STP treated water qualifies for GST exemption as it contains biological contaminants making it impure water

The AAAR Maharashtra held that STP treated water qualifies for GST exemption under Sl. No. 99 of Exemption Notification No. 02/2017-IT (Rate). The authority determined that water from sewage treatment plants, despite undergoing physical and biological processes, retains biological contaminants like bacteria, virus, and E. coli, making it impure. Since the treated water contains elements beyond hydrogen and oxygen and is supplied through pipelines rather than sealed containers, it does not qualify as purified water under the exemption clause exclusions, thereby remaining eligible for the exemption.

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Issues Involved:
1. Classification of "Treated Water" obtained from STP under GST.
2. Eligibility for exemption from GST under SI. No. 99 of the Exemption Notification No. 02/2017-Integrated Tax (Rate) dated 28 June 2017.
3. Applicability of GST at 18% under SI. No. 24 of Schedule III of Notification No. 01/2017-Integrated Tax (Rate) dated 28 June 2017.

Issue-wise Detailed Analysis:

1. Classification of "Treated Water" obtained from STP under GST:
The Appellant, engaged in the manufacture and sale of fertilizers and industrial chemicals, operates a Sewage Treatment Plant (STP) that converts sewage water into treated water for industrial use. The process involves multiple steps including removal of suspended particles, biological treatment, and reverse osmosis, resulting in water that is not fit for human consumption but suitable for industrial purposes. The treated water contains impurities such as bacteria, virus, and e-coli, distinguishing it from purified drinking water.

2. Eligibility for exemption from GST under SI. No. 99 of the Exemption Notification No. 02/2017-Integrated Tax (Rate) dated 28 June 2017:
The Appellant contended that the treated water should be exempt from GST as it is not "purified water" and falls under the general term "water" exempted by SI. No. 99 of the Exemption Notification. They argued that the term "purified" should be interpreted in the context of specialized uses such as aerated, mineral, distilled, medicinal, ionic, battery, and de-mineralized water, which are excluded from the exemption. The Appellant cited the Tamil Nadu AAAR ruling in the case of M/s. New Tirupur Area Development Corporation Limited, which held that treated potable water is not "purified water" and should be exempt from GST. The Appellant also emphasized that the treated water is not sold in sealed containers, aligning with the exemption criteria.

3. Applicability of GST at 18% under SI. No. 24 of Schedule III of Notification No. 01/2017-Integrated Tax (Rate) dated 28 June 2017:
The Maharashtra Authority for Advance Ruling (MAAR) had initially ruled that the treated water is "purified water" and taxable at 18% under SI. No. 24 of Schedule III. The Department supported this by stating that the processes undertaken by the Appellant effectively purify the water, making it fit for industrial use, thus falling under the taxable category. However, the Appellant argued that the treated water still contains impurities and does not meet the definition of "purified water" as intended by the exclusion clause.

Judgment:
Upon review, the Appellate Authority for Advance Ruling (AAAR) concluded that the treated water, despite undergoing various treatments, still contains impurities and cannot be classified as "purified water." The AAAR applied the principle of "noscitur a sociis" to interpret the term "purified" in the context of other specific types of water excluded from the exemption. The AAAR also noted that the treated water is supplied through pipelines and not in sealed containers, further supporting its exemption from GST. The AAAR emphasized the Government's intention to exempt general-purpose water from GST, aligning with the CBIC Circular No. 52/26/2018. Consequently, the AAAR set aside the MAAR's ruling and held that the treated water is eligible for exemption under SI. No. 99 of the Exemption Notification No. 02/2017-C.T. (Rate) dated 28 June 2017. The appeal filed by the Appellant was allowed.

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