Case Law Details

Case Name : In re Aquaa Care (Surat) RO Technologies Private Limited (GST AAR Gujarat)
Appeal Number : Advance Ruling No. GUJ/GAAR/R/11/2019
Date of Judgement/Order : 24/07/2019
Related Assessment Year :
Courts : AAR Gujarat (99) Advance Rulings (1533)

In re Aquaa Care (Surat) RO Technologies Private Limited (GST AAR Gujarat)

Where company is selling water in containers whether selling of container and water is composite supply?

We agree with the understanding of the applicant as well as that of Jurisdictional office that selling water in containers is composite supply as the principal activity is selling of purified water only.

FULL TEXT OF ORDER OF BEFORE THE AUTHORITY OF ADVANCE RULING,GUJARAT

2. The applicant, vide Form GST ARA-01, specifically mentioned their queries as under :

1) What is the classification when the water is sold in non-sealed container and its HSN code?

2) Where company is selling water in containers whether selling of container and water is composite supply?

2.1 The applicant M/s Aquaa Care (Surat) RO Technologies Private Limited, vide Annexure -I & Annexure-II, submitted the statements of relevant facts having a bearing on the question(s) raised which is as follows:

“M/s. Aquaa Care (Surat) RO Technologies Private Limited is a company registered under the companies act, 1956 incorporated on 12th February, 2010 having CIN -U29259GJ2010PTC059552”.

“The objective of the company is to carry on the business of importing RO water plants. The company is also engaged in manufacture/assemble RO water plants, water treatment plants and develop technologies for water purifications. It also manufactures and import RO plants spares and undertake servicing, job work/repairs of all type of RO water plants/water treatment plants and water purifiers.”

2.2 Business process of selling purified water as submitted by the applicant :-

At present the company is engaged in manufacture/assemble RO water plants but the company has some proposed business activity for which they require some clarity.

The company will purify water using RO and UV technology and sell the purified water in glass (without seal or lid) and in bottles. For selling of water, the company purchase containers including bottles and glasses.

The company will sell purified water to the Customers on Railway station/ Villages. For this purpose the company will set up water stations at the railway platform and Water ATM at the villages to supply purified water.

The customers can fill the water in the containers carried by them only. But in some cases where the customer doesn’t carry anything with them the company shall provide bottle and glass for filling the water. The glass is obviously not sealed even in case of bottles they will not seal it they will just provide the bottle with the cap don’t use any lid for sealing it.

Since in first case the company is selling water without container and in second case the company is selling water with container. But again that container is not sealed and will not have any tag and brand name of company.

2.3 Looking to the above business process, the following questions rises in the mind of applicants:

(i) What is the classification when the water is sold in non- sealed container and its HSN Code?

(ii) Where company is selling water in containers whether selling of container and water is composite supply?

2.4

Annexure-II

Statement containing the applicant’s interpretation of law and/or fact

1.0 Question No. – 1 –

What is the classification when the water is sold in non- sealed container and its HSN Code?

The water is classified under chapter 22 of the Central Excise Act and notified in both the notifications, Notification No 01/2017 – Central Tax (Rate) dated 28th June 2017 as well as in Notification No 2/2017 – Central Tax (Rate) dated 28th June 2017.

1.1 Provisions of Notification No 1/2017 – Central Tax (Rate) dated 28th June 2017 reads as under:-

G.S.R. (E). In exercise of the powers conferred by sub-section (1) of section 9 of the Central Goods and Services Tax Act; 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby notifies the rate of the central tax of- (i) 2.5 per cent, in respect of goods specified in Schedule I, (H) 6 per cent, in respect of goods specified in Schedule II, (iii) 9 per cent, in respect of goods specified in Schedule III, (iv) 14 per cent, in respect of goods specified in Schedule IV, (v) 1.5 per cent, in respect of goods specified in Schedule V, and (vi) 0.125 per cent, in respect of goods specified in Schedule VI appended to this notification (hereinafter referred to as the said Schedules), that shall be levied on intraState supplies of goods, the description of which is specified in the corresponding entry in column (3) of the said Schedules, falling under the tariff item, sub-heading, heading or Chapter, as the case may be, as specified in the corresponding entry in column (2) of the said Schedules.

Schedule III – 9%

Sr. No. Chapter/Heading/Sub-heading/ Tariff item Description of Goods
24 2201 Waters, including natural or artificial mineral waters and aerated waters, not containing added sugar or other sweetening matter nor flavoured.

1.2 Provisions of Notification No 2/2017 – Central Tax (Rate) dated 28th June 2017 reads as under:-

In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act; 2017 (12 of 2017), the Central Government, being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts intra-State supplies of goods, the description of which is specified in column (3) of the Schedule appended to this notification, falling under the tariff item, sub-heading, heading or Chapter, as the case may be, as specified in the corresponding entry in column (2) of the said Schedule, from the whole of the central tax leviable thereon under section 9 of the Central Good and Services Tax Act, 2017 (12 of 2017).

Sr. No. Chapter/Heading/Sub-heading/ Tariff item Description of Goods
99 2201 Water [other than aerated, mineral, purified, distilled, medicinal, ionic, battery, demineralized and water sold in sealed container]

2.5 The applicant has evaluated the terms used in the above provisions:-

  • In common parlance the meaning of following terms are as under:
  • Aerated water means water to which air is added. Water made effervescent by being charged with carbon dioxide or some other gas.
  • Mineral water means water occurring in nature with some dissolved salts present, often bottled and sold as drinking water.
  • Purified water is water that has been mechanically filtered or processed to remove impurities and make it suitable for use.

2.6 Understanding and Interpretation by the applicant :

i) As per the Notification No. 01/2017 – Central Tax (Rate) the water, including natural or artificial mineral waters and aerated waters, is taxable at the rate of 18% i.e. CGST @ 9% and SGST @ 9%. Further Notification No. 02/2017 – Central Tax (Rate) provides for exemption of normal water, aerated water, mineral water, purified water, distilled water, medicinal water, ionic water, battery water, de-mineralized water if they are sold in non-sealed container.

ii) As the words used in Notification no is “Water [other than aerated, mineral, purified, distilled, medicinal, ionic, battery, de-mineralized and water sold in sealed container]” which means treated water (aerated, mineral, purified, distilled, medicinal, ionic, battery, demineralized) if sold in sealed container are not exempt and taxable as per Notification number 01/2017 – Central Tax Rate. But if the same is sold in non-sealed container are exempt from GST.

2.7 Business Process of the Applicant as submitted by the applicant

i) As already mentioned in the business process in “Annexure I”, the proposed activity of the applicant includes selling of water in containers as well as without containers where the customers carry container with themselves.

ii) Thus as per interpretation and understanding the transaction falls under Notification Number 02/2017 – Central Tax – (Rate) dated 28th June, 2017 as the applicant is not selling the water in sealed containers they are only providing the containers for filling they don’t seal it with any lid from protection.

iii) The applicant has also attaching the photos of the water in container which clearly proves that the container is not sealed.

Thus, with detailed submission herein above the applicant believes that the transaction of selling of water by the applicant is exempt from GST.

2.8 Question No. 2:-

Where applicant is selling water in containers whether selling of container and water is composite supply?

Provisions of CGST Act. 2017 for Composite SUPPLY:-

Section 2 (30) of CGST Act, 2017 and Illustration as given in the Act:-

“composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

Illustration. Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;

Further Section 8 of The CGST Act, 2017 deals with taxability of composite or a mixed supply, which reads as under:-

The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:—

(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply;

2.9 Understanding and Interpretation of the applicant

i) For being a composite supply there is 3 conditions which is to be satisfied:-

two or more taxable supplies of goods or services or both;

naturally bundled and supplied in conjunction with each other in the ordinary course of business; and

one of which is a principal supply

If the above three conditions are satisfied then the supply shall be taxable at the rate of principal supply of goods or services.

Let’s evaluate the provisions pertaining to composite supply in the present case:-For selling of purified water it is to be filled in some glass, bottles or containers.

In case the customer carry the same on their own there is nothing like composite supply as first condition two or more taxable supplies are not there.

ii) In case where the applicant is providing the container;

the applicant is supplying water and for supply of water they are providing containers and hence there is supply of two or more taxable supplies ;

water cannot be sold standalone without filling in the containers and thus the supply is naturally bundled arid supplied in conjunction with each other in the ordinary course of business; and

now the selling of water is the principal supply, containers are used just for filling it.

And thus, applicant believes that all the conditions of composite supply are satisfied, selling of container and water is composite supply and shall be taxable at the same rate at which water is taxable i.e. also exempt.

The applicant M/s Aquaa Care(Surat) RO Technologies Pvt. Ltd. has also submitted the list of directors as on 15.01.2018 which are as follows:

List of Director as on 15/01/2018

Sr.No. DIN Name Address Date of Appointment
1 05321726 PAWAN BMARADIA 404, Gurudev Apt, L.H. Road, Surat. 395006 16/11/2016
2 07727213 BHADRESH CHANDRAKANT JAGLAGANESHWALA A-40, Avdhut Soceity, Parvat Patia, Surat. 395010 03/02/2017

Further, the applicant M/s Aqua care(surat) RO Technologies Pvt. Ltd. Vide letter dated 19.09.2018 submitted the additional submission which is as follows:

2.10 Additional Submission of the applicant.

1.1 Regarding Question 1, i.e.

1.1.1 What is the classification when the water is sold in non sealed container and its HSN Code?

i) Applicant submitted that their understanding in the matter is that any water including natural or artificial mineral waters and aerated waters, not containing added sugar or other sweetening matter nor flavored and supplied in sealed container is taxable. Hence as per our view, if the water is supplied not in sealed container, i.e. in Glass or in any utensil without any seal, irrespective of whether such water supplied is artificial mineral water and aerated or purified or whatever, it does not attract GST.

ii) Hence, applicant has submitted in the Annexures that, as per the Notification No. 01/2017 Central Tax (Rate) the water, including natural or artificial mineral waters and aerated waters, is taxable at the rate of 18% i.e. CGST @ 9% and SGST @ 9%. But exemption notification i.e. Notification No. 02/2017 – Central Tax (Rate) provides for exemption of normal water, aerated water, mineral water, purified water, distilled water, medicinal water, ionic water, battery water, de-mineralized water if they are sold in non-sealed container; that the clarifications given in respect of certain goods in 28th GST Council meeting held on 21st July 2018, Para VII of such press release was with regards to Clarifications/amendments as regards applicability of GST rate in respect of certain goods recommended by GST Council. Point No 4 of this para provided for water supplied _ for _public_purposes (other than in sealed containers} does not attract GST.

(Press Release attached at Annexure A)

This clarifies that water (in form) supplied for public purposed and which is not in sealed container shall not attract GST and hence will not be taxable.

iii) The applicant submitted that this supports their view and that the intentions of Government is very clear that water unless sold in sealed container is not taxable under GST.

iv) Applicant has therefore prayed to kindly pronounce the ruling in affirmative that GST not applicable.

1.2 Regarding Question 2, i.e.

1.2.1 Where Applicant is selling water in containers whether selling of container and water is composite supply?

i) In this regard applicant has the same view as already submitted in Annexure II, annexed with the application of Advance Rulings, which is reproduced as under.

For being a composite supply there is 3 conditions which is to be satisfied:

two or more taxable supplies of goods or services or both;

naturally bundled and supplied in conjunction with each other in the ordinary course of business; and

one of which is a principal supply

ii) If the above three conditions are satisfied then the supply shall be taxable at the rate of principal supply of goods or services.

Let’s evaluate the provisions pertaining to composite supply in the present case:- For selling of purified water it is to be filled in some glass, bottles or containers. In case the customer carry the same with on their own there is nothing like composite supply as first condition two or more taxable supplies are not there.

In case where the applicant is providing the container;

the Applicant is supplying water and for supply of water they are providing containers and hence there is supply of two or more taxable supplies;

water cannot be sold standalone without filling in the containers and thus the supply is naturally bundled and supplied in conjunction with each other in the ordinary course of business; and

now the selling of water is the principal supply, containers are used just for filling it.

iii) Applicant believes that all the conditions of composite supply are satisfied, selling of container and water is composite supply and shall be taxable at the same rate at which water is taxable i.e. also exempt.

1.3 Prayer

Applicant prays the following:

In relation to Question 1, kindly pronounce the ruling after considering the clarification that the GST Council has given in 28th GST Council meeting dated 21st July 2018.

2.11 Press Release Dated 21.07.2018 (Annexure A)

PRESS RELEASE

ON GST RATE ON GOODS AS RECOMMENDED BY THE GST COUNCIL IN ITS 28th MEETING HELD ON 21.07.2018.

1. GST rates reduction on 28% items:

…………………

…………………

Vii Clarifications/amendments as regards applicability of GST rate in respect of certain goods recommended by GST Council which inter-alia includes:

♦ ……………..

♦  Water supplied for public purposes (other than in sealed containers) does not attract GST.

♦  ……………

(This note presents the decision of the GST Council in simple language for ease of understanding which would be given effect to through Gazette notifications/circulars which shall have force of law) “

3. The Central Goods and Services Tax, Rajkot Commissionerate, vide letter dated 21.03.2018 submitted the point wise reply regarding the queries raised by applicant M/s Aqua Care(Surat) RO Technologies Private Limited.

3.1 The point wise reply is submitted as under :-

(1) As per records available the activity/service is proposed.

(ii) As per records available, the Questions/issues raised in the application are not pending or decided in any proceedings in the case of the applicant.

(iii) (1). The questions on which Advance ruling is required are:-

(a) What is the classification when the water is sold in non-sealed container and its HSN code?

(b) Where applicant is selling water in containers whether selling of container and water is composite supply?

(2) The applicant has further mentioned in Annexure-II submitted with their application that as per provisions of notification no. 01/2017-Central Tax(Rate) dated 28-06-2017, the rate of applicable tax on mineral water as per schedule-III, S.No. 24 (Chapter sub heading 2201) on the product-“waters, including natural or artificial mineral waters and aerated waters, not containing added sugar or other sweetening matter nor flavoured” is 9% CGST.

The applicant has further mentioned S. No 99 of the provisions of Notification no. 02/2017 -Central Tax(Rate) dated 28-06-2017, which is as under-

Sr. No. Chapter/Heading/Sub-heading/ Tariff item Description of Goods
99 2201 Water [other than aerated, mineral, purified, distilled, medicinal, ionic, battery, demineralized and water sold in sealed container]

As per the Notification no. 02/2017 Central Tax (Rate), – In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts intra-State supplies of goods, the description of which is specified in column (3) of the Schedule appended to this notification, falling under the tariff item, subheading, heading or Chapter, as the case may be, as specified in the corresponding entry in column (2) of the said Schedule, from the whole of the central tax leviable thereon under section 9 of the Central Good and Services Tax Act, 2017 (12 of 2017).” The applicant has interpreted that as per the provisions the transaction falls under Notification 02/2017- Central Tax (Rate) dated 28.06.2017 as the applicant is not selling the water in sealed containers and thus transaction of selling of water by the applicant is exempt from GST.

However, the applicant has erred in interpretation as the description of Goods against Sr. No. 99 ( Chapter Heading no. 2201) of Notification 02/2017- Central Tax (Rate) dated 28.06.2017 clearly mentions in column 3 as the Water (other than aerated, mineral, purified, distilled, medicinal, ionic, battery, de-mineralized and water sold in sealed container). Hence the exemption is not applicable to the goods manufactured by the applicant and the applicant is liable to pay full rate of Tax i.e. 18% (9% CGST & 9% SGST).

Further, on going through the business process of selling purified water as per Annexure-1 attached with the said letter, the description of Goods mentioned in Notification No. 02/2017 Central Tax (Rate), dated 28.06.2017 is illustrative and exhaustive. In Annexure -I under heading business process of selling purified water, the applicant stated as, “The applicant will sell purified water to the customers on Railway Station/Villages. For the purpose the applicant will set up water stations at the railway platform and water ATM at the villages to supply purified water.”

It is clear that applicant will supply purified water which is not exempted under Notification No. 2/2017 Central Tax.

(3) The classification of the water sold in non-sealed container and sealed container both are classified under chapter 2201.

(4) Considering the nature of selling of water in Non-sealed containers it is falling under selling of purified water with container as a single supply as the principal activity is only selling of purified water.

4. Discussion and findings:

We have gone through the submission of the Applicant and also the comments given by the jurisdictional CGST Commissionerate.

4.1 Now we take the queries for discussion. The first query is:

“What is the classification when the water is sold in non-sealed container and its HSN code?”

i) The understanding of the applicant as well as that of Jurisdictional office is that the classification of the water sold in non-sealed container and sealed container both are classified under chapter 2201.

ii) However, the activity of applicant is to purify water using RO and UV technology and sell the purified water in glass (without seal or lid) and in bottles. For selling of water, the company purchases containers including bottles and glasses. The company will sell purified water to the Customers on Railway station/ Villages. For this purpose the company will set up water stations at the railway platform and Water ATM at the villages to supply purified water.

iii) The applicant has mentioned regarding the press release dated 21.07.2016 on GST rate on goods, in which at para VII it is mentioned that water supplied for public purposes (other than in sealed container) does not attract GST. However, Circular no. 52/26/2018-GST, dtd. 09.08.2018 issued from F.No. 354/255/2018-TRU, at para 6 clarifies as below:

“6.1 Applicability of GST on supply of safe drinking water for public purpose :

Representations have been received seeking clarification regarding applicability of GST on supply of safe drinking water for public purpose.

6.2 Attention is drawn to the entry at S. No. 99 of notification No. 2/2017-Central Tax (Rate), dated 28-6-2017, by virtue of which 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.

6.3 Accordingly, supply of water, other than those excluded from Sr. No. 99 of notification No. 2/2017-Central Tax (Rate), dated 28-6-2017, would attract GST at “NIL” rate. Therefore, it is clarified that supply of drinking water for public purposes, if it is not supplied in a sealed container, is exempt from GST. “

iv) The applicant assumes that any type of water, if sold in sealed container is not eligible for benefit under Sr. No. 99 of Notification No. 02/2017 -Central Tax(Rate) dated 28-06-2017. Vice versa if it is sold in non-sealed container it is eligible for benefit under Sr. No. 99 of Notification no. 02/2017-Central Tax(Rate) dated 28-06-2017.

This understanding of the applicant is not supported by the plain meaning of the Sr. No. 99 of the Notification No. 02/2017-Central Tax(Rate) dated 28-06-2017. If that would be the intention of the legislature, the legislature would have simply stated as “water (Other than water sold in sealed container)” In that case the words “aerated, mineral, purified, distilled, medicinal, ionic, battery and de-mineralized” would have been redundant. It is a settled principle of interpretation that there are no redundant words in law.

The ordinary meaning of the Sr. No. 99 of Notification No. 02/2017-Central Tax(Rate) dated 28-06-2017 is, in our opinion, as follows :

Water is exempt other than the following category :

i) aerated,

ii) mineral,

iii) purified,

iv) distilled,

v) medicinal,

vi) ionic,

vii) battery,

viii) de-mineralized and

ix) water sold in sealed container.

Since the applicant has himself claimed that they will be selling purified water, it is not eligible for benefit under Sr. No. 99 of Notification no. 02/2017 -Central Tax (Rate) dated 28-062017.

Circular no. 52/26/2018-GST, dtd. 09.08.2018 issued from F.No. 354/255/2018-TRU clearly states, at para 6.3, that water other than those excluded from Sr. No. 99 of Notification No. 02/2017 -Central Tax (Rate) dated 28-06-2017 would attract GST at “NIL” rate. Since purified water is excluded from Sr. No. 99 of Notification No. 02/2017 -Central Tax (Rate) dated 28-06-2017, it will not be eligible for nil rate of duty.

4.2 The second query is:

“Where company is selling water in containers whether selling of container and water is composite supply?”

i) We agree with the understanding of the applicant as well as that of Jurisdictional office that selling water in containers is composite supply as the principal activity is selling of purified water only.

In view of the foregoing, we rule as under –

RULING

Question 1 : What is the classification when the water is sold in non-sealed container and its HSN code?

Answer : The classification and HSN code of water is 2201. However the applicant is selling purified water which will not fall under Sr. No. 99 of the Notification no. 02/2017 issued under Central Goods and Service Tax Act 2017 and Gujarat Goods and Service Tax Act 2017.

Question 2 : Where company is selling water in containers whether selling of container and water is composite supply?

Answer : Answered in Affirmative.

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