Treated water from effluent treatment classified as ordinary water, not demineralized water, qualifies for GST exemption

The Tamil Nadu AAR ruled that treated water produced from effluent treatment processes by the applicant is classifiable as ordinary water under Sl. No. 99 of Notification No. 2/2017-C.T. (Rate) rather than demineralized water under Sl. No. 24 of Notification No. 1/2017-C.T. (Rate). The authority found that despite RO treatment, the water retained TDS levels of 272 mg/l and contained chlorides, sulphates, and bicarbonates, making it unsuitable for uses beyond textile dyeing and bleaching operations. The treated water qualifies for GST exemption under the amended notification, as the treatment plant operates primarily for environmental compliance and water conservation rather than manufacturing purposes.

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Issues Involved:
1. Classification of treated water.
2. Applicable GST rate on treated water.

Summary:

Issue 1: Classification of Treated Water
The Applicant, a common effluent treatment plant, proposed to classify treated water under HSN 2201, liable for an 18% GST rate under Notification No. 1/2017-C.T. (Rate), dated 28-6-2017. The Applicant cited various advance rulings to support their claim that the treated water is demineralized and falls under Heading 2201. However, the Authority examined the processes and test reports, concluding that the treated water does not meet the criteria for demineralized water as it still contains significant levels of Total Dissolved Solids (TDS) and other impurities. Consequently, the treated water does not fit into the Sl. No. 24 of Notification No. 1/2017-C.T. (Rate), dated 28-6-2017.

Issue 2: Applicable GST Rate on Treated Water
The Authority found that the treated water should be classified under Sl. No. 99 of Notification No. 2/2017-C.T. (Rate), dated 28-6-2017, which includes ordinary water and excludes special category waters like aerated, mineral, distilled, medicinal, ionic, battery, demineralized, and water sold in sealed containers. This classification aligns with the Ministry of Finance's Circular No. 179/11/2022, dated 3-8-2022, which clarified that treated sewage water attracts a Nil rate of GST. The Authority concluded that the treated water recovered from the effluent treatment process is ordinary water suitable for reuse in dyeing and bleaching units, thus eligible for GST exemption under the cited notification.

Ruling:
1. The classification of treated water is correctly under Heading 2201 as per Notification No. 2/2017-C.T. (Rate).
2. The treated water is eligible for exemption from GST under the same notification.

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