TaxTMI 
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2025 (10) TMI 52
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....st and Climate Change, which directed the Government of Gujarat to introduce a pilot market-based regulation using Continuous Emission Monitoring System (CEMS), the GPCB introduced an Emission Trading Scheme for Particulate Matter (ETS-PM) in Surat. This has subsequently been extended to similar units in Ahmedabad. 4. An Emission Trading Scheme (ETS), also known as 'cap-and-trade' system, is a market-based policy tool designed to reduce pollution while minimizing costs to industries. ETS establishes the maximum load of a pollutant, or a 'cap' over a geographical area from participant industrial sources. Based on the capitalisation of these industries, Particulate Matter (PM) permits are allotted to industries. These industrial units participate in the market by buying or selling (trade) permits to ensure their permit holdings equal their actual emissions to be in compliance. The ETS approach aims for a win-win scenario by reducing emission costs, protecting the environment and increasing firm profits, thereby fostering economic growth. 5. A diagram as to how ETS Works is shown below: - The regulator i.e GPCB sets a limit on the total mass of emissions released by all parti....
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....odically. 7. Market Rules: 7.1 Market Cap: The total mass of particulate matter pollution that can be emitted by all participating units during a compliance period as set by the regulator. Accordingly, the cap is the sum of all permits across participating units in one compliance period. 7.2 Market Compliance: Compliance in the market is defined when the permit holdings of a participant unit equals its pollution mass at the end of a compliance period. Non-compliant units, those not having enough permit holdings for their pollution mass are levied a penalty of Rs. 200/kg. 7.3 Market Auctions: Participants trade in auctions held daily/weekly to trade permits. Two types of auctions take place: (a) Uniform Price auction: An auction format wherein one uniform price is discovered for the week based on the price discovery mechanism. These are conducted periodically on every Tuesday. (b) Continuous Matching auction: An auction format where trades are carried out at the pre-determined price among participating units. These auctions occur daily from Wednesday to Monday with the exception of public holidays. These do not overlap with uniform auctions. 7.4 Pric....
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....industries are provided with a login ID which they can use to access the portal for trading and CEMS data monitoring. 8.4 Market Research Team: The market research team consists of leading global experts from the University of Chicago, Yale University and the University of Warwick along with researchers from J-PAL South Asia and EPIC India. The role of the research team in Gujarat has been as advisors and technical partners on the development and implementation of the markets. 9. In view of the above facts, the applicant has sought a ruling on the following questions: - (i) As to whether trading of Particulate Matter Permits vide Bill of Supply No. 1 dtd. 05.10.2024 is liable to tax under the GST Act or not? (ii) If yes, then it is Goods or Services under the GST Act? (a) If it is goods, then as to whether trading activity of Particulate Matter Permits is covered by which HSN Code and rate of GST? (b) If it is services, then as to whether trading activity of Particulate Matter Permits is covered by which SAC code and rate of GST? 10. The applicant further submits as under: - (a) As per Section 7(2) of the CGST Act, transactions ....
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....apuria, Advocate appeared on behalf of the applicant and reiterated the facts & grounds as stated in the application. During the course of hearing, he was requested to provide a write up on the applicability of CBIC's Circular No. 34/8/2018-GST dtd. 01.03.2018 and Circular No. 46/20/2018-GST dtd. 06.06.2018. 11.1 In their letter dtd. 25.08.2025, the applicant submitted that the Circulars dtd. 01.03.2018 and 06.06.2018 deal with Priority Sector Lending Certificates (PSLCs), Renewable Energy Certificates (RECs) and Duty Credit Scrips, which are marketable financial instruments and the scope of the Circulars is restricted to these instruments. Unlike financial scrips, the Particulate Matter Permits are non-tradeable and cannot be freely transferred in the open market. These permits also get expired within 1 to 2 months, when not sold. They also do not constitute goods under Section 2(52) of the CGST Act as they are neither movable property nor marketable commodities. Neither do they fall within the definition of 'services' under Section 2(102) of the Act, as they are not supplied for consideration in the course or furtherance of business. Further, classification under Heading....
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....at CBIC has issued Circular No. 34/8/2018-GST dtd. 01.03.2018, amended vide Circular No. 46/20/2018-GST dtd. 06.06.2018, wherein it has been clarified that Priority Sector Lending certificates (PSLC) has been considered as goods and not securities by the Reserve Bank of India. Further, PSLC are akin to freely tradable duty scrips, Renewable Energy Certificates (REC), REP licences or replenishment licence, which attracted VAT. It was also clarified that the RECs and PSLCs are goods which are classified under heading 4907 and will accordingly attract GST @ 12%. 16. PSLCs are tradable instruments that allow banks to meet their mandatory Priority Sector Lending (PSL) targets set by the Reserve Bank of India (RBI). Banks that lend more than their PSL targets to priority sectors can sell PSLCs to earn revenue, while banks that fall short can buy these certificates on the RBI's e-Kuber platform to cover their shortfall. This mechanism creates a market for credit, incentivizes banks to lend more to essential sectors like agriculture and MSMEs, and helps ensure equitable credit distribution across the economy. The Renewable Energy Certificate (REC) mechanism is a market-based instrument,....
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....4907 comprise : (A) xx xx xx (B) xx xx xx (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. PM-permits in question would qualify as 'documents of title' conferring benefits on the Applicant. From the nature of the document in question, it is evident that the permit is a permission to the permit holder to emit a kilogram of suspended particulate matter (SPM) within a compliance period. Thus, these certificates provide benefit to the applicant inasmuch as these certificates can be used by applicant to offset their organization's emissions. These permits also hold monetary value as they can be bought and sold in the market. Therefore, these permits would fall under the residuary heading of 4970 00 90. 18. The second averment made by the applicant that PM-permits are securities as they appear to fall under the wider term, "other marketable securities of a like nature in or of any incorporated company or other body corporate." CGST Act defines securi....
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....ces in the course or furtherance of business. We do not agree with this contention of the applicant that buying and selling do not come under the ambit of business income. We find that the permits hold monetary value and the applicant have in their submissions submitted that the trading of these permits is carried out by way of an auction (both weekly and daily) and the market price is discovered based on the bids placed by the participants. Price collars are also instituted to protect the price of permits against unexpected escalations, with the maximum ceiling set at Rs. 100/permit and the floor price at Rs. 5/permit. The price of the permits is determined by supply and demand, mainly during auctions held periodically. Thus, an industry who is holding permits can make a profit by selling the permits, which is reflected in their income. Further, the applicant has also not indicated as to how they account for these incomes in their books of account. Therefore, it appears that the trading of permits would come under the ambit of business income. 20. As regards the averment that sale of the permits is not in the course or furtherance of business, we observe that the applicant them....