• Kandivali West Mumbai 400067, India
  • 022 39167251
  • support@email.com
April 14, 2022

Sewage Treatment Plant is not liable for GST payment: Maharashtra AAAR

by CA Shivam Jaiswal in Income Tax

Sewage Treatment Plant is not liable for GST payment: Maharashtra AAAR

Brief facts of the case

Rashtriya Chemicals and Fertilizers Limited (hereinafter referred to as the “Appellant”) is engaged in the business of manufacture and sale of fertilizers and industi‘ia1 chemicals. The Appellant have its head office in Mumbai and have two manufacturing plants located in Maharashtra and have warehouses/ distribution networks across various states in India.

The Appellant have a Sewage Treatment Plant (‘STP’) at its Trombay premises. This plant uses sewage water and converts it into water for use in the factory for manufacture of the fertilizers.

The Appellant have set up a New Sewage Treatment Plant which became operational on 10 September 2019 (hereinafter referred to as ‘New STP’) with an objective of becoming self-dependent in meeting daily process water requirement of Trombay unit.

The Appellant have agreed to supply such treated water to Bharat Petroleum Corporation Limited (hereinafter referred to as ‘BPCL’) for use in refinery. The key terms of arrangement between the parties are stated below:

Quality of treated water shall be in accordance with the parameters set by BPCL; The Appellant is under obligation to provide daily analysis report of the treated water. From the above processes involved in treatment of sewage it can be observed that the sewage water is converted into treated water by treating the sewage through various processes to make it suitable for industrial use and as per the specific quality parameter agreed between the parties. As the water is not purified, it is not fit for human consumption and contains certain impurities such as bacteria, virus, and e-coli.

From the comparative statement of quality of new STP treated water and MCGM drinking water, it can be seen that while MCGM water can be used for drinking purposes as well as for other purposes, the treated water can be used only for specified industrial use as the same contains impurities making it unfit for drinking purpose. It is pertinent to note that the Appellant would have to undertake ultraviolet treatment on such treated water to make it free from all impurities and make it suitable for drinking purpose.

With the above background of facts, the Appellant had preferred an application for Advance Ruling under Section 97 of CGST Act, 2017 before the MAAR on the following questions of law as to –

Q. Whether “Treated Water” obtained from STP (classifiable under Chapter 2201) will be eligible for exemption from GST by virtue of SI, No. 99 of the Exemption Notification No. 02/20l7- Integrated Tax (Rate) dated 28 June 2017 (as amended) having entry as “Water [other than aerated, mineral, purified, distilled, medicinal, ionic, battery, de-mineralized and water sold in sealed container)”? or

Q. Whether “Treated Water” obtained from STP [classifiable under Chapter 2201] is taxable at 18% by virtue of Sl. No. 24 of Schedule -III of Notification No. 01/2017- Integrated Tax (Rate) dated 28th June 2017 (as amended) as “Waters, including natural or artificial mineral waters and aerated waters, not containing added sugar or other sweetening matter nor flavoured [other than Drinking water packed in 20 litres bottles)”?

In pursuance to the aforesaid application, the Maharashtra Authority for Advance Ruling has passed the order bearing number GST-ARA-é7/2019-20/B-57 dated 9t September 2021 (hereinafter referred to as the “Impugned Order”) wherein it has been held that “Treated Water” obtained from STP [classifiable under Chapter 2201] will not be eligible for exemption from GST by virtue of SI. No. 99 of the Exemption Notification No. 02/2017- Integrated Tax (Rate) dated 28 June 20 17 (as amended) and the same will be taxable at the rate of 18% in terms of the entry at the Sl. No. 24 of the Schedule III to the Notification No. 1/2017- l.T. (Rate) dated 28.06.2017.

Being aggrieved by the said impugned order, the Appellant has filed the present appeal before the Maharashtra Appellate Authority for Advance Ruling (hereinafter referred to as “the MAAAR”) on the following grounds:

Grounds of Appeal

That the water obtained from STP is not purified water’, and is thus, eligible for exemption from GST under SI. no. 99 of Notification 02/2017 – Integrated Tax (Rate) dated 28.06.2017.

That to understand the scope of the exemption notification, it would be relevant to understand the meaning of the term Water’ and what it covers. Since, the term Water’ has not been defined in the GST Law, reference has been made to the dictionary meaning of the word ‘Water’ from the law lexicon. From the dictionary meaning, it can be seen that water used in factories as a» industrial input is also covered under the term ‘ Water’.

Further, in the case of Commissioner of C.Ex. Jamshedpur vs. Kamini Foods [1999(114) ELT 644 (Tribunal) J, the Hon’ble Calcutta Tribunal in respect of matter related to classification of the product ‘Treated Pure Water’ held that the treated pure water is not excisable as no in mineral salts are added in the treated water.

In this respect, it has been submitted that the process carried out by the Appellant involves converting the sewage water into treated water of an agreed quality to make it suitable for industrial use but does not involve addition of any minerals to the water to make it fit for drinking purposes. The comparative statement presented by the Appellant between the water generated from sewage and between normal drinking water (not mineral water) has been submitted in Para 6 of Annexure I (Statement of Facts). From the difference, it is clearly visible that the processes adopted by the Appellant does not remove all the impurities and bacteria, however, due to removal of solid waste and sewage, water can be used for industrial purpose.

Thus, such treated water generated from the STP, and used in the factory by either the Appellant, or by BPCL is squarely covered under the term Water’ as used in Sr. No. 99 of the Exemption Notification.

It has been submitted that all the other categories of water as mentioned in the exclusion clause have some special characteristics and specialized uses such as they are used in aerated drinks, medicinal/ health uses, automotive cooling system, sterilization, laboratory application, car battery, etc. However, as the term ‘purified’ has not been defined, it is not clear whether the process carried out by the Appellant to convey sewage water into water fit for industrial consumption can be said to be covered under purified water.

In the case of the Appellant, the process essentially involved is removing bio-waste, grit and removing undesirable chemicals, biological contaminants, suspended solids, and gases from sewage water. The goal is to obtain water for use in the factory of the Appellant as well as, if available in surplus, then the same shall also be sold for usage as an Industrial Input.

That as the words purified water’ have not been defined under the GST Law, then applying the legal principle of ‘noscitur a sociis’, the meaning of the accompanying words of the term ‘purified’ should be looked into to derive the intent of the usage of the words after the phrase “other than” in Sl. No. 99 of the Notification No. 02/2017- I.T. (Rate) dated 28.06.2017. The words, ‘aerated’, ‘mineral’, *purified’, ‘distilled’, ‘medicinal’, etc., excluded from the exemption notification, seem to indicate the intent to exclude water which has been processed from naturally available water and also used for specialized purposes. Thus, the source of initial process is water, whereas, in case of the Appellant, the source is sewage.

As submitted above, the intention of the usage of the word ‘purified’ seems to indicate purification for some specialized purpose. The Appellant is using sewage water and is carrying out certain processes such that the water can be used for Industrial purposes. There are no processes carried out on naturally available water by the Appellant and such water is also not used specifically for certain specialized purposes, The water can be used by the Appellant or it can also be sold to any other industry which uses water as an Industrial input. Thus, ideally such water should not be covered under the exclusion clause of Sr. No. 95, and may be said to be exempt.

With reference to the given definition of purified water, it is worthwhile to note that the water obtained from STP and sent to BPCL contains bacteria, virus and E-coli, and hence can, by no stretch of imagination, qualify to be purified water. The Appellant would have to undertake ultraviolet treatment on such treated water to make it free from all impurities. Therefore, it can be safely concluded from the above ruling that supply of tre3ted water to BPCL would construe to be supply of raw water, and nothing more, and hence falling under SI. No. 99 of the Notification to. 02/201 7-Integrated Tax (Rate), and thereby, qualify for exemption from the levy of GST.

It is submitted that raw water obtained from ground (well/pond/bore well) and rain cannot be used in its natural form for any purpose without any minimal treatment to it. It is a general practice across the globe that water would need to be processed to the extent required for the specific end use. Basis the generic meaning of purified water, any water on which any treatment is done would amount to purified water. If that be the case, no supply of water would be eligible for such exemption as every water would be subject to minimal treatment and would fall under the weaning of purified water and be excluded from the exemption entry. In such cases, the intention of the Government to grant exemption for supply of water could be defeated wholly.

Treated water supplied by the Appellant is not sold in sealed containers, and is, thus, eligible for exemption under GST.

It has been submitted that the Authority has failed in correctly applying the clarification of the Circular No.52/26/2018 dated 09 August 2018 which clarified that supply of drinking water, for public purposes, if not supplied in sealed containers, is exempted from GST, and held that treated water is neither supplied to be used as drinking water for public purposes, nor supplied in sealed containers as drinking water to M/s. BPCL.

It has been submitted that the treated water is supplied by the Appellant to BPCL through a pipeline and not in a sealed container. On perusal of the position in the erstwhile VAT and Excise regime, it is evident that the intention of the law is to tax only those waters which are normally sold in sealed containers. In other words, the intention of the law is never to levy any tax on “water which is not cleared in sealed containers.” Hence, even under the GST regime, the intention of the law seems to provide the exemption from levy of GST for any kind of water which is not cleared in sealed container as the rates foe various goods prescribed in the GST Tariff have been almost aligned with the earlier rates of Excise/ VAT, It is pertinent to note that “waters” excluded from the exemption notifications as per Sl. No. 99 of Notification No. 2/2017 — Integrated Tax (Rate) (supra) are specific in nature, which, if not sold in sealed containers, shall be susceptible to lose their distinguishing characteristic. For example, aerated water is necessarily required to be sold in sealed containers as it will lose the “aerated” nature of the same if sold otherwise. Similarly, distilled, medicinal, ionic, battery, de-mineralized and waters of like nature, are necessarily required to be sold in sealed containers as the quality/ nature of such water may get compromised due to any kind of contamination in an open container or any other manner of sale of the same.

It has been submitted that the Authority has failed to consider their grounds submitted in relation to GST rate on goods which had been determined by the GST council considering the rates under the erstwhile Central Excise and VAT regime. Thus, in view of the exemption for water under Central Excise and the MVAT law and the decision taken by the GST Council, it is evidently clear that the intention of the Government was not to levy any tax on sale of Water’. Accordingly, supply of water (not sold in sealed container) should be exempted from payment of GST.

It has been submitted that the Authority have failed to consider our grounds submitted on the test of purposive interpretation; that it is amply clear that the objective of the law was not to levy tax on supply of water (other than aerated, mineral, distilled, medicinal, purified, ionic, battery, de-mineralized and water sold in sealed container). It is well settled principle that the law would have to be interpreted having regard to the objective it seeks to achieve. Hence, it is important to look at the substance of the transaction and determine the levy of GST accordingly. It has been further submitted that when supply of water from well or bore well is not subject to GST, how can water obtained from STP be treated as purified water and levy tax thereon.

Observation of the case

Court have carefully gone through the appeal memorandum encapsulating the facts of the ease and the grounds of the appeal along with all the additional submissions made by the Appellant during the course of the personal hearing proceedings. We have also examined the impugned Advance Ruling passed by the MAAR, wherein it has been held that “Treated Water” obtained from STP [classifiable under Chapter 2201] will not be eligible for exemption from GST in tennis of the provisions of the entry at SI. No. 99 of the Exemption Notification No. 02/2017- Integrated Tax (Rate) dated 28 June 2017 (as amended); and that the same will be taxable at the rate of I 8% in terms of the entry at the Sl. to. 24 of the Schedule 111 to the Notification to. 1/2017- I.T. {Rate) dated 28.06.2017.

On perusal of the entire case records and the submissions made by the Appellant as well as the Jurisdictional Officer, the moot issue before us is whether the impugned product, i.e., STP treated water supplied by the Appellant to M/s. BPCL, can be construed as ‘purified water’, or not. Since, the term “purified” is not defined under the CGST Act, 201 7, we will resort to the dictionary meaning of the same. Thus, as per the dictionary meaning, the term ‘purify’ means “to make pure”, or “to free from foreign, extraneous, or objectionable elements”, Accordingly, the “purified water” means such water which is free from foreign, extraneous, or objectionable elements.

 Now, on perusal of the facts of the case. it is seen that the impugned product, i.e., STP treated water, is obtained after carrying out various physical and biological processes on the sewage water. By carrying out the said physical and biological processes on the sewage water inside the Sewage Treatment Plant, the sewage water is made free from various organic and inorganic substances, such as suspended particles, grit, clays, pollutants like nitrogen, phosphorus, etc. However, even after carrying out the said physical and biological processes, water coming out from the Sewage Treatment Plant still contains various biological contaminants such as bacteria, virus, E. coli, along with other impurities. Thus, it can be safely concluded that the resultant water is not pure due to presence of the said impurities and foreign elements.

Thus, it is adequately clear that water containing anything apart from the Hydrogen and Oxygen will not be construed as pure water. It is further observed that even potable water, which is fit for human consumption, will not be treated as pute water due to the presence of various minerals and ether elements like chlorine, which are added to it to kill the harmful in icro-organisms that causes diseases.

Further, on application of the legal construction of *noscitur a sociis” to derive the meaning of the expression *purified”, which has not been defined under the COST law, it is seen that all the expressions of the exclusion clause of the relevant entry surrounding the word “purified” have got certain specific characteristics and usage. That is, these water at their respective places of their usage cannot be replaced or substituted by any other water. In the instant case, the STP treated water, which is supplied by the Appellant to M/s BPCL for their industrial use, does not have any specific characteristics and usages as those of the other specific water, such as ”aerated, mineral, distilled, medicinal, ionic, battery, de-mineralized and water sold in sealed container’ mentioned in the exclusion clause of the entry under consideration as the said STP treated water can be readily replaced by municipal water. This fact is comprehensibly substantiated by the Appellant’s submissions wherein it has been submitted that prior to the installation of the Sewage Treatment Plant by the Appellant, their industrial needs were being fulfilled by the municipal water supplied by MCGM.

Further, it is also noteworthy that all these group5 of specific water mentioned under the exclusion clause of the relevant entry are supplied in the packaged form, i.e., in the ’sealed container, in order to preserve their characteristics and specificity, while the same is not the case with the impugned product, i.e., STP treated water, which are supplied through pipelines without any such concerns. Thus, from the foregoing, it is amply clear that the term “purified”, mentioned under the exemption clause of the relevant entry, will definitely not include the STP treated water. Hence, the impugned product, i.e., STP treated water, is rightfully eligible for exemption under entry at Sl. No. 99 of the exemption notification no. 02/2017-C.T. (Rate) dated 28.06.2017.

The Appellant has also contended that it has never been the intention of the Government, i.e., either Central Government or State Government, to levy any indirect tax on water of general purposes. In this regard, they have stated that even under the erstwhile indirect tax regime, no tax, whether in the nature of Central Excise or in the nature of VAT, was leviable on the water of general purposes, hence the supply of STP treated water was not subject to any indirect tax under the erstwhile tax regimes. Basis this contention, they have argued that the said impugned product, i.e., STP treated water, will also not be liable to tax even under the GST regime. They have further contended that since the impugned product was not subject to any indirect tax under the erstwhile tax regime, the same should also not be liable to tax under GST regime.

In this regard, we intend to agree with the Appellant’s contention in as much as that the Government, whether the Central Government or State Government, has never intended to tax water of general purposes. Even under the GST regime, Government has clarified its intention of not levying GST on the supply of general-purpose water by way of issuance of the CBIC Circular No. 52/26/2018 dated 09 August 2018, wherein it has been clarified that supply of drinking water, for public purposes, if not supplied in sealed containers, is exempted from GST. Thus, by applying the canon of “purposive construction”, which gives effect to the legislative purpose/intendment, court is inclined to hold that the impugned product, which can aptly be construed as water of general purpose as discussed earlier, is eligible for exemption under the relevant entry at Sl. No. 99 of the exemption notification no. 02/2017-C.T. (Rate) dated 28.06.2017.

Conclusion

Court set aside the Advance Ruling Order No. GST-ARA-67/2019-20fB-57 dated tl8.09.2021 passed by the Maharashtra Advance Ruling Authority, and hold that STP treated water will be eligible for exemption in terms of entry at Sl. No. 99 of the Exemption Notification to. 02/2017-C.T. (Rate) dated 28.06.2017. Thus, the Appeal filed by the Appellant is hereby allowed.

in-re-rashtriya-chemicals-and-fertilizers-limited-gst-aaar-maharashtra-414529

Enter your email address:

Subscribe to faceless complainces