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2024 (7) TMI 358 - AAR - GSTClassification of output - supply of goods or not - classification of Water including natural or artificial mineral waters and aerated waters, not containing added sugar or sweetening matter, not flavored (other than drinking water packed in 20 litre bottles) under heading 2201 or not. Classification as to whether Supply of Outputs as sale of Goods is Correct - HELD 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 - 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. Classification of Treated Water - HELD THAT - It is well known that as a universal solvent, Water is capable of dissolving huge number of substances than any other solvent and hence, prone to contamination and thereby gets mineralized easily. This unique property of the Water necessitated evolving techniques for removal of minerals to make it fit for drinking, Laboratory and Industrial uses. There are different techniques for de-mineralisation viz, distillation, ion-exchange and Reverse osmosis to remove the dissolved minerals, salts and to obtain de-mineralised water. Whether the R.O. permeate is to be treated on par with the treated sewage water and qualify for the Nil rate of tax? - HELD THAT - The total dissolved salts or constituent chemicals/ minerals which was originally present in the raw effluent water have been substantially reduced to meagre quantity or non-detectable limit. In other words, the effluent water is demineralized to certain extent by three step Reverse Osmosis Units, leaving behind certain quantity of minute mineral/salts. It is noted from the statement of facts furnished by the Applicant that retention of meagre quantity of chemicals is with the intention of making the Permeate fit for usage in the dyeing industry, whereby the dissolved solids are reduced from 7932 mg/1 to 148 mg/1. As the treated water obtained by the process of reverse osmosis is sold for specific usage in the dyeing industry, it is inferred that they have customized the process of demineralization to meet out the specific requirement of treated water to make it fit for the dyeing purposes and also meet the compliance of Zero Liquid Discharge - the treated water obtained from CETP which is 'demineralized water' is not eligible for exemption under Serial No. 99 of Notification No. 2/2017-CT (Rate) dated 28-6-2017, as amended. Whether the R.O. permeate falls under the heading 2853 90 10 - Other Inorganic Compounds and classifiable under this residuary head, comparable products like distilled water, conductivity water? - HELD THAT - Though the raw water consisting of total dissolved solids at the range of 5700 mg/L to 7900 mg/L, the treated water contains the total dissolved solids at the range of 90 to 150 mg/L, which reveals that the treatment process adopted by the applicant removed substantial quantity of minerals and salts, but meagre amount of salts are retained in the Treated water sold for reuse by the dyeing industry. Hence, the said R.O permeate are not classifiable under the category of 'distilled water or conductivity water and water of similar purity' - the R.O permeate is not falling under any of the exclusion clause - The word including used in the entry reveals that the legislature doesn't intend to restrict the entry. It makes the entry enumerative but not exhaustive and the term water retains its ordinary meaning and its scope will be extended to bring the de-mineralized water of the applicant's case, within its ambit. The de-mmeralised water obtained as R.O permeate in the Common Effluent Treatment Plant run by the Applicant is classifiable under CTH 2201 and gets covered under the entry No. of the Schedule-III of N/N. 01/2017-CT (Rate) dated 28.6.2017.
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.
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