present form, it totally lacks the mechanism to levy and collect duty on electronic downloads. It is well settled principle of taxation that in absence of mechanism for collection of tax, the levy fails /refer e.g. the judgement of Supreme Court in the case of CIT, Bangalore Vs. B.C. Srinivasa Setty (supra)]. Thus, we hold that electronically downloaded software is not liable to Customs duty. Consequently, the demand of service tax relating to electronically downloaded software is not sustainable even for such. downloads in respect’ of which remitted licence .fee to Oracle USA: The reasoning is also squarely-applicable with regard to duty demand in relation to that is referred to as global deals mentioned in /arcs 3.11 and 3.15. Incidentally, paper licences (for software idreadv downloaded) are classifiable under Chapter 4’9 as has been opined by CREC also vide Circular No. 15/2011-Cus, dated 18.03.2011 and such paper licences under Chapter 49′ are fully exempt from Customs duty.
2.4 The applicant submits that in the instant case I-RECs-downloaded in an electronic form will qualify as intangible goods and would be subjected to duty of t However, as the Customs Act, 1962 totally lacks the mechanism to levy and collect duty on’ intangible goods, Custom, duty would not be chargeable on. such import of 1-REC. As observed by ,Hon’ble CESTAT in the decision of Atul Kaushik, Shri Krishan Dhawan M/s Oracle India Pvt Ltd mentioned above, it’ is a well settled principle that in the absence of mechanism to collect the tax, the tax levy of any law fails, (reference ‘the Apex Court judgment in the case ‘of CTI, Bangalore Vs.-B.C Srinivasa Shetty 1981 (2) TMI 1) Therefore, it can be- concluded that 1-RECs when downloaded in the electronic 2orrn will not be classifiable as goods under. the Customs Tariff Act, 1975. Consequently, it will not be subject to duty of Customs. The aforesaid CESTAT judgment has been affirmed by the Hon’ble Supreme Court as well in the case of COMMISSIONER VS. ORACLE INDIA PVT ETD 2017 ( I) TMI 475 SC ORDER. Thus, as per the said judgements, intangible goods are not classifiable under the Customs Tariff Act, 19’75 as there is ho Mechanism provided for the levy and collection or duty in respect of intangible goods. As there is lack of machinery provisions in the Customs Tariff Act, 1975, as it stands today, intangible goods are not classifiable as goods and cannot he subjected to levy of customs duty under the provisions of Customs Act, 1962. Therefore, in the instant case, RECs downloaded in the electronic form will qualify as intangible goods. However, due to lack of machinery provisions, they will not be classifiable as goods under the Customs Tariff Act, 1975 and consequently cannot be subjected to levy of duties of Customs.
2.5 The Customs Act, 1962 does. not mandate the import of intangible goods in a physical form. But if, for the sake of argument, the goods arc imported into India in a physical .form. they will be classified appropriately under the applicable Heading of the First Schedule to the Customs Tariff Act, 1975 as it qualifies as tangible goods. The Customs Tariff is aligned, up to the 6-digit level. with the I larnion ized System of Nomenclature (`HSN’) issued by the World Customs Organization (- WCO- ). The 1ISN Explanatory Notes released by the WCO aid in the interpretation of the Pleadings of the Tara and may be used as a safe guide for the same. it has been held so by the Supreme Court in the case of Collector of Customs, Bombay v. Business Forms Ltd. Thr. al—, 2002 (142) E.L.T. 18 (S.C.). The classification of the goods under the Customs. Tariff Act, 1975 is governed by the principles as enumerated in the General Rules of Interpretation (`ORP) set out in the First Schedule to the Customs Tariff Act, 1975. As per Rule 1 of the OR!, classification of the imported products shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the remaining Rules of the GRI. GRI 1 stipulates that the goods under consideration should be classified in accordance with the terms of the fleadings and any relevant Section or Chapter Notes. These Section or Chapter Notes. and Sub-Notes give detailed explanation as to the scope and ambit of the respective Sections and Chapters. These Notes have been given statutory’ backing and have been incorporated at the top of each Section Chapter. The possible heading under which the product in question could be classified are I leading 49.07 of the Customs Tariff Act, 1975. The relevant portions of the Customs Tariff Act, 1975 and the I ISN explanatory notes to the same arc reproduced herein as under:
Heading 49.07 of the Customs Tariff Act, 1975
HSN Explanatory Notes to Heading 49.07
49.07- Unused postage, revenue Or similar stamps of current Or new issue in the country in which they have, or will have, a recognised face value; stamp-impressed paper; banknotes; cheque for stock, share or bond certificates and similar documents of title.
The characteriki6 of the products of this heading is that on being issued (if necessary, after completion and validation) by the appropriate authority, they have a fiduciary value in excess of its intrinsic value.
These products comprise:
……………………………………..
(F) Stock, share or bond certificates and similar documents of title. These are formal documents issued, or for issue, by public or private bodies conferring ownership of or entitlement to, certain financial interests, goods or benefits named therein. Apart from the certificates mentioned, these documents include letters of credit bills of exchange travelers’ cheques, bills of lading, tide deeds and dividend coupons. They usually require completion and validation.
Banknotes, cheque forms, and stock, etc., certificates are generally printed 011 special paper bearing special water markings or other marks, and are usually serially numbered are however excluded from this this heading and are generally classified in heading 49.11. Products of the kinds described fall in this heading when in quantity as a commercial transaction usually by the issuing authority, whether or not documents (e.g., Share certificates) rewire completion and validation.
2.6 The applicant submits that from a perusal of Heading 49.07 of the Customs tariff Act, 1975 and the USN Explanatory. Notes, it follows that —
(a) This heading covers, inter alia, share or bond certificates and similar documents of title.
(b) it covers those documents that confer ownership of or entitlement to financial interest. goods or the benefits named therein-in:
In the instant case of the Applicant, I-ERCs in question would qualify as documents of title conferring ownership of goods or benefits on the Applicant. From the nature of the document in question, it if evident that the I-ERCs assign ownership to’ the renewable. electricity generated and its use. In ‘other words, the I-ERCs certify that the bearer owns one MWh of electricity generated from a renewable energy resource.
In this context, reliance can also be placed on Circular No. 46/20/2018-GST dated 6th June, 2018 issued in the context of applicable GST rate on Priority Sector Lending Certificates (PSLCs), Renewable Energy Certificates (RECs) and other similar. scrips. As per the said Circular, renewable energy certificates are classifiable under the I leading 49.07 of the Customs Tariff Act, 1975. The relevant portion of Circular is reproduced herein as under –
6. As such, various certificates like RECs, PSLCs etc. are classified under heading 4907 and will accordingly attract GST (a) 12%, though duty paring scrips classifiable under the same heading will attract Nil GST (under S. No. 1224 of Notification No. 2/2017, Central Tax (Rate) dated 28.06.2017, as amended vide Notification No. 35/2077-Central Excise(Rate) dated 13.10.2017.
7. Accordingly, in modification of S.No.3 of Circular No.34/8/2.018-GST dated 01.03.2018, it is hereby clarified that Renewable Energy Certificates (RECs) and Priority Sector Lending Certificates (PACs) and other similar documents are classifiable under heading 4907 and attract 12% GST The. duty credit scrips, however,-attract Nil GST under S. No. 22A of Notification No. 2/2017, Central Tax (Rate) dated 28.06.2017.
Thus, 1-RECs being a document of title will be classifiable under the I leading 49.07 of the Customs Tariff Act, 1975 and more precisely under the Tariff item 4907 00 90. .
2.7 In light of the aforementioned submissions, the Applicant has sought to enter the following questions for Advance Ruling and its understanding, as under:
Question 1: Whether I-RECs are intangible goods, taxable under the Customs Act,- .1962 when imported in the electronic form and consequently subject to duties of Customs?
Applicant’s Understanding: No.I-RECs downloaded in the electronic: form are intangible goods and will not be classifiable as goods under the Customs Tariff Act, 1975., Consequently, it will not be subject to duties of Customs.
Question 2:,Whether the I-RECs are mandated under the Customs Act, 1902 to be imported in a physical form?
Applicant’s Understanding: No. The Customs Act., 19.62 or the Customs Tariff Act, 1975 do not mandate the import of 1-Rlts in the physical form?
Question 3: Whether. the I-RECs are classifiable as goods under the Customs Tariff Act, 1962 when they are imported into India in the physical. form?
Applicant’s Understanding: Yes. The 1-RECs when imported in a physical form qualify as documents of title and are therefore classifiable under Heading 49.07 of the Customs Tariff’ Act, 1975 and more precisely, under the Tariff item 4907 00 90.
3. A personal hearing in the matter was conducted on 04.06.2024 in the office of CA.A.R., Mumbai. During the personal hearing the authorised representatives of M/s. United Breweries Limited, Shri Ramachandran, Advocate and Shri Naveen Kumar S., Advocate reiterated the contention made in the applicant. It was specifically asked from the Ld. Advocates, to explain the authenticity of the I-RF,Cs and their record keeping, monitoring and actual uses. They submitted that they will provide a written submission regarding the safeguards procedures to be followed and sought one-week time which was granted. They also relied upon the case laws/circulars already cited in the application.
Nobody appeared from the concerned jurisdictional Commissionerate, Courier Cell, International Courier Terminal, Airport Air Cargo Complex, Bangalore for the personal hearing nor they have submitted any comments on the subject application till date.
4. The Ld. Advocate present for the applicant has further provided a written submission regarding Regulatory Mechanism for I-P,ECs as follows:
In India, the concept of RPO (Renewable Purchase Obligation) has been referred to in section 86(I)(e) of the Electricity Act, 2003. as well as in the National “Tariff Policy 2006 laid down by the Ministry of Power, Government of India. It mandates that certain entities will have to purchase electricity up to a specified percentage of their total electricity consumption from renewable energy sources only. However. in India there is disparity among states in terms of availability of Renewable Energy sources. In order to maintain uniformity among states, promote the concept of RPO and enable entities to meet their RPOs. the concept of Renewable Energy Certificates (RICs) was introduced in the Indian market. The Central Electricity Regulation Commission(CERC) and its CERC Regulations 2022, with respect to RECs, arc important instruments when it comes to governance of the entire Renewable Energy Certificate Market segment.
CERC has also laid down a procedure that has to be followed during the redemption of RECs and is applicable to the eligible entities that chooses to place the IRECs for dealings in any of the Power Exchanges as the Renewable Certificate holder may consider appropriate.
While speaking of IRECs, ‘the globally renowned non-profit organisation Viz. the `International Tracking Standard Foundation’ grants ”accreditation to companies that issue International Renewable Energy certificates (I-RECs) and monitors the Sallie. The organisation was founded in. 2015 as the “International REC foundation’ (I-RECs Standard): eventually re-branded into I-TRACK.
The I-TRACK’ foundation provides a robust standard for developing attribute tracking systems’ and is acknowledged by major reporting frameworks such as the Greenhouse Gas Protocol. (GHGP) (Carbon Disclosure Project) and R E100 as a reliable organisation for credible. and auditable tracking instruments.
The ‘international Attribute Tracking Standard’ is -a set of requirements that ensures the quality of attribute tracking systems is of the highest quality and meets the most rigorous expectations of stakeholders, market parties, and end-users. It approves the issuance of IRECs when the issuing entities have developed the Product’ under the said standard… It also maintains a”global registry of 1AW,Cs known ‘as. ‘Evident’ to enable trading of IRECs. Countries like Bra/il, China and also India use IREC standards to verify and certify the clean attributes of their renewable energy
Green Certificate Company (GCC) is an authority accredited by the I-TRACK. that provides Certification and verification processes for renewable energy sources for various projects. It has developed a protocol ‘to approve IRECs that would be internationally recognized. Such an is then transferred by GCC to South Pole Asset Management Company. South Pole Asset Management develops and implements comprehensive emission reduction ‘projects and strategies along with partners such as the World Economic Forum: After the said transfer. for all means and purposes, South Pole Asset Management is the owner. of the IRECs and in turn transfers the same to Interested-parties such as United Breweries Ltd. who shall redeem them.
5. I have taken into consideration all the materials placed on-record ‘in respect of the subject goods including the submissions made’ by the applicant ‘during the course of/after personal hearing. I therefore proceed to decide the present application regarding Import or CS on the basis of the in formation’ on record as well as the existing legal framework having bearing on questions asked in the present application.
6. It is observed from available-open source information that International Renewable Energy Certificates (I-RECs ) are instruments that certify the generation, of renewable energy from a specific source. These certificates playa significant role in the global efforts o transition to clean energy by allowing companies and individuals.to support renewable. energy projects, irrespective of their geographic location. I-IRECs represent proof that I megawatt hour (MWh) of electricity has been generated from a renewable energy source and fed into the grid. These certificates arc part of a broader, system designed to track and verify the, production of renewable energy. By purchasing IRECs, organizations can financially support renewable energy projects globally. Companies can use I-RFICs to make claims about their renewable energy consumption and carbon footprint reduction. In some regions, companies, can use I-RFICs to meet renewable energy mandates or sustainability goals. Renewable energy. producers generate electricity and receive I-RFICs for the energy produced. IRECs can be traded or sold in the market. Organizations can buy I-RFICs to support renewable energy and meet their sustainability targets. When a company or individual wants to claim the renewable energy benefits, the 1-REC is retired or redeemed, ensuring it cannot be used again. Organizations can support renewable energy projects any where in the world, regardless of their ‘physical location.
The system ensures that the ‘renewable energy generation is verified and tracked, providing confidence in the environmental claims. Renewable Energy Certificates provide a flexible and market-driven approach to supporting renewable energy projects worldwide. They enable organizations to claim renewable energy use, meet regulatory requirements and Support the global transition to a low-carbon. economy. However.’, it is essential for- stakeholders to ensure that their use of 1-RECs leads to genuine environmental benefits and contributes to the growth of renewable energy capacity.
7. Section 12 of the Customs Act provides that Excepts otherwise provided; in this Act, or any tither- law Ear the time being in force duties of customs shall be levied at such rates as may be specified under the Customs ‘Tariff Act, 1975 (51 or 1975) or any other law for the time being in force, on goods imported into, or exported from, India. As per the definition of the goods provided in Section 2 ibid, the term ‘goods’ includes “vessels, aircrafts and vehicles; stores; baggage; currency and negotiable instruments; and any other kind of movable property” within its ambit. The case law cited by the Ld. Advocate i.e. Tata Consultancy Services vs. State of Andhra Pradesh 2004 (11) TMI 11, the Hon’ble Supreme Court of India in the context of levying Sales Tax on computer software, held that ‘A ‘goods’ may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of transmitted, transferred, delivered, stored and possessed. If a software whether customized or non-customized satisfies these attributes, the same would he goods’.
The I,d. Advocated in the instant case has submitted that the I-RECs will not be physically imported into India and these will be downloaded in an electronic form or sent through e-mail. Obviously, I-RECs are an intangible property and further applying the test as prescribed by the flon’ble Supreme Court of India in the above case law, it is observed that the 1-RECs are intangible goods. From the submissions filed on behalf of the applicant, it is observed that I-RECs have utility as applicant has proposed to utilise these 1-RECs to meet its Renewable Purchase Obligation as mandated under section 86(1)(e) of the Electricity Act. 2003, as well as in the National Tariff Policy 2006 laid down by the Ministry of Power, Government of India. These certificates are utilised by organizations to of That their carbon emissions. ‘[he `International Attribute Tracking Standard’ approves the issuance of IRECs when the issuing entities have developed the product under the said standard. CERC has also laid down a procedure that has to be followed during the redemption of RECs and Is applicable to ‘the eligible entities that chooses to place the RECs for dealings in any of the Power Exchanges as the Renewable Certificate holder may consider appropriate. The applicant has bought these certificates and has proposed to import/download from outside India. It is observed that I-RECs arc capable of being bought and sold. Further, I-RECs are capable of transmitted, transferred, delivered, stored and. possessed. These certificates are proposed to be downloaded, delivered to, stored and going to he possessed by the applicant.
Therefore I-RECs can he categorised as ‘goods’ as these certificates have the attributes thereof’ having regard to all the three points prescribed in the above case law.
8. CESTAT, Delhi in the case of SI RI KAUSI IIK, SI WI KRIS! IAN DI IAWAN, M/S: ORACLES INDIA PVT. LTD. VERSOS C.C. (EXPORT), NEW 2015 (9)-TMI317 – CESTAT NEW 1)F1,111 has observed that “the entire Customs Act in the present form provides mechanism/procedure for levy and collection of duty only in respect of tangible goods. Software is intangible; can be downloaded anywhere, from anywhere; at any time and none of the above referred provisions of Customs Act, 1962 are capable of being applicable/ enforceable in respect of Such downloads. Indeed, anyone having even a nodding acquaintance with the Customs Act, 1962 not dispute that in its present form, it totally lacks the mechanism to levy and collect duty on electronic downloads. It is well settled principle of taxation that in absence…of mechanism .for collection of tax, the levy fails [refer e.g. the judgement of Supreme Court in the case of CIT, Bangalore Vs. B.C. Srinivasa Seto (supra). Thus, we hold that electronically downloaded software is not liable to Customs duty. Consequently, the demand of service lax relating to electronically downloaded software is not sustainable even for Such ‘download’s’ in. respect of which OIPL, remitted licence fee to Oracle USA. The reasoning is also squarely applicable with regard to duty demand in relation to what is referred to as” global. deals mentioned in paras 3.1 I and 3.15. Incidentally, paper licences for software’ already downloaded) are Classifiable Under Chapter 49 as. has been opined by CBEC also vide Circular No.15/2011-Cus, dated 18.03.2011 and such paper-licences under Chapter 49 are Ally exempt from Customs duly”.
I have also gone through the provisions of Customs Act and it is observed that it doesn’t have the mechanism for the levy of Customs duty on download of certificates/software from abroad.
9. Further, it is observed that in plethora of judgements, Hon’ble High Court and The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) have held that software downloaded electronically from abroad and not imported on any physical media does not attract customs duty.
i). Repro India Ltd. v. Union of India 2007 (218) ELT 192 (Born.): The Bombay High Court addressed the issue of-whether customs duty could be levied on software embedded in imported hardware. The court held that when software is imported on physical media (such as CDs or embedded in hardware), it is subject to customs duty. This case clarified the distinction. between software imported on physical media and electronic downloads, the latter of which are generally not subject to customs duty.
ii). M/s Infotech Software Dealers Association v. Union of India 2010 (252) ELT 181 (Mad.): The Madras High Court in this case dealt with the applicability of customs duty on software imported. via physical media versus electronic downloads. The court upheld the view that electronically transmitted software is not subject to customs duty, reinforcing the distinction based on the mode of delivery.
iii). Reliance Industries I ,td. v. Commissioner of Customs, Mumbai 2004 (178) ELT 568 (Tri. – Mumbai): CESTAT held that software downloaded electronically. from abroad and not imported on any physical media does not attract customs duty. The Tribunal distinguished between physical imports and electronic transmissions, emphasizing that customs duty is applicable to goods physically imported into the country.
iv). State Bank of India v. Commissioner of Customs 2015 (325) ELT 631 (Tri. Mum). The Tribunal held that software imported through electronic download and not through physical media does not attract customs duty. This decision was consistent with the view that customs duty is levied on tangible goods, and electronic transmissions do not constitute such goods.
10. It is also observed that both I-RECs and software arc intangible assets. Software exists as digital code or programs used various applications, while I-RECs represent proof of renewable energy generation without physical form. Both can be digitally transferred and traded across borders. Software is often distributed electronically, and 1-RECs are managed and traded through digital platforms to support renewable energy initiatives globally. Software may be subject to licensing lees or subscriptions, while 1-lars are bought and sold to support renewable energy projects worldwide.
11. Heading 4907 covers ‘documents of title’ Relevant portion or the Customs Tariff is reproduced as under for ready reference:
HSN explanatory notes to ‘4907 explains that the characteristic of the products of this heading is that on being issued (if necessary, after completion and validation) by the appropriate authority, they have a fiduciary value in excess of the intrinsic value.
These explanatory notes further explain that the products under heading 4907 comprise:
(A)………
(B)…….
………………..
(F) Stock, share or bond certificates and similar documents of title Stock. These are formal documents issued. or for issue. by public or private bodies Conferring ownership of, or entitlement to, certain financial interests, goods or benefits named therein.
11.1 In view 01 the above, .find that the Ld. Advocate for the applicant is right in its contention that’ in the instant case, I-RECs in question would qualify as documents of’ title coloring ownership of goods or benefits on ‘the Applicant. From the’ nature of the document in question, it is evident that the I-RECs assign ownership to the renewable electricity generated and its use. In other words, the I-RECs certify that the bearer owns one MWh of electricity generated from a renewable energy resource.
Further, it can be seen that these certificates provide benefit to the applicant inasmuch as these Certificates can be used by applicant to offset their organisation’s ‘carbon emission.
11.2 Sub-heading 4907 0030 covers documents of title conveying the right to use Information Technology software. Here in the instant case, goods in question i.e. I-RECs are documents of title but not. to convey the right to use Information Technology software. These certificates arc not bank .notes or unused postage, revenue or similar stamps either. Therefore, rational recourse has to be taken to residuary entry to CFI 4907 0090 to classify the I-RECs.
11.3 Circular No. 46/20/2018-GST dated 6th June, 2018 issued in the context of applicable GST rate on Priority Sector Lending Certificates (PSLCs). Renewable Energy Certificates (RECs) and other similar scrips clarifies in para 6 that:
6. As such, various certificates like RECs, PSLCs etc. are classified under heading 4907 and will accordingly attract GST @ 12 %, though duty paying scrips classifiable under the same heading will attract Nil GST (under S. No. 122A of Notification No. 2/2017 Central Tax (Rate) dated 28.06.2017. as amended vide Notification No. 35/2017-Central Excise (Rate) dated 13.10.2017,
7. Accordingly. in modification of S.No.3 of Circular No.34/8/2018-GST dated 01.03.2018, it is hereby clarified that Renewable Energy certificates (RFC’s) .and Priority Sector- Lending (.7ertificates (PSLCs) and other similar documents are classifiable under heading -1907 and attract 12% UST The duly credit scrips, however, attract Nil GST. under S. No. 122A of Notification No. 2/2017 -Central Tax (Rate) dated 28.06.2017:
11.4 Circular No. 15/2011 -Customs dated 18.03.2011 inter alia clarifies in para 2 thereof as follows: “Tariff item 49070030 of heading 4907 refers directly to “Documents of title conveying the right to use Information Technology software”. I-fence as per the said Rule 1 mentioned above, such paper licenses. which are essentially documents conveying the right to use such IT software, merit classification under CTH 49070030″.
In the case at hand also, in a like manner, 1-RECs are documents of title which coney the right/ownership to the bearer/applicant to one MWh. of electricity generated from a renewable energy resource.
12. On the basis of Ibregoing discussions and findings. I concur with the understanding of ,d. Advocate present for the applicant reproduced in para 2.7 (supra), accordingly, my answers in respect of all the three questions asked in the present applicant, are as follows:
Answer in respect of Question 1: I-RECs downloaded in the electronic form are intangible goods and will not be classifiable as goods under the Customs Tariff Act, 1975. Consequently, it will not be subject to duties of Customs.
Answer in respect of Question 2: The Customs Act, 1962 or the Customs Tariff Act, 1975 do not necessarily mandate the import of I-RECs in the physical form.
Answer in respect of Question 3: The 1-RECs when imported in a physical form qualify as documents of title and arc therefore classifiable under I leading 49.07 of the First Schedule to the Customs Tariff Act. 1975 and specifically, under the Tariff item 4907 00 90.
13. I rule accordingly.
