Water supply for thermal power operations is a sale of water, not taxable natural-resource rights assignment.

Water supplied by a State Government for operating a thermal power plant, with charges calculated on the volume actually drawn and use restricted to the plant, is characterised as a sale of water rather than assignment of a right to use a natural resource. The agreement's specified supply quantity and period, together with the industrial-water framework, support a supply arrangement and not an independent right to exploit a governmental resource. Accordingly, the charges do not constitute consideration for a taxable service, and no service tax is payable under reverse charge.

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Issues: Whether water charges paid to the State Government under an agreement permitting drawal of water for operating a thermal power plant constitute consideration for a taxable service involving assignment of the right to use natural resources.

Analysis: The agreement provided for supply of a specified quantity of water for a stipulated period, payment calculated per cubic metre of water actually drawn, and use confined to the power plant. The applicable irrigation framework contemplated supply of water for industrial purposes at agreed or prescribed rates. The arrangement was therefore one for supply of water, with charges linked to volume consumed, rather than a grant of an independent right to exploit a governmental natural resource. The established Tribunal decisions on materially identical arrangements were applied.

Conclusion: The transaction was a sale of water and not a taxable service; consequently, no service tax was payable under reverse charge. The issue is decided in favour of the assessee.

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