Sale of water, rather than natural-resource rights assignment, does not attract reverse-charge service tax on consumption-based payments.

Payment based on the quantity of water actually consumed under an agreement with a State Government is characterised as consideration for the sale of water, not for assignment of the right to use a natural resource. The recipient's drawing and conveyance of water to its plant does not change that character. Accordingly, the transaction does not attract service tax under the reverse charge mechanism. The analysis notes consistency with prior decisions involving identical transactions and an earlier merits-based order concerning the same assessee.

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Issues: Whether payment for water drawn and consumed under an agreement with the State Government constitutes consideration for assignment of the right to use a natural resource, taxable under the reverse charge mechanism, or consideration for sale of water.

Analysis: The consideration was paid for the quantity of water actually consumed, and the fact that the recipient drew and conveyed the water to its plant did not alter the transaction's character. The agreement was therefore a sale of water, not an assignment of a right to use a natural resource. This view was consistent with prior decisions on identical transactions and with an earlier order for the same assessee that had been accepted on merits.

Conclusion: No service tax was payable under the reverse charge mechanism on the water purchased from the State Government; the issue was decided in favour of the assessee.

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