Potable water exemption applies to desalinated water supplied for public distribution; pure service exemption does not.

Desalinated water supplied for public distribution as potable water was held to fall under the exempt water entry in Notification No. 2/2017-Central Tax (Rate) and to attract NIL GST, because it was treated as drinking water for use by the public and not as purified or de-mineralised water within the excluded categories. The same transaction was not eligible as a pure service under Notification No. 12/2017-Central Tax (Rate), because the arrangement was a supply of goods in the nature of a sale of water rather than a service supplied in relation to municipal or panchayat functions.

---

---

Issues: (i) Whether supply of desalinated water by the applicant to CMWSSB for distribution as safe drinking water is covered by Sl. No. 99 of Notification No. 2/2017-Central Tax (Rate) and attracts NIL rate of GST; (ii) Whether the activity is a pure service eligible for exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate).

Issue (i): Whether supply of desalinated water by the applicant to CMWSSB for distribution as safe drinking water is covered by Sl. No. 99 of Notification No. 2/2017-Central Tax (Rate) and attracts NIL rate of GST.

Analysis: The water supplied was obtained after desalination of sea water through reverse osmosis and was intended for use as potable water. The entry at Sl. No. 99 exempts water other than the excluded categories, and the related circular clarifies that drinking water for public purpose, if not sold in sealed containers, is exempt. The supply was held to be potable water falling under HSN 2201 and not within the excluded categories such as purified or de-mineralized water. The arrangement, invoices, and agreement showed a sale of product water for public distribution, not a different taxable category.

Conclusion: The supply of desalinated water is covered by Sl. No. 99 of Notification No. 2/2017-Central Tax (Rate) and attracts NIL rate of GST.

Issue (ii): Whether the activity is a pure service eligible for exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate).

Analysis: Sl. No. 3 exempts pure services supplied to specified authorities in relation to functions entrusted to a Panchayat or Municipality. Here, the applicant did not provide only a service; it treated sea water on its own account and supplied the resulting water as a sale simpliciter. The transaction was therefore a supply of goods, not a pure service. Since the supply was not a service, the exemption entry for pure services was inapplicable.

Conclusion: The activity is not a pure service and is not eligible for exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate).

Final Conclusion: The transaction was held to be a sale of potable water falling under the exempt water entry, while the pure-service exemption was held inapplicable.

Ratio Decidendi: Where treated water is supplied as potable water for public distribution and the substance of the arrangement is a sale of water rather than a pure service, the supply is classifiable under the exempt water entry and not under the exemption for pure services.

---