AI Drafter 
TaxTMI 
TaxTMI 
2025 (2) TMI 319
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....the electronic form and consequently subject to duties of Customs? Question 2 : Whether the I-RECs are mandated under the Customs Act, 1962 to be imported in a physical form? Question 3 : Whether the I-RECs are classifiable as goods under the Customs Tariff Act, 1975 when they are imported into India in the physical form? 2. Applicant has submitted as follows with the CAAR-I 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 ("I-RECs"). An I-REC represents transferable proof that one mega watt-hour (MWh) of electricity was produced from renewable energy sources and added to an electrical grid. Purchasing an I-REC allows the buyer to claim consumption of one MWh of renewable energy. I-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. I-RECs are 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 multi....
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....f the CESTAT, Delhi in the case of Shri Atul Kaushik, Shri Krishan Dhawan, M/s. Oracle India Pvt. Ltd. v. C.C. (Export), New Delhi, 2015 (9) TMI 317 - CESTAT NEW DELHI. 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 be called goods imported and if so, whether the same will be liable to Customs duty on the same lines as the duty leviable on such software imported as media packs. In the case of Digital Equipments 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. WT/Min (98)/Dec/2, dates 25-5-1998 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 hea....
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....ntangible 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 same and thereafter unloaded. Indian law, as noticed by my learned Brother, Variava. J., 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 judgment, it is clear ....
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....lectronic downloads. It is well settled principle of taxation that in absence of mechanism for collection of tax, the levy fails/refer e.g. the judgment of Supreme Court in the case of CIT, Bangalore v. 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 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 3.11 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 18-3-2011 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 Customs. However, as the Customs Act, 1962 totally lacks the mechanism to levy and collect duty on intangible goods, Cus....
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.... the principles as enumerated in the General Rules of Interpretation ('GRI') set out in the First Schedule to the Customs Tariff Act, 1975. As per Rule 1 of the GRI, 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 Headings 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 Heading 49.07 of the Customs Tariff Act, 1975. The relevant portions of the Customs Tariff Act, 1975 and the HSN explanatory notes to the same are reproduced herein as under : Heading 49.07 of the Customs Tariff Act, 1975 Item Description of goods (1) (2)....
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....dation. 2.6 The applicant submits that from a perusal of Heading 49.07 of the Customs Tariff Act, 1975 and the HSN 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-REC's 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 is evident that the I-RECs assign ownership to the renewable electricity generated and its use. In oilier words, the I-RECs 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 classifi....
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....aring in the matter was conducted on 4-6-2024 in the office of CAAR, Mumbai. During the personal hearing the authorised representatives of M/s. United Breweries Limited, Shri Ramachandran, Advocate and Shri Mavecn Kumar S., Advocate reiterated the contention made in the applicant. It was specifically asked from the Ld. Advocates, to explain the authenticity of the l-RKCs and their record keeping, monitoring and actual uses. 'They submitted that they will provide a written submission regarding the safeguard 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- RECs as follows : In India, the concept of RPO (Renewable Purchase Obligation) has been referred to in Section 86(1)(e) of the Electricity Act, 2003, as ....
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.... 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 IREC 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 die present application regarding import of I-RECs on the basis of the information 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-REC....
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.... 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 v. 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 be goods'. The Ld. 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 lest as prescribed by the Hon'ble Supreme Court of India in the above case law, it is observed that the I-RECs are intangible goods. From the submissions filed on behalf of the applicant, it is observed that I-RECs have uti....
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....lating to electronically downloaded software is not sustainable even for such downloads 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 3.11 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 18-3-2011 and such paper licences under Chapter 19 are fully exempt from Customs duty". 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 judgments, 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) E.L.T. 192 (Bom.) : The Bombay High Court addressed the issue of whether customs duly could be levied on s....
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....THEY HAVE, OR WILL HAVE. A RECOGNIZED FACE VALUE: STAMP-IMPRESSED PAPER: BANK NOTES: CHEQUE FORMS: STOCK, SHARE OR BOND CERTIFICATES AND SIMILAR DOCUMENTS OF TITLE 4907 00 --- Unused postage, revenue or similar stamps of current or new issue in the country in which they have, or will have, a recognized face, value; stamp-impressed paper; bank notes; cheque farms; stock, share or bond certificates and similar documents of title: 4907 00 10 --- Unused postage, revenue or similar stamps of current or new issue in the country winch they have, or will have a recognized face value kg. 10% 4907 00 20 --- Bank notes kg 10% 4907 00 30 --- Documents of title conveying the right to use Information Technology software kg 10% 4907 00 90 --- Other kg 10% 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 headi....