Sale of goods and GST exemption principles applied to treated effluent outputs and recovered water classification.

An AAR in Tamil Nadu held that where raw effluent is purchased, treated on the applicant's own account, and the resulting outputs are transferred for consideration, the arrangement can satisfy the Sale of Goods Act elements of a sale of goods. It further found that recovered water from the treatment process was not de-mineralised water or water of similar purity, did not fall within the claimed taxable heading 2201, and qualified for exemption under the relevant GST notification. The proposed goods-based classification was therefore accepted, and the recovered water was treated as exempt.

---

---

Issues: (i) Whether the proposed supply of treated effluent outputs could be classified as a sale of goods; (ii) whether the water recovered from the effluent treatment process was correctly classifiable under heading 2201 and eligible for exemption under the GST rate notification.

Issue (i): Whether the proposed supply of treated effluent outputs could be classified as a sale of goods.

Analysis: The arrangement was examined in the light of the Sale of Goods Act, 1930, under which a sale requires transfer of property in goods for a price. The proposed model contemplated purchase of raw effluent, treatment on the applicant's own account, and sale of the resultant outputs at market rates. On that basis, the supply satisfied the essential elements of a sale, provided the stated commercial arrangement was followed.

Conclusion: The classification of the outputs as a supply of goods was upheld.

Issue (ii): Whether the water recovered from the effluent treatment process was correctly classifiable under heading 2201 and eligible for exemption under the GST rate notification.

Analysis: The recovered water was found not to be de-mineralised water or water of similar purity and did not answer the description of the taxable entry for waters under heading 2201. The relevant exemption entry covers water other than the specified excluded categories. The treated effluent water, being water recovered for reuse by the member units and not manufactured as a distinct commercial water product, fell within the exempt entry.

Conclusion: The recovered water was held to be exempt under the relevant notification and not taxable under the claimed heading and rate entry.

Final Conclusion: The advance ruling accepted the applicant's proposed goods-based classification for the treated outputs and also granted exemption treatment to the recovered water, thereby resolving both questions in the applicant's favour.

Ratio Decidendi: Where effluent is purchased, treated on the applicant's own account, and the resultant products are transferred for consideration, the transaction may amount to a sale of goods; recovered effluent water that is not de-mineralised or of similar purity is classifiable as exempt water under the relevant GST exemption entry.

---