In re Randhir Dyeing and Printing Mills (GST AAR Gujarat)
Introduction and Issue at Hand
M/s. Randhir Dyeing and Printing Mills, a partnership firm in Surat, sought an Advance Ruling from the Gujarat Authority for Advance Ruling (AAR) on the taxability of Particulate Matter (PM) Emission Permits traded under the Emission Trading Scheme (ETS-PM). The ETS-PM, mandated by the Gujarat Pollution Control Board (GPCB), is a “cap-and-trade” market-based policy designed to reduce industrial pollution.
Under this mandatory scheme, GPCB sets a cap on total emissions and allocates tradable PM Permits—each representing permission to emit one kilogram of suspended particulate matter (SPM)—to participating industries. Industries that pollute less have excess permits to sell, while high-polluting units must buy permits to cover their emissions and avoid penalties. Trading occurs on the NCDEX e-Markets Limited (NeML) portal, with the price determined by demand and supply in periodic auctions.
The core questions before the AAR were:
1. Is the trading of PM Permits liable to tax under the GST Act?
2. If so, is it classified as ‘Goods’ or ‘Services’, and what is the applicable HSN/SAC code and GST rate?
Applicant’s Contentions
The applicant argued that the PM Permits should not be subject to GST for several reasons:
- The permits are not tangible goods or services but an intangible right or a privilege/entitlement given for reducing emissions, making the supply an ‘no income supply’ or an incentive.
- Taxing the permits would create an extra burden on buyers, discouraging participation in environmental sustainability programs, which is contrary to the scheme’s objective.
- The permits should be treated as ‘Securities’, which are outside the definition of ‘goods’ and ‘services’ under the GST Act.
- The transactions are for regulatory compliance and are not considered business income, nor are they a supply made “in the course or furtherance of business.”
- Unlike financial instruments (e.g., PSLCs, RECs, Duty Credit Scrips), PM Permits are non-tradeable in the open market, can only be traded on the emission market, and expire within 1–2 months, suggesting they are not marketable securities.
Discussion and Judicial Precedents
