2021 (8) TMI 194 - AAAR - GST

Appellate Authority exempts potable water supply under Notification 2/2017-CT (R)

In Re: M/s. New Tirupur Area Development Corporation Limited

The Appellate Authority ruled that the supply of potable water by the appellant is exempt under Notification No. 2/2017-CT (R). The appeal was disposed of ... Classification of supply - supply of goods or supply of services - intra-state supply - concession agreement entered into by the appellant with the Government of Tamilnadu and Tirupur Municipality - taxability of supply - Sale of water - Sewage treatment charges - Consultancy Services such Detailed Project Report (DPR), Project Management Consultancy (PMC) and any other infrastructure related consultancy to TCMC / GoTN - Interest on receivable on delayed payments - Disconnection Charges - Reconnection charges - Cheque Bouncing charges - Permanent disconnection charges - Service provided to Customer on New Connection works-Concept of No Loss No Gain, New Connection Shifting and other works. HELD THAT:- Section 2.4 of the agreement provides for royalty payment by the appellant to the Government of Tamilnadu, one of the parties to the agreement, for the abstraction of such volume of raw water from time to time. Once royalty is charged and collected for the abstraction right, the raw water abstracted becomes the property of the appellant. It is also seen from the agreement that potable water is the output after treatment of the raw water by the appellant, and which is the only supply made by the appellant to all the purchasers, viz., TM, wayside villages and Industrial units (definitions in pg. 15 & 16). The water treatment, etc., are activities done by the appellant on his own account only to achieve the quality standards of the potable water as per the agreement with one of the purchasers, Tirupur Municipality. It is clearly mentioned throughout the agreement that potable water is only supplied to all the purchasers of the appellant irrespective of whether they are villages, industrial units or the municipality or whether the use is domestic or non-domestic. The only differential treatment based on end use and end-users (purchasers) is only with respect to the price of the potable water charged by the appellant. There is no differentiation with respect to the nature of the supply made in the agreement in its entirety. In fact, the definitions of ‘raw water’, ‘potable water’ ‘purchasers’ Water charges’ in Page nos. 15,16, 17 and 21 of the concession agreement categorically pronounce that the supply to all the purchasers including industrial units, municipality and villages and for both domestic and non-domestic use, is of raw water treated to performance standards, which is otherwise called as ‘potable water’. Therefore, it is clear from the agreement that the supply of appellants is only potable water. Whether the water supplied by the appellant is exempted under si. No. 99 of N/N. 02/2017-CT(R) and its equivalent SGST notification published vide TamilNadu GO Ms. No. 63 dated 29/6/2017? - HELD THAT:- Since purified water is excluded from the exemption entry, the point of contention appears to be that since the raw water is treated to various processes to make it potable, whether these processes make the raw water as a ‘purified water’ or it remains as Water treated’ to make it fit as potable water - Distilled water is the most common form of pure water. However, potable water has only one meaning, water fit for human and animal consumption and has dissolved minerals. Infact, from the performance standards spelt out in Schedule C of the agreement, the quality of potable water would itself indicate that it does not attain the nature and quality of a ‘purified water’ on any count. Therefore, it can be safely concluded that the supply of the appellant is of raw water, treated to become ‘potable water’ and nothing more. Once it is distinctly clear that the supply is of ‘water’ only, and NOT purified water, the same falling under the entry 99 of the notification no. 02/2017-CT (R) is qualified for the exemption. Appeal disposed off. Issues Involved:1. Taxability or exemption of various activities of the appellant, including sale of water, sewage treatment charges, consultancy services, and incidental charges.2. Classification of water supplied by the appellant as either potable water or purified water.3. Applicability of GST exemptions under relevant notifications.Detailed Analysis:Taxability or Exemption of Various Activities:1. Sale of Water: The appellant argued that the supply of potable water should be exempt under Notification No. 2/2017-Central Tax (Rate) and its equivalent SGST notification. The AAR had divergent views on this issue, leading to a reference to the Appellate Authority. The Appellate Authority concluded that the water supplied by the appellant is potable water, not purified water, and thus qualifies for exemption under the said notification.2. Sewage Treatment Charges: The AAR ruled that sewage treatment services provided to Tirupur Municipal Corporation are exempt under SI.No.3 of Notification No. 12/2017-C.T.(Rate).3. Consultancy Services: Consultancy services such as Detailed Project Report (DPR), Project Management Consultancy (PMC), and other infrastructure-related consultancy to Tiruppur City Municipal Corporation are exempt under SI.No.3 of Notification No. 12/2017-C.T.(Rate).4. Incidental Charges:- Interest on Receivables: Classified under SAC 999794 and taxable at 9% CGST and 9% SGST.- Cheque Bouncing Charges: Also classified under SAC 999794 and taxable at 9% CGST and 9% SGST.- Connection/Reconnection/Disconnection Charges: Classified under SAC 9969 and taxable at 9% CGST and 9% SGST.- New Connection Works: Not taxable as they are considered self-service.Classification of Water Supplied:The main issue was whether the water supplied by the appellant is classified as potable water or purified water. The Appellate Authority determined that the water supplied is potable water, treated to meet performance standards for human consumption, and not purified water. Therefore, it falls under the exemption provided in entry 99 of Notification No. 2/2017-CT (R).Applicability of GST Exemptions:The Appellate Authority examined the applicability of various GST exemptions and concluded:- The supply of potable water by the appellant is exempt under Notification No. 2/2017-CT (R).- Sewage treatment services and consultancy services to Tiruppur City Municipal Corporation are exempt under Notification No. 12/2017-C.T.(Rate).- Incidental charges like interest on receivables and cheque bouncing charges are taxable, while new connection works are not taxable.Ruling:1. The supply of potable water by the appellant is exempt under Notification No. 2/2017-CT (R).2. The appeal is disposed of, with the Appellate Authority concurring with the AAR's rulings on other questions raised by the appellant.