the essay of 26 June 2024 · the untouched capture
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<p align="left"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>JUNE 26, 2024</strong></font></p>
<p align="center"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Thanneer Thanneer</strong></font></p>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><u>By Vijay Kumar</u></font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">'<strong>THANNEER</STRONG> Thanneer' (water water) is a famous Tamil film of 1981 on exploitation in the name of water. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Beautiful Bengaluru was cringing under a water crisis a few weeks ago till New Delhi took over and Bengaluru was forgotten. A new kind of don has dawned on the horizon - the water mafia. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Most of our metro cities have water supply and sewerage Boards catering to quench the thirst of the city-dwellers. These Boards are fully owned and operated by the Governments but are of course not above the all-encompassing GST. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The <em>Chennai Metropolitan Water Supply and Sewerage Board</em> (CMWSSB) was constituted under an Act of the Tamil Nadu Legislature for the provision of water supply and sewerage in the Greater Chennai area. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Pursuant to an inspection, summons was issued to the Board in September 2021 by the GST Department. The Board replied thereto. The GST Department was not satisfied with the reply and a show cause notice was issued to the Board on 27.09.2023. Eventually, an order was passed on 22.12.2023. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Can you imagine how expensive water is? The Demand by the GST Department was CGST and SGST of Rs. 96,10,02,025/- each along with interest and penalty thereon. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The government-owned Water Board is before the High Court (<strong><a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTgyMDEz" target="_blank">2024-TIOL-1042-HC-MAD-GST</a></strong>) challenging the order of the GST Authorities on the </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">grounds that: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Notification No. 12/2017 provides for an exemption as regards services provided by a governmental authority, including a municipality, under Article 243W of the Constitution of India. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Water is expressly exempted under Notification No. <strong><a href="https://taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MjMyODY=" target="_blank">2/2017 - Central Tax (Rate)</a> </strong>dated 28.06.2017. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Even with regard to purified water, a clarification was issued on 09.08.2018 to the effect that providing drinking water for public purposes is exempt from GST. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. In fact, by subsequent Notification No. <strong><a href="https://taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MjMzMzA=" target="_blank">14/2017 - Central Tax (Rate)</a></strong>, dated 28.06.2017, the Central Government, on the recommendation of the GST Council, has notified that services by way of activity in relation to functions entrusted to a panchayat under Article 243G of the Constitution are to be treated as neither supply of goods nor supply of services. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. Therefore, the impugned order is unsustainable. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. Without prejudice, they agreed to remit a sum of Rs. 3 Crore as a condition for remand. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">The Counsel for the Revenue submitted that: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. An alternative remedy is available to the petitioner and that this writ petition should not be entertained. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. GST is leviable in relation to distribution services, including distribution of water. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. The petitioner not only provides water supply and sewerage facilities through pipelines to the general public, but also supplies water including purified water, in tankers at commercial and dynamic rates to commercial establishments and large industrial units. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. Therefore, the impugned order contains no infirmity in as much as the petitioner is engaged in a composite supply and the respondent correctly identified the principal supply from and out of such composite supply. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. The distribution of water is subject to GST since it falls under <em>"Heading 9969"</em>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. The petitioner was supplying purified water, and that such factual determination cannot be interfered with in course of these proceedings. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">The High Court held: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. It is evident that the adjudication turned on two factors. First, the adjudicatory authority concluded that the petitioner was purifying the water and that the same would not fall within the scope of exemption. The counsel for the petitioner placed on record a note with regard to the difference between </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#ACDFFB">potable water </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">and purified water. The counsel points out that potable water is required to conform to norms laid down in BIS:10500-2012, whereas purified water is required to fulfil the norms laid down in BIS:14543:2016. Without taking these aspects into consideration, the impugned order proceeded on the basis that the petitioner was supplying purified water. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. The adjudicating authority concluded that the activity of the petitioner is a composite supply and that supply through mobile units falls within the scope of <em>"Heading 9969"</em> (Serial No.13), which is taxable at 18%. On such basis, CGST and SGST of Rs. 96,10,02,025/- each was imposed along with interest and penalty thereon. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. The order does not contain any details of the value of supply of water to households and other premises through pipelines; the value of supplies made through tankers on account of insufficiency of water in the relevant areas; and the value of supplies made through mobile units on account of the establishments concerned requiring higher quantities of water, which are supplied at commercial rates. Without such classification, the adjudicating authority could not have arrived at the conclusion that the principal supply is through mobile units at commercial rates. As a corollary to the above conclusion, the adjudicating authority further concluded that the supply does not fall within the scope of the exemption notification. Since such conclusion was arrived at without differentiating between the services provided by the petitioner, the matter requires re-consideration. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. Although a remand is warranted to enable reconsideration of both the applicability of exemption notifications and the conclusion regarding principal supply, it is also necessary to balance the interest of CMWSSB and revenue interest. Upon considering all relevant factors, the petitioner should remit a sum of Rs. 3 Crore. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. The impugned order is set aside and the matter is remanded for reconsideration subject to the condition that the petitioner remits a sum of Rs. 3 crores within six weeks from the date of receipt of a copy of this order. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is not as if water was entering GST for the first time. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This very Chennai Metropolitan Water Supply and Sewerage Board had once taken its water problem to the GST AUTHORITY FOR ADVANCE RULING in 2020 - <strong><a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTY1MjA4" target="_blank">2021-TIOL-106-AAR-GST</a></strong> seeking advance ruling on </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">Whether GST is applicable on supply of safe drinking water for public purpose by Chennai Water Desalination Plant Limited (CWDL) to Chennai Metro water Supply and Sewerage Board (CMWSSB). </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">They submitted that: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Water whether supplied at a price or not are exempted as per Notification 2/2017 irrespective of whether supplied to different categories like domestic, industrial, institutions and commercial. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Notification No. <strong><a href="https://taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MjMyODQ=" target="_blank">12/2017-C.T.(Rate)</a></strong> dated 28.06.2017 treats CMWSSB as a Government authority. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Governmental authority is defined as: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) Set up by an Act of Parliament or a State Legislature; or </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) established by any Government, with 90 percent or more participation by way of equity or control, to carry out any function entrusted to a Municipality under article 243W of the Constitution or to a Panchayat under article 243G of the Constitution. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Notification No.32/2017 and AAR Tamil Nadu ruling order No. 22/AAR/2018 dated November 28, 2018 = <strong><a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTQ1MzU4" target="_blank">2019-TIOL-35-AAR-GST</a></strong> confirms CMWSSB as a government Authority. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The AAR observed: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) It is seen that the applicant seeks ruling on the applicability of GST on the water received from Chennai Water Desalination Limited through Pipeline. The admissibility of the application was examined during the hearing extended to them. The applicant stated that they had sought ruling regarding applicability of GST on receipt of the water, the activity in which they are recipient and not supplier of Water. Thus, the question is on the liability to pay tax on the supply made to them and not on the supply made by them. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) An applicant can seek an Advance Ruling only in relation to supply of goods or services or both undertaken or proposed to be undertaken by them. Further, as per Section 103(1) of the GST Act, the ruling is binding only on the applicant and the concerned officer or the jurisdictional officer of the applicant. In the case at hand, the applicant is the recipient of the services and not supplier of such service. Accordingly, this question is not liable for admission and therefore rejected without going into the merits of the case. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In Vijayavahini Charitable Foundation, the Andhra Pradesh AAR in AAR No. L4 /APIGSTI2O2l dated:20.03.2021 dealt with a similar water problem. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Vijayavahini Charitable Foundation </em>(VCF), undertakes, encourages, supports and aids charitable activities in relation to poor in the areas of medical relief, education, health, vocation, livelihood etc. VCF has proposed to undertake the activity of providing pure and safe Drinking Water at an affordable cost for the under privileged people in villages in the state of Andhra Pradesh where clean and potable drinking water is not available. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">They proposed to draw water from the local water source (Open Well/Borewell/ground water) and treat the water through reverse osmosis (RO) process and provide this purified drinking water to the general public. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">They wanted advance ruling on Whether supply of drinking water to general public in unpacked/unsealed manner through dispensers/mobile tankers by a charitable organisation at a concessional rate is covered under exemption of GST as per Sl. No 99 of Notification <strong><a href="https://taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MjMyODY=" target="_blank">02/2017 central tax (Rate)</a></strong> dated 28/06/2017? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Advance Ruling Authority ruled: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">The said supply is not covered under exemption and taxable @ 18% Vide Notification No. <strong><a href="https://taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MjMyODU=" target="_blank">1/2017-Central Tax (Rate)</a></strong>, dated, 28th June 2017 as amended from time to time. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per the Budget Estimate 2023-2024, the Chennai Metropolitan Water Supply and Sewerage Board has a surplus of Rs. 92.82 crores and the GST demand now is more than Rs. 200 crores. If the demand is really confirmed and they have to pay this amount, what will happen to water for Chennai citizens? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The recent GST Council meeting has clarified the serious issue of uniform rate of GST on 'milk cans' - steel, iron, aluminium, for they have a standard shape so that will determine what is a milk can and what is not. And 'milk cans' dominated the news in the last few days. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Can this water problem be solved? I don't mean the water crisis, but the problem of GST on water. </font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until next week</font></p>
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