In re Mannarai Common Effluent Treatment Plant Private Limited (GST AAR Tamilnadu)
Introduction: The GST Advance Ruling Authority of Tamilnadu took a significant decision on the classification of supply outputs by Mannarai Common Effluent Treatment Plant Private Limited (CETP). Two pivotal questions were addressed: the correctness of the supply of outputs classification as the sale of goods and the proper categorization of the water sold.
Detailed Analysis
1. Classification of Supply Outputs as Sale of Goods
The core issue here is the mode of operation. Mannarai CETP’s approach of purchasing raw effluent, treating it, and then selling the resultant products has been challenged. Drawing from the Supreme Court’s observations in State Of Madras vs Gannon Dunkerley & Co.,(Madras) 1958, a sale necessitates a contract, money consideration, and actual transfer of property in goods. The classification of treated water, salt, and other products as the sale of goods is accurate only if the applicant adheres to the Sale of Goods Act and the observations of the Supreme Court.
2. Classification of Water Sold under Heading 2201
The central contention is whether water recovered from the effluent treatment process can be considered as ‘water including natural or artificial mineral waters and aerated waters’. Referring to advance rulings in cases like M/s. Hojiwala Infrastructure Limited and M/s. PalsanoEnviro Protection Limited, water recovered has been identified as de-mineralized water, categorized under Heading No. 2201 and taxable at 18% GST.
However, the Customs Tariff Act places de-mineralised water under chapter 28, under heading 28.53. For water to be considered de-mineralized, it must undergo specific ionization processes, making it free from all soluble mineral salts. Analysis of the effluent treatment process suggests that effluent treated water doesn’t qualify as de-mineralised water.
Chapter 22 addresses beverages for human consumption. Since effluent treated water is unfit for this purpose, its classification under Heading 22.01, which covers ordinary natural water of all kinds, becomes pertinent. Circular No.179/11/2022, issued by the Ministry of Finance, clarified that treated sewage water attracts a Nil rate of tax, implying that such water should fall under heading 2201 and is exempt under GST.
Conclusion: Mannarai CETP’s classification of supply outputs largely depends on the operational methodology. Their approach of treating raw effluents and selling the products fits the sale of goods classification provided they adhere to the Sale of Goods Act. On the water classification, based on various referenced rulings and the Customs Tariff Act, treated water doesn’t qualify as de-mineralised but should be seen as ordinary water suitable for industrial use. This analysis, therefore, supports the exemption of such water under GST.
Read AAAR Order: Classification of Water Sold under GST: AAAR directs AAR for re-examination
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU
M/s MannaraiCommon Effluent Treatment Plant Private Limited, Not 209/2A, S. Periyapalayam Post, Uthukuli Road, Tinippur – 641 605 (hereinafter called as the `Applicant’) is registered under the GST Acts with GSTIN: 33AACCM4445J1ZJ.
2.0 In their application for Advance Ruling, the Applicant has stated, inter-alia, the following as their nature of activity proposed:
(i) the Applicant is an effluent treatment plant promoted by dyeing units;
(ii) the Applicant is planning to buy the effluents from dyeing units and that the effluents will be delivered from the dyeing units to the Applicant through pipelines;
(iii) the effluent will be processed at the plant and the resultant products, water, Sulphate solution and brine solution will be sold at market rates;
(iv) the delivery will be made either through pipelines/Lorry. As per the norms of pollution control board, the resulting product can be sold to any member unit.
2.1 The Applicant has sought for advance ruling on the following questions;
1. Whether the classification of supply of outputs as sale of goods is correct.
2. 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.
2.2. The Applicant has submitted the copy of application in Form GST ARA – 01 and also submitted a copy of challan evidencing payment of application fees of Rs.5,000/- each under sub-rule (1) of Rule 104 of CGST Rules 2017 and SGST Rules 2017.
2.3 The Applicant has been established as a Zero Liquid Discharge (ZLD) plant, undertaking treatment of dyeing and bleaching effluents discharged / received from their member dyeing units, so as to completely prevent discharge of any effluent into the nearby water bodies.
2.4. As per the written submissions made, their main objective is to treat the effluents generated from all its member units. The effluents generated by the members are collected in a collection well through pipeline and from there it is sent to the Common Effluent Treatment Plant.
2.5. The effluent treatment, as explained by the Applicant, comprises of the following phases;
