In Advance Ruling No. 20 /AAR/2023 -AAR- AAR (Tamil Nadu) rules in favour of Mannarai Common Effluent Treatment Plant; ‘Effluent Treated Water’ classified as ‘Sale of Goods’ & exempt from GST
Members N. Usha (SGST) & R. Gopalsamy (CGST) [19-06-2023]

Read Order: In Re: M/s. Mannarai Common Effluent Treatment Plant Private Limited

Chahat Varma

New Delhi, September 1, 2023:  The Tamil Nadu bench of the Authority for Advance Rulings has held that M/s. Mannarai Common Effluent Treatment Plant Private Limited’s (applicant) intended mode of operation, which involved procuring raw effluent, treating it, and subsequently selling the produced goods, could indeed be considered a sale of goods. The Authority also held that the water treated from the effluent would fall under heading 2201 and would be exempt from GST under Notification No. 2/2017- Central Tax Rate.

In the said case, the applicant had submitted that they intended to buy effluents from dyeing units, with the intention of transporting these effluents via pipelines to their own facility. Upon reaching the applicant's plant, these effluents will undergo processing, resulting in several products: Water, Sulphate solution, and Brine solution. The applicant planned to sell these products in the market, either through pipelines or delivery trucks. Seeking clarity, the applicant had submitted a query for an advance ruling on two main points. Firstly, they were seeking confirmation on the correctness of classifying the outputs of the processing as the sale of goods. Secondly, they were questioning the classification of the water they intended to sell, i.e., whether the classification of the sold water as 'water including natural or artificial mineral waters and aerated waters, not containing added sugar or sweetening matter, not flavoured (excluding drinking water packed in 20-liter bottles)' under the heading 2201 was accurate.

The two-member bench of N. Usha (SGST) and R. Gopalsamy (CGST) referred to Section 4 of The Sale of Goods Act, 1930, along with the Supreme Court judgement in State of Madras vs Gannon Dunkerley & Co. [LQ/SC/1958/40]. The bench held that for the classification of supply of treated water, salt, and other products as the sale of goods, it was essential that all the elements specified in both the Section and the Supreme Court judgement were present. The bench affirmed that if the applicant followed the established procedures and the rationale provided by the Supreme Court, their intended approach of purchasing raw effluent, treating it, and supplying the resulting goods could indeed be classified as a sale of goods. Therefore, the bench answered the first question in the affirmative.

Further, the bench clarified that water categorized under heading 22.0 was considered regular water, regardless of whether it was clarified or purified. Importantly, this classification specifically excluded distilled or conductivity water, along with water of similar purity, which were instead categorized under heading 28.53. Thus, the bench held that water reclaimed through the effluent treatment process was essentially ordinary water. It was deemed suitable for reuse by dyeing and bleaching units, serving as both a solvent and a medium for washing and rinsing. Consequently, this water fell within the scope of entry Sl. No. 99 in Notification No. 02/2017, CT (Rate), dated 28.06.2017, under heading 2201. This classification was found to be more applicable than Sl. No. 24 in Notification No. 01/2017- Central Tax (Rate), also dated 28.06.2017, under the same heading 2201.

The bench also observed that the establishment of the common effluent treatment plant was undertaken to adhere to legislative and environmental regulations. This primary purpose was focused on conserving water resources by recovering and reusing water, rather than engaging in the production of water or chemicals. Thus, it was held that the effluent treated water was eligible for exemption as per Notification No. 2/2017- Central Tax Rate as amended vide notification No.7/2022-Central Tax (Rate), dated the 13th July, 2022.