Water supply charges linked to actual drawal are not taxable as natural resource allocation for service tax purposes.

Water charges paid under an agreement for industrial supply were held not liable to service tax because the arrangement was for supply based on actual quantity drawn, not for allocation, auction, or assignment of a right to use a natural resource. The tribunal found that no taxable service arose under the relevant service tax provision, as the State had not conferred any exploitable natural resource right on the appellant. The service tax demand was therefore unsustainable, the impugned order was set aside, and the appeal succeeded with consequential relief.

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Issues: Whether water charges paid to the State Government for supply of water under the agreement were liable to service tax as consideration for allocation or auction of natural resources.

Analysis: The agreement was treated as one for supply of water for industrial use, with charges payable on the basis of quantity drawn and not for conferring any right to use natural resources. The reasoning adopted was that the arrangement did not amount to assignment of any natural resource to the appellant, and therefore no taxable service under the relevant service tax provision arose.

Conclusion: The water charges were not liable to service tax and the demand could not be sustained.

Final Conclusion: The impugned order was set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: Where an agreement is for supply of water on charges linked to actual drawal, and not for assignment of a right to exploit a natural resource, the transaction does not constitute a taxable service for service tax purposes.

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