Treated water from effluent treatment plants qualifies as sale of goods under Sale of Goods Act 1930

The AAR, Tamil Nadu ruled that treated water supplied by an effluent treatment plant to dyeing units qualifies as sale of goods under the Sale of Goods Act, 1930, provided all statutory requirements are met. The treated water, recovered from effluent treatment processes for reuse as solvent and washing medium, is classified under heading 2201 as ordinary water. The AAR determined that since the plant's primary purpose is environmental compliance and water conservation through recovery and reuse rather than manufacturing, the supply is exempt from GST under the applicable notification.

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Issues Involved:

1. Classification of supply of outputs as sale of goods.
2. Classification of water sold under heading 2201.

Summary:

Issue 1: Classification of Supply of Outputs as Sale of Goods

The Applicant, a common effluent treatment plant, proposed to purchase effluents from dyeing units, process them, and sell the resultant products. The Authority examined the nature of this transaction under Section 4 of The Sale of Goods Act, 1930, and the Supreme Court judgment in the case of State Of Madras vs Gannon Dunkerley & Co., (Madras). It was determined that the classification of supply by the Applicant as sale of goods is correct if all elements of a sale, as defined by the Act and the Supreme Court judgment, are present. The ruling emphasized that the proposed mode of operation'purchasing raw effluent, treating it, and selling the resultant products'can be classified as a sale of goods if the procedures in the Sale of Goods Act are followed.

Issue 2: Classification of Water Sold Under Heading 2201

The Applicant sought clarification on whether the classification of water sold as 'water including natural or artificial mineral waters and aerated waters, not containing added sugar or sweetening matter, not flavoured (other than drinking water packed in 20 litre bottles)' under heading 2201 is correct. The Authority referred to previous Advance Rulings and noted that water recovered from the effluent treatment process is not de-mineralized water as it still contains impurities. The effluent treated water is classified under Heading 2201 as ordinary water, suitable for reuse by dyeing and bleaching units, and is exempt from GST as per Notification No. 2/2017-Central Tax Rate, amended by Notification No. 7/2022-Central Tax (Rate). The ruling confirmed that the classification of water sold by the Applicant falls under SI. No. 99 of Notification No. 2/2017, attracting a Nil rate of GST.

Ruling:

1. Classification of outputs as supply of goods is correct, subject to the condition that the applicant follows the guidelines mentioned in para 4.9 of the order.
2. The classification of water sold by the applicant is correctly classifiable under SI. No. 99 of Notification No. 2/2017-Central Tax Rate, attracting a Nil rate of GST.

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