AAR holds custom duty not leviable on import of I-RECs in electronic form

This Tax Alert summarizes a recent ruling [1] of Customs Authority for Advance Rulings, Mumbai (CAAR). The issue involved was whether International Renewable Energy certificates (I-RECs) imported electronically or through email are leviable to duty under Customs Act, 1962.

CAAR observed that-

• I-RECs have utility, are marketable, transferable, and possessable, qualifying them as intangible assets. By applying the test laid down by the Supreme Court in the Tata Consultancy[2], it is evident that I-RECs qualify as goods.
  
• The provisions of Customs Act, 1962 do not have a mechanism for levy of Custom duty on download of software or certificates from outside India.
• There are various High Court and CESTAT judgements[3] wherein it was held that software downloaded electronically and not imported in physical media does not attract duties of Customs. Both software and I-RECs are similar and can be traded digitally.
• If RECs are imported in physical form, it will be classifiable under Heading 49.07 as they qualify as the document of title conveying right/ownership to the bearer to one MWh electricity generated from renewable energy sources.

Accordingly, CAAR held that I-RECs downloaded in electronic form are not subject to Custom duties.

Comments:

• This ruling provides much needed clarity on the Custom implications in case of import of I-RECs electronically.
  
• The businesses need to analyze its impact on electronic import of carbon credit certificates, trademarks, Intellectual properties etc. 
• Taxpayers may also evaluate whether electronic transfer of such assets from India to outside India will qualify as exports of goods and thus, qualify as zero-rated supply under Goods and Services Tax in absence of physical movement of goods.
   

[1] CAAR/MUM/ARC/100/MUMBAI
[2] 2004 (178) ELT 22 (S.C.) 
[3] 2007 (218) ELT 192 (Bom.), 2010(252) ELT 181(Mad.), 2004 (178) ELT 568 (Tri-Mum), 2015 (330) ELT 417 (Tri-Del)