Chennai Water Desalination Plant's supply of desalinated water to Water Board constitutes sale of goods attracting NIL GST rate under Entry 99 Notification 02/2017.

AAR Tamil Nadu ruled that Chennai Water Desalination Plant Limited's supply of desalinated water to Chennai Metropolitan Water Supply and Sewerage Board constitutes sale of goods, not services. The transaction involves abstracting seawater, treating it through desalination, and selling the treated water at off-take points. This activity qualifies as sale simpliciter rather than provision of services. The desalinated potable water, not sold in sealed containers, falls under HSN-2201 and attracts NIL rate of GST under Entry 99 of Notification 02/2017, making it exempt from GST liability.

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Issues Involved:
1. Applicability of GST on the supply of safe drinking water by Chennai Water Desalination Plant Limited (CWDL) to Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB).
2. Applicability of Sl.No.99 of Notification 02/2017 for the supply of water.
3. Applicability of Sl.No.3 of Notification 12/2017 for the transaction of supply of safe drinking water by CWDL to CMWSSB.

Detailed Analysis:

Issue 1: Applicability of GST on Supply of Safe Drinking Water
The applicant, CWDL, processes seawater into potable water through desalination and supplies it to CMWSSB for public distribution. The applicant sought clarification on whether this supply is subject to GST. The ruling clarified that the supply of desalinated water to CMWSSB for distribution as safe drinking water falls under the entry at Sl.No.99 of Notification 02/2017 and attracts a 'NIL' rate of GST. The ruling emphasized that the desalinated water is potable and does not fall under the excluded categories such as aerated, mineral, purified, distilled, medicinal, ionic, battery, de-mineralized, and water sold in sealed containers.

Issue 2: Applicability of Sl.No.99 of Notification 02/2017
The applicant argued that desalinated water should be exempt from GST under Sl.No.99 of Notification 02/2017, which exempts certain types of water. The ruling confirmed that desalinated water, being potable and not falling under the excluded categories mentioned in the notification, qualifies for exemption. The notification specifies that water other than aerated, mineral, purified, distilled, medicinal, ionic, battery, de-mineralized, and water sold in sealed containers is exempt from GST. The ruling also referred to Circular No.52/26/2018-GST, which clarifies that the supply of drinking water for public purposes, if not sold in a sealed container, is exempt from GST.

Issue 3: Applicability of Sl.No.3 of Notification 12/2017
The applicant sought clarification on whether the supply of safe drinking water to CMWSSB qualifies as 'pure services' under Sl.No.3 of Notification 12/2017, which exempts pure services provided to a government authority. The ruling determined that the activity of desalination and supply of water is not a 'pure service' but a sale of goods. The applicant abstracts seawater, treats it through desalination, and sells the treated water to CMWSSB. Since the process involves the sale of water and not a service, the exemption under Sl.No.3 of Notification 12/2017 does not apply.

Conclusion:
1. The supply of desalinated water by CWDL to CMWSSB for distribution as safe drinking water falls under Sl.No.99 of Notification 02/2017 and attracts a 'NIL' rate of GST.
2. The transaction of supplying safe drinking water by CWDL to CMWSSB does not qualify as 'pure services' and is not eligible for exemption under Sl.No.3 of Notification 12/2017.

Ruling:
1. Supply of desalinated water by the applicant to CMWSSB for distribution as safe drinking water to the public falls under the entry at Sl.No.99 of Notification 02/2017 and attracts a 'NIL' rate of GST.
2. The transaction of supplying safe drinking water by the applicant to CMWSSB does not merit classification as 'services' and hence is not eligible for exemption under Sl.No.3 of Notification 12/2017.

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