Supply of portable water is exempt from GST as it is not same as supply of Purified Water

Introduction:

An advanced ruling is a mechanism whereby taxpayers can get answers or clarifications regarding supply of goods and services, directly from tax authorities and the primary objectives for such a mechanism are to reduce litigation, attract FDI due to transparent tax liability, provide certainty with respect to tax liability and disclose ruling in an inexpensive and transparent manner. The Authority for Advanced Ruling (AAR) constituted by the tax authorities interprets tax laws for the taxpayers and it was created to address any issues faced by taxpayers and assist them by providing a decision on the clarification sought. The AAR’s appellate authority is the AAAR (Appellate Authority or National Appellate Authority for Advanced Ruling). Section 95 to Section 106 in Chapter XVII of CGST Act covers the procedures and rules related to advance rulings. An application is made by the taxpayer on the clarification sought by them. The taxpayer is provided an opportunity of being heard by the AAR. If there is consensus on resolution on the clarification sought between the AAR and taxpayer, an ‘Advance Ruling’ is issued by the AAR and on the contrary, the matter is referred to the AAAR.

The question of law which is address through this AAAR is as follows:

• Whether GST exemption is available for supply of water by Municipality for industrial and personal use within its jurisdiction.
• Whether GST will be applicable on delayed payments made by consumers on consumption of water by them.

Facts of the appeal made to AAAR, by M/S. New Tirupur Area Development Corporation Limited, (appellant)’, dated 30-Jun-2021:

The appellant, M/S. New Tirupur Area Development Corporation Limited(NTADCL), a body assuming responsibility under Article 243G and 243W of Constitution of India, signed a concession agreement with Government of Tamilnadu and Tirupur City Municipal Corporation (TCMC) for the supplying 185 million liters of water per day for both non-domestic and domestic purposes and also build a sewerage treatment plant with 15 million liter processing capacity, for a consideration of INR. 1023 crores. NTSDCL had approached the lower authority for clarification on GST applicability and rates on following services provided by it namely sale of water within Tirupur Minicipality, sewerage treatment and providing consultancy services related to infrastructure building activities to TCMC and GoTN. It also sought clarification on applicability of GST on incidental business carried out by it such as interest on delayed payments, disconnection/reconnection and permanent disconnection charges, cheque bounce charges and other new connection and shigting works undertaken by it.

The Lower Authority vide its order no. 5/ARA/2021 dated 26.Feb.2021 issued a ruling that the supply of water to Tirupur Municipality by appellant is a question where the members have varying views and hence would refer the matter to appellate authority and further provided decisions as follows.

• Since NTSDCL is not covered under notification 14/2017 dated 28.Jun.2017, it is not a government body and hence supply of water by it will not be exempt from GST for supply of water.
• The sewerage treatment and infrastructure development consultancy services offered by it will be exempt under S.No.3 of notification no. 12/2017-CT (Rate) dated 28.Jun.2017
• As for the incidental business activities, the AAR rules that interest on delayed payments, cheque bounce charges, connection / disconnection/reconnection and permanent disconnection charges will be levied GST at 18% vide S.No. 35 of Notification No. 11/2017-CT(Rate) dated 28.06.2017 read with S.No. 35 of Notification no. II(2)/CTR/532(d-14)/2017 vide GO (Ms) No. 72 dated 29.Jun.2017 as amended.
• However, the AAR rules that new connection will be exempt from GST as the assets are the appellant’s assets which are utilized.

Since the lower authority passed the clarification on supply of water to the appellate authority, the appellant filed the application based on following grounds.

• The appellant contended that they are a ‘municipality’ constituted under Article 243G and 243W of Constitution of India and as per Notification No. 12/2017-Central Tax (rate) dated 28.Jun.2017, the services they render to TCMC are pure services provided to Central/State/Local authority and hence they are exempt from levy of CGST. Supreme Court judgment vide Govt. of NCT of Delhi Vs. Union of India 2020, Cuddalore Municipality Vs. Joint Commissioner of GST & Central Excise and others were quoted by the appellant.
• Further the appellant contended that supply of water (other than aerated, mineral, ionic, purified, battery, distilled, water sold in sealed containers and de-mineralized water) which falls under Heading 2201 is exempt from levy of GST under Notification No. 2/2017-Central Tax (Rate) dated 28.Jun.2021 and for the SGST levy a similar GO Ms. No. 64, Commercial taxes and registration (BI), 29.Jun.2021, Aani-15, Hevilambi, Thiruvalluvar Aandu-2048, is available which the AAR failed to take note off.
• The appellant further explained the difference between portable water and purified water in the form of aerated, mineral, ionic, purified, battery, distilled, water sold in sealed containers and de-mineralized water. The appellant reiterated that they were supplying portable water and was not involved in any processing of water drawn from the Cauvery basin. Prior cases such as NEPC Agro Foods Ltd., Vs. CE, Coimbatore, dated 11.05.2001, Gujarat State Fertilizers Company Ltd., Vs. Collr of C.Ex. 1998 etc were quoted to explain the difference between portable and purified water further.
• As for the incidental business activities, on the late payment interest charges, the appellant contended that as per Section 15(1) and 15(2)(d) of the CGST Act, 2017, since the late payment fee forms part of value of supply, it will also be exempt from GST.

Based on above representations made, the appellant required the appellate authority to set-aside the order passed by the AAR and provide exemption for GST on all activities performed by the appellant to TCMC and GoTN.

Observations and final ruling by AAAR vide Order No. A.R.Appeal No. 06 & 07/2021/AAAR dated 30.Jun.2021:

The appellate authority took note of the various representations made by the appellant herein through the personal hearing conducted on 15.Jun.2021. The AAAR opined that inspite of the fact that the AAR had raised assistance only on the point of GST exemption on ‘supply of water’, the other points as appealed by appellant are also considered as they are related.

The AAAR made reference to the agreement between the appellant and TCMC and GoTN and concurred that the appellant has been awarded a contract for the supply of portable water to the purchasers after basic treatment of raw water from river basin and hence is a supply of goods. Further the AAAR stated that the appellant supplies water for both domestic and non-domestic purposes within the jurisdiction of TCMC as per the concession agreement and the difference is on the charges levied to different users. It concurred with the appellant on classifying the portable water under Heading 2201. It further opined that since the appellant was supplying only portable water, it does fall under entry 99 of notification no. 02/2017-CT(R ) ibid and its equivalent TN GO Ms. No. 63 dated 29.Jun.2017.

Further, the AAAR opined that for all the other points raised by the appellant with reference to incidental business activities, it concurs with the ruling given by the AAR and disposed the application made.

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