Case Law Details
In re Kasipalayarn Common Effluent Treatment Plant Private Limited (GST AAR Tamilnadu)
Chennai, Tamil Nadu—The Authority for Advance Ruling (AAR), Tamil Nadu, has concluded proceedings concerning the Goods and Services Tax (GST) classification of service charges levied by a common effluent treatment facility, allowing the applicant, M/s. Kasipalayarn Common Effluent Treatment Plant Private Limited (KCETP), to withdraw its application without prejudice. The withdrawal was prompted by a significant governmental development—the rationalization of GST rates following the 56th GST Council meeting, which reportedly addressed the very classification issue the company sought clarity on.
The ruling, issued by the Tamil Nadu AAR, formally disposed of the application, thereby avoiding a pronouncement on the substantive matter of the applicable GST rate and corresponding HSN code for effluent removal charges. The decision underscores the dynamic nature of GST legislation and the role of the GST Council in resolving classification ambiguities through policy changes, often rendering individual advance rulings unnecessary.
The Core Issue: Shifting Costs and Tax Classification
M/s. Kasipalayam Common Effluent Treatment Plant Private Limited functions as a centralized effluent treatment facility (CETP), established by local dyeing units. Its primary operational mandate is to manage industrial waste in an environmentally compliant manner, strictly adhering to the norms prescribed by the Pollution Control Board (PCB). The CETP’s process involves treating wastewater transferred from the associated dyeing units and subsequently generating saleable by-products, including treated water, sulphate salt, and brine solution.
Crucially, the applicant’s existing business model involved the CETP paying consideration for the effluents received from the dyeing units. However, citing the escalating costs associated with meeting stringent environmental and effluent treatment requirements stipulated by the PCB, KCETP proposed a fundamental change in its financial arrangement. The proposal was to begin charging the dyeing units for the removal of effluents instead of paying for them. The physical process of effluent treatment and the subsequent sale of by-products would remain unchanged.
This proposed change—from paying for raw material (effluent) to charging for a service (effluent removal and treatment)—created a significant ambiguity under the GST framework. The company therefore filed an application with the AAR seeking an advance ruling on the specific query: “What is the applicable GST rate and HSN code for the charges collected for the removal of effluents?”
The Legal Context of Advance Rulings
The application was filed under the provisions of the Central Goods and Services Tax Act, 2017 (CGST Act), and the Tamil Nadu Goods and Services Tax Act, 2017 (TNGST Act), which are acknowledged by the Authority as being pari materia (on the same subject matter).
An advance ruling under the GST Act is a critical mechanism for taxpayers to secure certainty regarding their tax liability in respect of a proposed activity. Under Section 97 of the Act, an applicant may seek a ruling on matters including the classification of goods or services, applicability of a notification, or determination of tax liability. The order specifically outlined the binding nature of an advance ruling, stipulated under Section 103(1). An AAR is binding only on the applicant who sought it and the concerned or jurisdictional officer in respect of that applicant. Furthermore, under Section 103(2), the ruling remains binding unless the underlying law, facts, or circumstances change. The order also referenced Section 104, which renders a ruling void ab initio if obtained through fraud or misrepresentation.
The application by KCETP was a textbook use of this mechanism, seeking to pre-emptively settle any future disputes with the tax authorities before implementing the proposed charging model.
Absence of Judicial Precedents and the Intervention of the GST Council
In its order, the Authority for Advance Ruling did not cite or rely upon any specific judicial precedents. This is typical in cases that do not proceed to a determination on the merits. Had the AAR rendered a substantive ruling, it would have likely analyzed precedents related to composite supply, ancillary services, or environmental cess/charges to determine whether the effluent removal charge constitutes a distinct service, a composite supply bundled with the treatment, or a non-taxable recovery of mandatory regulatory costs.
The AAR’s Final Holding
After reviewing the formal request, the Authority determined that the applicant’s stated reason—the issue becoming moot due to a GST Council-driven rate rationalization—was a sufficient basis for withdrawal.
In its Ruling, the AAR stated: “The ARA Application received from the applicant on 08.05.2025 is disposed as withdrawn as per the request of the applicant.”
The ARA Application received from the applicant on 08.05.2025 is disposed as withdrawn as per the request of the applicant
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU
1. Any appeal against this Advance Ruling order shall lie before the Tamil Nadu State Appellate Authority for Advance Ruling, Chennai as under Sub-Section (1) of Section 100 of CGST Act / TNGST Act 2017, within 30 days from the date on the ruling sought to be appealed is communicated.
2. In terms of Section 103(1) of the Act, Advance Ruling pronounced by the Authority under Chapter XVII of the Act shall be binding only-
(a) on the applicant who had sought it in respect of any matter referred to in sub-section (2) of Section 97 for advance ruling.
(b) on the concerned officer or the jurisdictional officer in respect of the applicant.
3. In terms of Section 103(2) of the Act, this advance ruling shall be binding unless the law, facts or circumstances supporting the original advance ruling have changed.
4. Advance Ruling obtained by the applicant by fraud or suppression of material facts or misrepresentation of facts, shall render such ruling to be void ab initio in accordance with Section 104 of the Act.
1.0 At the outset, we would like to make it clear that the provisions of both the Central Goods and Services Tax Act and the Tamil Nadu Goods and Services Tax Act are in parimateria and have the same provisions in like matters and differ from each other only on few specific provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Services Tax Act, 2017 would also mean a reference to the same provisions under the Tamil Nadu Goods and Services Tax Act, 2017.
2.0 M/s. Kasipalayam Common Effluent Treatment Plant (hereinafter ‘the Applicant’) submitted a copy of challan CPIN HDFC250433006366117 dated 22-04-2025 evidencing payment of application fees of Rs. 5,000/- each under sub-rule (1) of Rule 104 of COST Rules 2017 and SGST Rules 2017. The online application form for advance ruling dated 27-04-2025 was physically received on 13-05-2025 as mandated under Rule 107A.
3.0 The relevant facts as submitted by the applicant in their application is as follows.
> M/s. Kasipalayam Common Effluent Treatment Plant Private Limited (hereinafter the Applicant’) is a centralized effluent treatment facility established by the dyeing units to ensure environmentally compliant waste management.
> The applicant process effluents transferred from dyeing units adhering to strict pollution Control Board (PCB) norms and produces by-products such as treated water, sulphate salt, and brine solution.
> These products are sold and supplied through pipelines and lorries at the prevailing rates. The applicant is currently paying consideration for the effluents.
> However, considering the cost involved as per the effluent treatment requirements set by PCB, KCETP proposes to charge the dyeing units for removal of effluents.
> Now, the applicant proposes to charge the dyeing units for the removal of effluents. However, there is no change in the processing of effluents and the selling of the by-products.
4. With the above facts of the case, the applicant has filed an application seeking for advance ruling on the following query.
Query — What is the applicable GST rate and HSN code for the charges collected for the removal of effluents?
5. PERSONAL HEARING
Shri. CA S. Harishankar, Shri. CA S. Pradeep practicing Chartered Accountants and Shri. R. Hariharan, Accounts Manager and authorised representative of the applicant appeared for the personal hearing. Before going into the merits of the query sought in the application, AR informed the members that the applicant has requested members approval for withdrawal of their application of Advance Ruling on the ground that the government had rationalised GST rates pursuant to the decisions taken in the 56th GST Council meeting held on 03-09-2025.
6. DISCUSSION AND FINDINGS:
After due consideration, the aforementioned letter of the applicant, wherein they have requested to approve the withdraw the Advance ruling application due to rationalised GST rates pursuant to the decisions taken in the 56th GST Council meeting held on 03-09-2025, as they do not wish to pursue it any further, is taken on record. Hence, their request is considered and the application is allowed to be treated as withdrawn without going into the merits or detailed facts of the case.
7. In view of the above, we rule as under:
RULING
The ARA Application received from the applicant on 08.05.2025 is disposed as withdrawn as per the request of the applicant.
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