2021 (8) TMI 534 - AAR - GST

Taxability of Charitable Organization's Drinking Water Supply: Not GST-exempt, Taxable at 18%

The case involved the taxability of supplying drinking water in an unpacked manner by a charitable organization. The authority ruled that the supply is ... Exemption from GST or not - supply of drinking water to general public in unpacked/unsealed manner through dispensers/mobile tankers by a charitable organisation at a concessional rate - availability of exemption of GST as per SI.No 99 of Notification 02/2017-Central tax (Rate) dated 28/06/2017 and CBIC Circular No.52/26/2018-GST dated 09.08.2018 - Taxability of services extended to the public through mobile tankers - HELD THAT:- The applicant, as a party to its contractual agreement with local Gram Panchayat, sets up plant for purification of drinking water through Reverse Osmosis (RO) and supplies the purified water to its registered beneficiaries in unpacked/unsealed manner through dispensers/mobile tankers at a price of ₹ 7 for 20 litres. The exemption entry at sl. no. 99 of N/N. 02/2017 - Central Tax (Rate) dated 28.06.2017 excludes the following categories of aerated, mineral, purified, distilled, medicinal, ionic, battery, demineralized, and water sold in sealed container - The supply in the instant case is ‘purified water', which is purified through Reverse Osmosis (RO) process in the plants established by the applicant and thus it is covered under exclusion of the exemption entry and is liable to tax. As per CBIC Circular No.52/26/2018-GST dated 09.08.2018, whether supply of drinking water in unpacked / unsealed form through dispensers / tankers, to general public is exempt? - HELD THAT:- As admitted by the applicant in the description of the detailed procedure involved in the purification of water at the treatment plants, it leaves no further doubt that the supplies are nothing but of purified water. Consequently, we come to the conclusion that the purified water supplies made by the applicant are not eligible for exemption either as per SI.No 99 of Notification No. 02/2017- Central Tax (Rate) dated 28.06.2017 or by the clarificatory circular No.52/26/2018-GST dated 09.08.2018. Whether services extended to the public through mobile tankers would attract exemption under GST or not? - HELD THAT:- Prima facie, there are two supplies involved in the instant case; wherein one is 'the supply of purified drinking water' and the other being 'the supply of the same through the mobile units to the public' - In the present case, the principal supply is supply of purified water whereas the service component of distribution through mobile units is the ancillary service. The purified water is eligible to tax @ 18% as it is not fit for exemption under the serial no.99 of notification No. 2/2017- Central Tax (Rate) dated 28.06.2017. The service component of distribution of water through mobile units is covered under SI.No. 13 of Heading 9969 Electricity, gas, water and other distribution services vide Notification No. 11/2017-Central Tax (Rate), dated, 28th June, 2017 and taxable @ 18 %. It is invariably a composite supply and hence the rate of tax of purified water prevails, being the principal supply. Issues Involved:1. Taxability of supply of drinking water in unpacked/unsealed manner by a charitable organization.2. Applicability of GST exemption under SI.No. 99 of Notification 02/2017 - Central Tax (Rate) dated 28.06.2017.3. Classification of services provided through mobile tankers.4. Determination of composite supply and applicable tax rate.Detailed Analysis:Issue 1: Taxability of Supply of Drinking Water in Unpacked/Unsealed Manner by a Charitable OrganizationThe applicant, a charitable organization, proposes to supply purified drinking water in unpacked/unsealed manner through dispensers/mobile tankers at a concessional rate. The water is purified using the Reverse Osmosis (RO) process and supplied to the general public at Rs. 7 for 20 liters to cover operational costs.Issue 2: Applicability of GST Exemption under SI.No. 99 of Notification 02/2017 - Central Tax (Rate) dated 28.06.2017The applicant contends that their supply qualifies for GST exemption under SI.No. 99, which exempts intra-state supplies of water except for specific categories, including purified water. The applicant references Circular No. 52/26/2018-GST, which clarifies that unpacked/unsealed drinking water for public purposes is exempt from GST.Authority's Findings:The authority examined the exclusion clause in SI.No. 99, which explicitly excludes 'purified water' from the exemption. Since the applicant's water is purified through the RO process, it falls under the exclusion and is liable for tax. The authority also clarified that the CBIC Circular does not override the exclusion clause in the notification.Issue 3: Classification of Services Provided Through Mobile TankersThe authority considered whether the service of distributing water through mobile tankers constitutes a separate supply or part of a composite supply. The principal supply is the purified water, and the distribution service is ancillary.Issue 4: Determination of Composite Supply and Applicable Tax RateAs per Section 2(30) of the GST Act, a composite supply consists of two or more taxable supplies naturally bundled together, with one being the principal supply. In this case, the principal supply is purified water, and the distribution service is ancillary. Therefore, the entire supply is treated as a composite supply, and the tax rate applicable to the principal supply (purified water) prevails.Ruling:The supply of drinking water in unpacked/unsealed manner through dispensers/mobile tankers by the charitable organization is not covered under the GST exemption as per SI.No. 99 of Notification 02/2017 - Central Tax (Rate) dated 28.06.2017. The supply is taxable at 18% as per Notification No. 1/2017-Central Tax (Rate), dated 28th June 2017, as amended.Conclusion:The authority concluded that the supply of purified drinking water by the applicant is taxable at 18% and does not qualify for the GST exemption under the specified notification. The distribution service is part of a composite supply, with the tax rate determined by the principal supply of purified water.