Treated Water’ obtained from CETP not eligible for GST exemption: AAAR Gujarat

In re Palsana Enviro Protection Limited (GST AAAR Gujarat)

Gujarat Appellate Authority for Advance Ruling (AAAR) addressed the taxability of treated water supplied by Palsana Enviro Protection Limited, a Common Effluent Treatment Plant (CETP) established by textile industries. The appellant contended that the treated water, classified under Chapter 2201, was exempt from GST under Notification No. 2/2017-CT (Rate) as amended. They argued that treated water did not qualify as purified, demineralized, or bottled water, which are explicitly taxable. The AAAR, however, upheld the earlier ruling by the Gujarat Advance Authority for Ruling (GAAR), which determined that the treated water was taxable at 18% under GST.

The AAAR found that while the treated water underwent recycling processes to remove impurities, it contained trace minerals and chemicals, qualifying it as “demineralized water” as per the notification. The authority emphasized that GST exemptions under Serial No. 99 of Notification No. 2/2017-CT (Rate) are intended for water typically consumed by the public. Since the treated water was supplied exclusively to industries for non-potable purposes, it did not fall within the exempt category. The ruling clarified that all commercial supplies of water, except drinking water, are taxable under GST.

The appellant sought to challenge this conclusion with test reports indicating the water was not demineralized. However, the AAAR rejected the report, citing procedural irregularities, such as the absence of accreditation for the laboratory and improper sampling methods. The authority further noted that additional evidence submitted during the appellate stage could not override the findings of the initial ruling.

Judicial precedents from similar cases, including rulings involving Sirupooluvapatti CETP and others, were cited to substantiate the appellant’s claims. However, these rulings did not alter the AAAR’s stance. The authority reaffirmed that the primary criterion for exemption was the intended use and chemical composition of the water, which rendered the appellant’s treated water taxable.

FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARAT

At the outset we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 and Gujarat Goods and Services Tax Act, 2017 (hereinafter referred to as the `CGST Act, 2017′ and the `GGST Act, 2017′) are pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act, 2017 would also mean reference to the corresponding similar provisions in the GGST Act, 2017.

2. The present appeal is filed under Section 100 of the CGST Act, 2017 and the GGST Act, 2017 by M/s. Palsana Enviro Protection Limited, (hereinafter referred to as ‘appellant’) against the Advance Ruling No. GUJ/GAAR/R/2022/47 dated 30.12.2022.

3. Briefly, the facts are that the appellant who has been promoted by a cluster of textile processing industries has set up a CETP’. In the said CETP, the appellant recycles & thereafter supplies treated water to its member units for use in their activities. This treated water can be used in non-portable activity. Though the CETP treated water is made free from various impurities, however, even after carrying out the said physical and biological processes the said water is not pure water & cannot be termed as purified water.

4. The appellant has further stated that the water containing anything apart from hydrogen and oxygen, cannot be construed as pure water and that the CETP treated water is supplied to industries through pipelines. The appellant further claims that their activity falls within the ambit of Sr. No. 99 of notification No. 2/2017-CT (R), as amended vide notification No. 7/2022-CT (Rate) dtd 13.7.2022, as the water obtained from CETP is not ‘purified water’. To substantiate this claim they have also relied on circulars No. 52/26/2018 dated 9.8.2018 & 179/11/2022-GST dated 3.8.2022.

5. In view of the foregoing facts, the appellant had sought Advance Ruling on the following questions, viz:

1. Whether ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) will be eligible for exemption from GST by virtue of Si No. 99 of the Exemption Notification No. 0212017- Integrated Tax (Rate), dated 28-6-2017 (as amended) as ‘Water (other than aerated, mineral, purified, distilled, medical, ionic, battery, demineralized and water sold in sealed container)’? or

2. Whether ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) is taxable at 18 per cent b virtue of SI No.24 of Schedule – III of notification No. 0112017- Integrated Tax (Rate), dated 28-6-2017 (as amended) as ‘Waters, including natural or artificial mineral waters, and aerated waters, not containing added sugar or other sweetening matter nor flavoured (other than Drinking water packed in 20 liters bottles)’

6. Consequent to hearing, the GAAR², recorded the following findings viz

• that ‘water’ is eligible for exemption from GST while other type of water, i.e. aerated, mineral, distilled, medicinal, ionic, battery, de-mineralized and water sold in sealed container are outside the ambit of entry no. 99 and is liable to GST;
• that the intention of the Legislature is to exempt the water which is usually consumed/drink by public at large; that any type of water, sold commercially have been kept out of the purview of exemption vide entry No. 99, ibid;
• that the treated water obtained from CETP is not purified water & cannot be used in drinking by the public; that it is supplied to the Industry for their process;
• that water obtained from CETP has micro amount of dissolved minerals and chemical and is virtually free from all types of toxic materials; that this treated water is used in various industries viz Pharmaceuticals, chemicals and leather for their manufacturing related process; that looking to the presence of small amount of metal the said water obtained after treatment from CETP, therefore is covered under ‘de-mineralized water’, & is therefore not eligible for exemption under Sr. No. 99 of notification No. 12/2017-CT (Rate) dated 28-6-2017.

7. The GAAR, vide the impugned ruling dated 30.12.2022, held as follows:

1. ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) is not eligible for exemption from payment of Tax by virtue of Sl. No. 99 of the exemption notification No. 0212017- CT (Rate) dated 28-6-2017 (as amended) and SI. No. 99 of the exemption notification No. 0212017- Integrated Tax (Rate), dated 28-6-201 7 (as amended).

2. ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) is taxable at 18 % by virtue of Sl. No.24 of schedule – III of notification No.01/2017- CT (Rate) (as amended) and SI. No. 24 of schedule – III of notification No. 01/2017-Integrated Tax (Rate), dated 28-6-2017 (as amended).

8. Being aggrieved by the impugned ruling the appellant is before us raising the following averments viz

• that de-mineralized water is a product available in market which has specific use;
• that the demineralized water is used in car batteries & automotive cooling systems as well as cooling towers, boilers, other systems where any minerals in the water could build up on surfaces & cause blockages & other problems;
• that demineralized water is also required in pharmaceutical and cosmetics industries;
• that treated water generated by CETP is not demineralized water; that this water is being used by dyeing mills generally for washing and other related purposes.

9. Personal hearing in the matter was held on 21.1.2025, wherein Shri Mihir Gandhi appeared on behalf of the appellant and reiterated the grounds of appeal. They also submitted an additional submission during the course of personal hearing reiterating the grounds and further relying on the following rulings viz

• Sirupooluvapatti CETP Ltd³;
• Angeripalayam CETP Ltd⁴;
• Kariapudur CETP Ltd ⁵

A test report no. LAL-WT-150125027 dated 18.1.2025 from Lilaba Analytical Laboratory LLP was also enclosed with the additional submission which states that the sample did not meet the parameters of demineralized water.

10. We have carefully gone through and considered the appeal papers, written submissions filed by the appellant, submissions made at the time of personal hearing, the impugned ruling and other materials available on record.

11. Before dwelling on to the issue, we would like to reproduce relevant notification for ease of reference viz

Notification No. 2/2017-Central Tax (Rate)

New Delhi, the 28th June. 2017

G.S.R. (E).- 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 (31 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).

Schedule

Notification No_ 7 2022-Central Tax (Rate)

New Delhi, the 13th July, 2022

G S.R. (E) – 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 on the recommendations of the Council, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No 2.2017-Central Tax (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Pan II, Section 3, Sub-section (i), vide number G.S.R. 674(E), dated the 28th June, 2017, namely:-

In the said notification,

(A) in the Schedule. –

(x) against S. No_ 99, in column (3)_: the word “purified, ” shall be omitted;

12. The contentions are already listed supra and is not being repeated

13. We find that the appellant has not controverted the findings except for the averment that it is not a de-mineralized water. The appellant has also produced a laboratory certificate, which was not produced before the GAR. We are not inclined to accept the certificate produced by the appellant because [a] the same is being produced at an appellate stage; [b] the certificate nowhere states that the laboratory is an accredited laboratory and [c] there is no mention about the manner in which the sample was drawn. It goes without saying that drawal of sample is sacrosanct, failing which the credibility of the results is questionable.

14. The appellant has relied upon three rulings to substantiate his averments. The rulings relied upon are mentioned at para 9, supra. These rulings would not help the appellant in so far as section 103 of the CGST Act, 2017, clearly states that rulings by the Authority for Advance Ruling would be binding only on the applicant who sought it, the concerned officer or the jurisdictional officer in respect of the applicant. We also further find that the Tamilnadu Authority for Advance Ruling has held that treated water obtained from CETP, is de-mineralized water and will therefore not be eligible for the benefit of the notification Nos. No. 2/2017-CT(R) dated 28.6.2017 as amended vide notification No. 7/2022-CT(R) dated 13.7.2022, in the case of M/s. Mannarai CETP P Ltd⁶. In view of the foregoing, we are not inclined to interfere with the impugned ruling dated 30.12.2022, hence, the same is upheld.

15. As far as reliance on the two circulars are concerned, we find that while circular No. 52/26/2018-GST dated, 9.8.2018, clarifies that supply of drinking water for public purposes, if it is not supplied in a sealed container, is exempt from GST, likewise, circular no. 179/11/2022-GST dated 3.8.2022 clarified that supply of treated sewage water, falling under heading 2201, is exempt under GST and that the word ‘purified’ is being omitted from the above-mentioned entry vide notification No. 7/2022-Central Tax (Rate), dated 13.7.2022.

16. In view of the above findings, we reject the appeal filed by appellant M/s. Palsana Enviro Protection Limited against the Advance Ruling No. GURGAAR/R/2022/47 dated 30.12.2022, passed by the Gujarat Authority for Advance Ruling.

Notes:-

¹ Common Effluent Treatment Plant

² Gujarat Authority for Advance Ruling

³ Advance Ruling no. 31/AAR/2023 dated 30.8.2023 by Tamil Nadu, AAR.

⁴ Advance Ruling no. 28/AAR/2023 dated 30.8.2023 by Tamil Nadu, AAR.

⁵ Advance Ruling no. 19/ARA of 2023 dated 19.6.2023 by Tamil Nadu, AAR.

⁶ Ruling No. 20/ARA/2023 dated 27.6.2024