Applicability of GST on Water supplied in Tankers – GST Demand of ₹96.10 Crore on CMWSSB – Madras HC Quashes
The honourable Madras High Court has recently nullified an order by the Additional Commissioner of Central Goods and Services Tax (CGST) demanding ₹ 96.10 crore from the Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB). Interestingly, the demand was on the imposition of an 18% GST on the supply (sale) of purified water via tanker lorries.
Looking back, the litigation sprouted upon when the Additional Commissioner, CGST and Central Excise issued a notice to Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB) imposing 18% GST for its services of Supplying Purified water in Water tankers while also inflicting with a penalty to the tune of ₹96.1 crore, prompting the CMWSSB to approach the high court challenging the order.
In their defense, the counsel for CMWSSB referenced multiple notifications to assert that water designated for drinking is exempt from GST. Additionally, they argued that services associated with functions entrusted to a panchayat under Article 243G of the Constitution are classified as neither supply of goods nor services, as specified in Schedule III of the CGST Act 2017, following recommendations from the GST Council.
CLAUSE 3 OF Schedule III states that
(a) the functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;
(b) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or
(c) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.
The Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB) is a statutory entity under the Government of Tamil Nadu, responsible for providing water supply and sewage treatment services to Chennai and its metropolitan area.
In defense of the order, the Department argued that CMWSSB not only delivers water through pipelines but also sells purified water in tanker lorries at variable rates to commercial establishments and large industrial units. Therefore, the demand for tax, interest, and penalty was justified, as the primary supply was identified as the sale of purified water in mobile units as part of CMWSSB’s composite supply.
The honourable Judge noted that the adjudicating authority had concluded that CMWSSB was supplying purified water, which did not qualify for tax exemption. However, this conclusion was reached without considering the distinction between potable water and purified water.
The Judge documented the CMWSSB counsel’s argument that potable water must meet the standards specified in BIS:10500-2012, whereas purified water must comply with BIS:14543-2016 standards. The adjudicating authority under the CGST Act of 2017 had overlooked these differences and failed to differentiate between the two types of water.
The question lingers is What is Potable water and what is Purified water. Let’s dwell on this.
Water that is safe for human consumption is known as potable water. Although not entirely pure, potable water contains dissolved impurities at sufficiently low levels, making it safe to drink.
Purified water, on the other hand, has been mechanically filtered or processed to remove impurities, making it suitable for specific uses. Distilled water is a common type of purified water, but modern purification methods include capacitive deionization, reverse osmosis, carbon filtering, microfiltration, ultrafiltration, ultraviolet oxidation, and electrodeionization. Often, a combination of these processes is employed to achieve the desired purity. Purified water is generally produced by treating drinking water or groundwater.
The Bureau of Indian Standards (BIS) has established stringent criteria to ensure the safety and quality of drinking water. These standards address various parameters, such as physical, chemical, and microbiological characteristics. Therefore, BIS standards are crucial in maintaining high quality and safety for both potable water and purified packaged drinking water.
Further attention is drawn to the entry at S. No. 99 of notification No. 2/2017-Central Tax (Rate) dated 28.06.2017, by virtue of which HSN 2201, water [other than aerated, mineral, purified, distilled, medicinal, ionic, battery, de-mineralized and water sold in sealed container] falling under HS code 2201 attracts NIL rate of GST.
Accordingly, supply of water, other than those excluded from S. No. 99 of notification No. 2/2017-Central Tax (Rate) dated 28.06.2017, would attract GST at “NIL” rate. Therefore, was clarified vide Circular No: 56/26/2018-dt:09-08-2018 that supply of drinking water for public purposes, if it is not supplied in a sealed container, is exempt from GST, while all other categories attracts GST @ 18% vide entry No: 20 of notification No. 01/2017-Central Tax (Rate) dated 28.06.2017,
The honourable Judge remanded the matter for reconsideration, conditional upon the Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB) depositing ₹3 crore within six weeks. This deposit is a prerequisite for reopening the case on its merits. The court’s directive ensures that the Additional Commissioner gives CMWSSB a fair opportunity, including a personal hearing, to present their case. The adjudicating authority is required to issue fresh orders within three months of receiving the ₹3 crore payment. During this period, CMWSSB is permitted to submit all relevant documents to support their claim for GST exemption.
Before bidding adieu…..
Actually, the Story has not ended here with the quashing of the Original Order by the Honourable Madras HC. The Court in fact has only remanded the matter back to the Additional Commissioner for reconsideration within six weeks before reagitating the issue on merits and take a reasoned decision again.
No Holes in the Order? … Well..Well..Well,
Ultimately, Thirsty for Tax Revenue ! – quenched with Thrifty demands too.
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