Royalty paid on Tertiary Treated Water is subject to GST: AAR

The Maharashtra Authority of Advance Ruling (AAR) ruled that GST applied to royalties paid on Tertiary Treated Water supplied to Maharashtra State Electricity Generating Co. Ltd. (MAHAGENCO).

Nagpur Municipal Corporation (NMC), the applicant, was established under the City of Nagpur Corporation Act of 1948. As a result, NMC is classified as a “Local Authority.” The NMC is required to provide sewage system management services for the city of Nagpur under Article 243W of the Indian Constitution, read with the 12th Schedule to the Constitution, for which it has established and is operating the Sewage Treatment Plant (STP) located at Bhandewadi, Nagpur for reuse of Sewage Effluent/Water. NMC then decided to augment and expand the capacity of the existing SWP, and has appointed the applicant to implement, design, engineer, develop in financing, procure, supply, install, construct, augment, test, and commission all civil, electrical, mechanical, and instrumentation works, including intake works and raw sewage pumping, under a PPP contract. Treated Sewage Pumping Station and Tertiary Treated Facility (if any), as well as operation and maintenance of the entire plant for sewage water treatment for a period of 30 years, under a contract, to set up and operate the Sewage Treatment Plant (STP) located at Bhandewadi, Nagpur on a Build Operate and Transfer basis (BOT basis).

The applicant has requested an early decision on the matter. Whether the applicant’s royalty paid or payable to Nagpur Municipal Corporation (NMC) for supplying “Tertiary Treated Water” to Mahagenco by treating the sewage water supplied by IMC is taxable under the GST Law.

The coram of Rajiv Magoo and T.R. Ramnani held that the applicant’s Royalty paid or payable to Nagpur Municipal Corporation (NMC) for supplying “Tertiary Treated Water” to Mahagenco by treating the Sewage Water supplied by IMC is taxable under the GST Law.

The applicant must pay the taxes on a reverse charge basis (RCM), according to the AAR . In the current order, NMC is not obligated to pay taxes on the concerned transaction. ITC would be available to the applicant if the conditions set out in sections 16 to 21 of the CGST/MGST Act, 2017 were satisfied.