2023 (12) TMI 1049 - AAR - GST

Classification of supply - Supply of outputs as sale of goods - water sold as water including natural or artificial mineral waters and aerated waters not containing added sugar or sweetening matter not flavoured (other than drinking water packed in 20 litre bottles) - classified under heading 2201 or not. Supply of outputs as sale of goods or not - HELD THAT - From the conjoined reading of section 4 of The Sale of Goods Act 1930 and the Hon ble Supreme Court judgement in the case of State of Madras vs Gannon Dunkerley Co., (Madras) 1958 (4) TMI 42 - SUPREME COURT it is clear that the modus of operation as purchase of effluent and sale of output is applicable only if all the elements cited in the Section and judgement cited are present. If that is the case then the classification of supply of treated water salt and other products as sale of goods is correct - However it is emphasized that the mode of operation intended by the applicant i.e. purchase of raw effluent treating the same and selling the resultant products can be classified as sale of goods if and only if the applicant follows the procedures envisaged in the Sale of Goods Act and rationale of the observations of Hon ble Supreme Court. If such is the case the proposed mode of purchase of raw effluent treat it on own account and supply of output can be treated as sale of goods and consequently the first question is answered in the affirmative. Whether the classification of water sold as water including natural or artificial mineral waters and aerated waters not containing added sugar or sweetening matter not flavoured (other than drinking water packed in 20 litre bottles) under heading 2201 is correct? - HELD THAT - Water grouped under the heading 22.01 is ordinary water whether or not clarified or purified. And this heading specifically excludes distilled or conductivity water and water of similar purity which are classified in heading 28.53. Therefore it is amply clear that water recovered out of the effluent treatment process nothing but an ordinary water which is suitable for reuse by the dyeing and bleaching units as a solvent and as a washing rinsing medium. Thus it aptly fits into Sl. No. 99 of Notification No. 02/2017 CT (Rate) dt.28.06.2017 under the heading 2201 rather than Sl.No.24 of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 under the same heading 2201 - As per Circular No. 179/11/2022 dated 03.08.2022 issued by Ministry of Finance regarding applicability of GST on various goods and services it has been clarified that treated sewage water attracts Nil rate of tax. The ultimate intention behind the effluent treatment process is to treat the effluent water discharged by textile units to recover water salt and other chemicals consumed during the course of dyeing and bleaching to the maximum extent possible so as to reuse the same without getting it discharged to pollute water bodies. Moreover ZLD has been mandated by the TNPCB for all the highly polluting industries including Textile Dyeing and Bleaching industries in order to prevent pollution of River water and ground water. Therefore it is evident that the common effluent treatment plant has been set up in order to comply with the legislative and environment regulations thereby conserving water through recovery and reuse and not to manufacture water or chemicals - effluent treated water is eligible for exemption as per Notification No. 2/2017- Central Tax Rate as amended vide notification No.7/2022-Central Tax (Rate) dated the 13th July 2022.

Summary

Issues Involved
1. Classification of supply of outputs as sale of goods.
2. Classification of water sold under heading 2201.

Summary

Issue 1: Classification of Supply of Outputs as Sale of Goods

The applicant, a common effluent treatment plant, proposed to purchase effluents from dyeing units, treat them, and sell the resultant products such as water, sulphate solution, and brine solution. The key question was whether this activity could be classified as the sale of goods. The Authority examined the provisions of the Sale of Goods Act, 1930, and relevant Supreme Court judgments, concluding that the classification as sale of goods is correct if the applicant follows the procedures outlined in the Sale of Goods Act and the rationale of the Supreme Court's observations. The ruling emphasized that the classification as sale of goods is contingent upon compliance with the legal requirements for a sale.

Issue 2: Classification of Water Sold Under Heading 2201

The applicant sought clarification on whether the water sold could be classified under heading 2201 as 'water including natural or artificial mineral waters and aerated waters, not containing added sugar or sweetening matter, not flavoured.' The Authority referred to previous advance rulings and analyzed the effluent treatment process. It was determined that the treated water does not qualify as demineralized water under heading 28.53 but fits under heading 2201 as ordinary water. The Authority ruled that the treated water is eligible for exemption under Notification No. 2/2017-Central Tax Rate, as amended, which classifies it under heading 2201 with a Nil rate of tax.

Ruling

1. The classification of outputs as supply of goods is correct, subject to the applicant following the guidelines mentioned in para 4.9 of the order.
2. The classification of water sold by the applicant is correctly classifiable under Notification No. 2/2017-Central Tax Rate, heading 2201, with a Nil rate of tax.