Exemption for integrated water treatment system upheld where goods were used in a thermal power project's supply chain.

Goods cleared for an integrated water supply and demineralization system were eligible for exemption where certificates showed they formed part of pipelines, pumping stations and a demineralization plant used to treat water before it was supplied to the thermal power project. On that factual basis, the use was treated as water treatment rather than use in the power plant itself, so exemption under Notification No. 3/2004-CE applied and the duty demand with interest was unsustainable.

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Issues: Whether the goods cleared by the assessee for use in the water carrier and demineralization system for a thermal power project were eligible for exemption under Notification No. 3/2004-CE dated 08.01.2004, and whether duty with interest was sustainable.

Analysis: The goods were supported by certificates showing that the supply formed part of the water supply system for the project, comprising pipelines, pumping stations and a demineralization plant, and that the water so received was used for treatment before being put to use in the thermal power plant. On this factual basis, the use of the goods was held to be for treatment of water and not merely for the power plant as such.

Conclusion: The exemption under Notification No. 3/2004-CE dated 08.01.2004 was available, and no duty was payable on the cleared goods.

Final Conclusion: The impugned demand was unsustainable and the appeal succeeded with consequential relief.

Ratio Decidendi: Where goods are cleared for an integrated water supply and demineralization system and the evidence shows their use in water treatment, exemption cannot be denied merely because the treated water ultimately supports a thermal power project.

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