Sale of goods and Heading 2201 exemption recognised for treated effluent water under the GST framework.

An AAR held that where effluent is purchased, processed on the applicant's own account, and the resulting outputs are transferred for consideration with title passing in accordance with sale requirements, the transaction is treated as a sale of goods. It further held that treated water recovered from the process, being ordinary water and not de-mineralised or similarly pure water, falls under Heading 2201. On that basis, the water is covered by the relevant exemption entry for Heading 2201 and is eligible for GST exemption.

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Issues: (i) Whether the proposed supply of recovered outputs from the effluent treatment process is a sale of goods. (ii) Whether the water sold after treatment is classifiable under Heading 2201 and exempt from GST.

Issue (i): Whether the proposed supply of recovered outputs from the effluent treatment process is a sale of goods.

Analysis: The applicant proposed to purchase raw effluent, treat it on its own account, and transfer the resultant outputs for a price. The legal test for sale requires an agreement to transfer property in goods for money consideration and actual passing of property. On that basis, the proposed model satisfies the elements of a sale if the transfer is effected in accordance with the legal requirements governing sale of goods.

Conclusion: The proposed supply of outputs is correctly treated as a sale of goods, subject to compliance with the stated conditions.

Issue (ii): Whether the water sold after treatment is classifiable under Heading 2201 and exempt from GST.

Analysis: The treated water recovered from the effluent process was found to be ordinary water not amounting to de-mineralised water or water of similar purity, and not fit for human consumption. Water under Heading 2201 is ordinarily covered by the exemption entry in Notification No. 2/2017-Central Tax (Rate), while treated sewage water has also been clarified as exempt. The applicable entry is the exempt entry for water under Heading 2201, as amended, rather than the taxable entry for mineral or similar waters.

Conclusion: The treated water is classifiable under Heading 2201 and is eligible for exemption under the relevant exemption notification entry.

Final Conclusion: The ruling accepts the applicant's proposed treatment of the outputs as goods and confirms that the treated water falls within the exempt water entry under Heading 2201.

Ratio Decidendi: Where effluent is purchased, processed on one's own account, and the resulting products are transferred for consideration with title passing as in a sale, the transaction may constitute a sale of goods; treated effluent water that remains ordinary water and not de-mineralised or similarly pure water falls within the exempt Heading 2201 water entry.

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