2024 (7) TMI 358 - AAR - GST

Treated water from raw effluent processing constitutes sale of goods, classifiable under CTH 2201, no exemption applies

The AAR-TN ruled that the applicant's proposed operation of purchasing raw effluent, treating it, and selling resultant products constitutes sale of goods ... Classification of goods - sale of goods - classification of de mineralised water - treated sewage water versus treated industrial effluent - binding nature of advance rulingSale of goods - classification of goods - Supply of outputs resulting from purchase and treatment of industrial effluent is correctly classifiable as sale of goods, subject to fulfillment of the criteria under the Sale of Goods Act and the cited jurisprudence. - HELD THAT: - The Authority examined the applicant's proposed modus operandi-purchase of raw effluent, treatment at CETP and sale of resultant products-and considered Section 4 of the Sale of Goods Act, 1930 and the Supreme Court test in State of Madras v. Gannon Dunkerley. The AAR concluded that where there is an agreement to transfer property in goods for a price and the conventional indicia of sale are satisfied (capacity to contract, money consideration and transfer of property), the transaction can be treated as a sale. The Authority therefore affirmed the earlier ruling subject to the caveat that the applicant must ensure compliance with the procedures and legal tests required for property in goods to pass under the Sale of Goods Act; only if these elements are present will the supplies be sales of goods. [Paras 11]Affirmed that the proposed supplies can be treated as 'sale of goods' if the requirements of the Sale of Goods Act and the cited Supreme Court authority are satisfied.Classification of de mineralised water - treated sewage water versus treated industrial effluent - R.O. permeate (treated water) recovered from the applicant's CETP is classifiable as de mineralised water under CTH 2201 and falls within S. No. 24 of Schedule III to Notification No. 01/2017 CT(Rate) and is not eligible for Nil exemption under S. No. 99 of Notification No. 2/2017 CT(Rate). - HELD THAT: - The Authority analysed the technical processes (multi stage RO, evaporation, brine treatment) and inspected the SITRA test report showing reduction of TDS from 7932 mg/L to c.148 mg/L and corresponding reductions in colour, TSS and other parameters. It distinguished treated sewage water (the subject of the CBIC clarification and Fitment Committee recommendation to place treated sewage water under the Nil exemption) from treated industrial effluent: sewage treatment typically addresses household organic solids and biological load, whereas the applicant's CETP removes industrial dyes, salts and hazardous constituents. The AAR held that the exclusion in entry S. No. 99 continues to exclude de mineralized water and that the phrase 'Waters, including...' in S. No. 24 of Schedule III admits R.O. permeate within its ambit. The Authority further considered the quality thresholds and comparative authorities holding that CETP recovered water used for industrial purposes is de mineralised water taxable under Schedule III. The test reports and plant logs showed substantial but not complete removal of dissolved solids (treated water TDS in the range ~90-150 mg/L), meaning the product is de mineralised water for industrial use rather than distilled or conductivity water of ultra purity; nevertheless it falls within heading 2201 and S. No. 24 of Schedule III. [Paras 13, 14, 15]R.O. permeate recovered from the CETP is de mineralised water classifiable under CTH 2201 and covered by S. No. 24 of Schedule III to Notification No. 01/2017 CT(Rate), and therefore not eligible for the Nil exemption under S. No. 99 of Notification No. 2/2017 CT(Rate).Final Conclusion: The Authority upheld that the applicant's proposed purchase treat sell model can constitute sale of goods if the statutory elements of a sale are satisfied, and ruled that the R.O. permeate recovered from the CETP is de mineralised water classifiable under CTH 2201 and S. No. 24 of Schedule III to Notification No. 01/2017 CT(Rate), thus not eligible for the Nil exemption under S. No. 99 of Notification No. 2/2017 CT(Rate). Issues Involved:1. Classification of the supply of outputs as the sale of goods.2. Classification of treated water under the appropriate heading.Detailed Analysis:1. Classification of the Supply of Outputs as Sale of Goods:The applicant, engaged in treating effluents from dyeing units, sought clarification on whether the supply of treated outputs could be classified as the sale of goods. According to Section 4 of The Sale of Goods Act, 1930, a contract of sale involves the transfer of property in goods from the seller to the buyer for a price. The Hon'ble Supreme Court in State of Madras Vs Gannon Dunkerley & Co. (Madras) emphasized that for a sale to occur, there must be an agreement, consideration, and transfer of property.The applicant purchases effluents, processes them, and sells the resulting products. This mode of operation, if it follows the procedures in the Sale of Goods Act and the Supreme Court's rationale, qualifies as a sale of goods. Therefore, the classification of the supply of treated water, salt, and other products as the sale of goods is correct.2. Classification of Treated Water:The applicant contended that the classification of RO Permeate as per the Advance Ruling order under heading 2201 was incorrect. They argued that the treated water should be classified under Chapter 28 as 'Other Inorganic Compounds' or as 'Demineralised water' under heading 2201 due to its specific characteristics and usage in the dyeing industry.Analysis of Techniques and Characteristics:Various techniques for demineralization, such as distillation, ion-exchange, and reverse osmosis, were discussed. The applicant's process involves significant demineralization, reducing dissolved solids from 7932 mg/L to 148 mg/L, making the water fit for industrial use.Comparison with Treated Sewage Water:The Ministry of Finance's Circular No. 179/11/2022 clarified that treated sewage water attracts a nil rate of tax. However, the effluent from textile industries contains hazardous chemicals and requires extensive treatment, unlike sewage water. The treated water from the applicant's process retains minor minerals, making it distinct from treated sewage water.Classification under Heading 2853:If the treated water contained zero or minuscule dissolved solids, it could be classified under heading 2853 as distilled or conductivity water. However, the applicant's treated water retains some dissolved solids, disqualifying it from this category.Classification under Heading 2201:The applicant's treated water, being demineralized but not entirely free of impurities, falls under heading 2201 as 'Waters, including natural or artificial mineral waters and aerated waters, not containing added sugar or other sweetening matter nor flavoured.' This classification aligns with rulings in similar cases, such as M/s Hojwala Infrastructure Limited and Palsano Enviro, where treated water from CETP was classified under heading 2201 and taxed at 18%.Ruling:1. The classification of the supply of outputs as the sale of goods is correct.2. The classification of treated water, which is demineralized for industrial use, falls under heading 2201 as described in S.No. 24 of Schedule-III of Notification No. 01/2017-C.T. (Rate) dated 28.06.2017, and is taxable at the rate of 18% GST.