CUSTOMS AUTHORITY FOR ADVANCE RULINGS

NEW CUSTOM HOUSE, BALLARD ESTATE, MUMBAI - 400 001

E-MAIL: cus-advrulings.mum@gov.in

in

Application No. CAAR/CUS/APPL/24/2024 -O/o Commr-CAAR MUMBAI

Ruling

M/s. United Breweries Limited (having IEC No. 0788013785 and hereinafter referred to as the applicant', in short) filed an application (CAAR-I) for advance ruling before the Customs Authority for Advance Rulings. Mumbai (('AAR in short). The said application was received in Ine secretarial of the CAAR. Mumbai on 15.02.2024 along with its enclosures in terms of Section 28H (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-RECs are 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-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 term?

2. Applicant has submitted as Follows with the CAAR-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 ("I-RECs"). An l-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 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. I hey 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 be transferred multiple times until final redemption. thus Renewable Energy Certificates (RECs) 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 14018 130109888A 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 I-RECs are 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 I-RECs will not be physically imported into India and thus, the essential question is whether I-RECs downloaded in an electronic form or sent through e-mail will be classified as goods under the Customs Tariff 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 and vehicles;

(b) 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) TMI 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 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 customised or non-customised satisfies these attributes, the same would be goods.

Applying the above test of Tata Consultancy Services v/s State of Andhra Pradesh to the instant case, it can be seen that I-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 C ESTAT, Delhi in the case of SHRI ATUL KAUSHIK, SHRI KRISHAN DHAWAN, M/S. ORACLE INDIA PVT. LTD. VERSUS C.C. (EXPORT), NEW DELHI, 2015 (9) TMI 317 - C ESTAT 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, hi the case of Digital Equipments India (supra), ( ES E l I held that e-mail transfers not being transfer of movable properly are not to be regarded as goods. The WTO Ministerial Conference Declaration on Global Electronic Commerce No. WT/Min (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 stated 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 computer to perform 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 tax. Even intellectual property, once it is put on to a media, whether it be 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 programme on a CD/floppy disc from a sale of music on a 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 be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or 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 CD. Thus, a transaction sale of computer software is clearly a sale of goods within the meaning of the term as defined in the said Act. The 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 properly in goods and not merely a special property. Il 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 same and thereafter unloaded. Indian law. as noticed by my learned brother, variava. J., does not make any distinction between tangible property and intangible properly. A goods may be a tangible properly or an intangible one. Il 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 form has been declared to be goods by the Supreme Court and therefore electronic download of software from a server located abroad would gel captured in the scope of import of goods A Ministerial Declaration at a WTO conference does not have legal force of overruling a legislated mandate. However, in case of electronic downloads of software, ii 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 duty on such downloads. The Customs Act. 1962 contains several provisions for operationalising the levy and collection of Customs Duty. Dor 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, CBEC 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 he unloaded unless they are mentioned in the import manifest or import report. Section 33 provides for loading and unloading of goods al approved places only and Section 3-1 provides that goods are not Io 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. Ihe 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 O1PL remitted licence fee to Oracle USA. The reasoning is also squarely applicable with regard to duly 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 18.03.2011 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 Customs. 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 I-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 CIT, Bangalore Vs. B.C Srinivasa Shetty 1981 (2) TM1 1). Therefore, it can be concluded that I-RECs when downloaded in the electronic form will not be classifiable as goods under the Customs Tariff Act, 1975. Consequently, it will not be subject to duly 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 LTD 201 7 (I) TMI 475 SC ORDER. Thus, as per the said judgements, intangible goods are not classifiable under the Customs Tariff Act, 1975 as there is no mechanism provided for the levy and collection of 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 be subjected to levy of customs duty under the provisions of Customs Act, 1962. Therefore, in the instant case, I-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 Aci. 1975 and consequently cannot be subjected to levy of duties of Customs.

2.5 The Customs Act. 1962 docs not mandate the import of intangible goods in a physical form. But if, for the sake of argument, the goods are imported into India in a physical form, they will be classified appropriately under the applicable 1 leading of the hirst 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 Harmonized System of Nomenclature ("I ISN') issued by the World Customs Organization ('WCO'). The HSN Explanatory Noles released b\ the WCO aid in the interpretation of the Headings of the Tariff and may be used as a safe guide for the same. It has been held so by the Supreme Court in the ease of Collector of Customs, Bombay v. Business forms Ltd. Thr. O.L., 2002 (142) E.L.T. 18 (S.C.). The classification of the goods under the Customs Tariff Ad, 1975 is governed by 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

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 forms; stock, share or bond certificates and similar documents of title.

The characteristic of the products of this heading is that on being issued (if necessary, after completion and validation) by die 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, lulls of exchange, travellers' 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 on special paper bearing special water markings or other marks, and are usually serially numbered Lottery tickets printed on special security paper and serially numbered are. however, excluded from 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 the documents (e.g., share certificates) require completion and validation.

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) Il covers those documents that confer ownership of or entitlement to financial interest, goods or the benefits named therein-in.

In the instant case of lite Applicant. I-RECs 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 io the renewable electricity generated and its use. In other words, the I-RECs certify that the bearer ow ns one MWh of electricity generated from a renewable energy resource.

In this context, reliance can also be placed on Circular No. 46/20/201 8-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 Heading 49.07 of the Customs Tariff Act, 1975. The relevant portion of the Circular is reproduced herein as under

6. As such, various certificates like REC's, PSLC 's 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-Centrai 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 (hat Renewable Energy Certificates (RECs) and Priority Sector Lending Certificates (PSLCs) and other similar documents are classifiable under heading 4907 and attract 12% GST. The duty credit scrips, however, attract Nii GST under S. No. 122A of Notification No. 2/2017 -Central Tax Rate) dated 28.06.2017.

Thus, I-RECs being a document of title will be classifiable under the Heading 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, 1962 to be imported in a physical form?.

Applicant's Understanding: No. The Customs Act, 1962 or the Customs Tariff Act, 1975 do not mandate the import of I-RECs in the 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?

Applicant's Understanding: Yes The I-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 CAAR. 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 Ed. Advocates, to explain the authenticity of the I-RECs 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)(c) 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 slates in terms of availability of Renewable Energy sources. In order to maintain uniformity among states, promote the concept of R PO and enable entities to meet their RPOs. the concept of Renewable Energy' Certificates (RECs) was introduced in lite Indian market. The Central Electricity Regulation Commission(CERC) and its CERC Regulations 2022. with respect to RECs, are important instruments when it comes to governance of the entire Renewable Energy Certificate Market segment.

CBRC has also laid down a procedure that has to be followed during the redemption of RICs and is applicable to the eligible entities that chooses to place the RICs 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 (IRECs) and monitors the same. The organisation was founded in 2015 as the 'International RIC foundation' (I-REC Standard); eventually rebranded 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). CDP (Carbon Disclosure Project) and RE 100 as a reliable organisation for credible and auditable tracking instruments.

The 'international Attribute fracking 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 I RECs known as 'Evident' to enable trading of IRECs. Countries like Brazil, 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 lo 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: Aller 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 Eld 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 'egal 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 play a significant role in the global efforts io transition to clean energy by allowing companies and individuals to support renewable energy projects, irrespective of their geographic location. I-RECs represent proof that I megawatt-hour.(MWh) of electricity has been generated from a renewable energy source and fed into the grid. These certificates are part of a broader system designed to track and verify the production of renewable energy. By purchasing I-RECs. organizations can financially support renewable energy projects globally. Companies can use I-RECs to make claims about their renewable energy consumption and carbon footprint reduction. In some regions, companies can use I-RECs to meet renewable energy mandates or sustainability goals. Renewable energy, producers generate electricity and receive I-RECs for the energy produced. I-RECs can be traded or sold in the market. Organizations can buy I-RECs to support renewable energy and meet their sustainability targets. When a company or individual wants io claim the renewable energy benefits, the I-REC is retired or redeemed, ensuring it cannot be used again. Organizations can support renewable energy projects anywhere 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 I-RECs leads to genuine environmental benefits and contributes io the growth of renewable energy capacity.

7. Section 12 of the Customs Act provides that 'Except as otherwise provided, in this Act. or any other law for the time being in force, duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act. 1975 (5 I of 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 Ed. Advocate i.e. Tata Consultancy Services v/s 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 ease 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 Hon'ble Supreme Court of India in the above ease law, it is observed that the l-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 I-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 offset their carbon emissions. The 'International Attribute Tracking Standard' approves the issuance of IRIX's 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 are 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 be possessed by the applicant.

Therefore. I-RECs can be categorised as 'goods' as these certificates have the attributes thereof having regard to al! the three points prescribed in the above case law.

8. CESTAT. Delhi in the ease of SI IRI ATUL KAUSHIK. SHRI KRISHAN DHAWAN. M/S. ORACLE INDIA PVT LTD. VERSUS C.C. (EXPORT), NEW DELHI, 2015 (9)TMI 317 - CESTAI NEW DELHI 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 will not dispute that in its present form, it totally tacks 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 CI T. 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 OIPT remitted licence fee to Oracle. USA. The reasoning is also separately applicable with regard to duty demand in relation to what is referred lo as' globed deals mentioned in paras 3.11 and 3.15. Incidentally, paper licences (for software already downloaded) are classifiable under Chapter 19 as has been opined by CBEC also vide Circular No. 15/2011-Cits, dated 18.03.2011 and such paper licences under Chapter 49 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 judgements, Hon'ble High Court and The Customs, Excise and Service Tax Appellate Tribunal (C ESTAT) have held that software downloaded electronically from abroad and not imported on any physical media docs not attract customs duty.

i) . Repro India Ltd. v. Union of India 2007 (218) ELT 192 (Bom.): 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 duly. 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) ELT181 (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 duly, reinforcing the distinction based on the mode of delivery.

iii) . Reliance Industries Ltd. v. Commissioner of Customs. Mumbai 2004 (I 78) ELT 568 (Tri. - Mumbai): CLSTAT held that software downloaded electronically from abroad and not imported on any physical media docs not attract customs duty. The Tribunal distinguished between physical imports and electronic transmissions, emphasizing that customs duty is applicable to goods physical!) 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 docs not attract customs duly. 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 are intangible assets. Software exists as digital code or programs used for 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 I-RECs are managed and traded through digital platforms to support renewable energy initiatives globally. Software may be subject to licensing fees or subscriptions, while I-RECs are bought and sold to support renewable energy projects worldwide.

11. Heading 4907 covers ¦documents of title'. Relevant portion of 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 simitar documents of title Stock These are formal documents issued, or lor issue, by public or private bodies conferring ownership of. or entitlement to. certain financial interests, goods or benefits named therein.

11.1 In view of the above. I 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 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 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 emissions.

11.2 Sub-heading 4907 0030 covers documents of title conveying the right to use Information Technology software. 11 ere 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 are not bank notes or unused postage, revenue or similar stamps either. Therefore, rational recourse has to be taken to residuary entry to CTI 1907 0090 to classify, the I-RECs.

1 1.3 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 duly 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 35/201"-Central Excise Rate) dated 13.10.2017.

7. Accordingly, in modification of S.No.3 of Circular No.34/8/2018-GST doled 01.03.2018, it is hereby clarified that Renewable Energy Certificates (RECs) and Priority Sector Lending Certificates (PSLCs) and other similar documents are classifiable under heading 4907 and attract 12% GST. The duly credit scrips, however, attract Nil GST under S. No. I22A of Notification No. 2/2017 -Central Tax(Rate) dated 28.06.2017. .

11.4 Circular No. 15/2011 -Customs dated 1 8.03.201 1 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". Hence 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. I-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 foregoing discussions and findings. I concur with the understanding of Ld. Advocate present for the applicant reproduced in para 2.7 (supra), accordingly, m\ 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 I-RECs when imported in a physical form qualify as documents of title and are therefore classifiable under Heading 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.

(Prabhat K. Rameshwaram)

Customs Authority for Advance Rulings, Mumbai.