Treated water from effluent plants constitutes sale of goods under Sale of Goods Act, attracts nil GST rate

AAR Tamil Nadu ruled that supply of treated water from effluent treatment plants constitutes sale of goods under Sale of Goods Act, 1930, provided statutory procedures are followed per SC precedent in State of Madras vs Gannon Dunkerley Co. The treated water qualifies for classification under heading 2201 as ordinary water suitable for industrial reuse. Since the treatment process aims at pollution control and water conservation rather than manufacturing, the treated effluent water attracts nil GST rate under Notification No. 2/2017-Central Tax Rate as amended by Notification No. 7/2022.

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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, treat them, and sell the resultant products such as water, sulphate solution, and brine solution. The key question was whether this activity could be classified as the sale of goods. The Authority examined the provisions of the Sale of Goods Act, 1930, and relevant Supreme Court judgments, concluding that the classification as sale of goods is correct if the applicant follows the procedures outlined in the Sale of Goods Act and the rationale of the Supreme Court's observations. The ruling emphasized that the classification as sale of goods is contingent upon compliance with the legal requirements for a sale.

Issue 2: Classification of Water Sold Under Heading 2201

The applicant sought clarification on whether the water sold could be classified under heading 2201 as 'water including natural or artificial mineral waters and aerated waters, not containing added sugar or sweetening matter, not flavoured.' The Authority referred to previous advance rulings and analyzed the effluent treatment process. It was determined that the treated water does not qualify as demineralized water under heading 28.53 but fits under heading 2201 as ordinary water. The Authority ruled that the treated water is eligible for exemption under Notification No. 2/2017-Central Tax Rate, as amended, which classifies it under heading 2201 with a Nil rate of tax.

Ruling

1. The classification of outputs as supply of goods is correct, subject to the applicant following the guidelines mentioned in para 4.9 of the order.
2. The classification of water sold by the applicant is correctly classifiable under Notification No. 2/2017-Central Tax Rate, heading 2201, with a Nil rate of tax.

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