2025 (7) TMI 193 - AAR - GST

Taxability - potable drinking water supplied through tanker lorries to both Government institutions and private customers - applicability of GST exemption under Serial No. 99 of N/N. 02/2017-Central Tax (Rate) dated 28.06.2017 - HELD THAT - The customers include Government institutions Indian Railways local authorities other Government offices and private customers such as hotels and contractors. The applicant collects water from various sources such as dug wells and bore wells and carries out an initial purification process by filtering to remove suspended solids organic matter etc. The second phase of processing involves chlorination at appropriate levels to bring the water up to drinking water standards. Proper testing is also conducted by the applicant before supplying the water to customers. The supply of water is not in sealed containers but is filled into tanker lorries with capacities ranging from 2, 000 kiloliters to 30, 000 kiloliters and transported to the customers premises where it is pumped into their tanks or containers for further use. Whether the drinking water in the instant case is eligible to qualify for exemption as per serial No. 99 of Notification No. 02/2017-Central Tax (Rate) dated 28.06.2017? - HELD THAT - The process of purification and the contents dissolved in the above categories of water have no similarities with the drinking water supplied by the applicant. Chlorination and filtration are the basic purification methods used by any public utility engaged in water distribution to make the water potable. Also the applicant does not supply the water in sealed containers; rather it is supplied in bulk quantities through tanker lorries. Hence the drinking water supplied by the applicant is not included in any of the categories of water specifically excluded from exemption under the GST Act as per serial No. 99 of N/N. 02/2017-Central Tax (Rate) dated 28.06.2017. The drinking water supplied by the applicant in bulk to various customers including Government institutions through tanker lorries having capacities ranging from 2, 000 kiloliters to 30, 000 kiloliters is eligible for exemption from tax under GST as per entry at serial No. 99 of N/N. 02/2017-Central Tax (Rate) dated 28.06.2017.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Authority for Advance Ruling (AAR) relate to the taxability under the Central Goods and Services Tax (CGST) and Kerala Goods and Services Tax (KSGST) Acts of potable drinking water supplied in bulk by tanker lorries. Specifically:

• Whether the supply of potable drinking water, collected from various sources and purified by filtration and chlorination, and supplied in bulk tanker lorries to government and private customers, is exempt from GST under Serial No. 99 of Notification No. 2/2017-Central Tax (Rate), dated 28.06.2017.
• If the supply does not qualify for exemption under the said notification, what is the applicable GST rate and under which tariff entry the supply would be taxable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of GST exemption on potable drinking water supplied in bulk tanker lorries

Relevant legal framework and precedents: The key legal provisions considered include Section 97(1) and (2) of the CGST Act, 2017, which empower the Advance Ruling Authority to rule on classification and applicability of notifications. The relevant notifications are:

• Notification No. 2/2017-Central Tax (Rate), dated 28.06.2017, Serial No. 99, which exempts "Water (other than aerated, mineral, distilled, medicinal, ionic, battery, demineralized and water sold in sealed container)" from GST.
• Notification No. 1/2017-Central Tax (Rate), dated 28.06.2017, which classifies taxable water products including drinking water packed in 20-litre bottles (12% GST) and mineral or aerated waters (18% GST).
• Circular No. 52/26/2018, dated 09.08.2018, clarifying that water not excluded under Serial No. 99 is exempt at a nil rate.

Court's interpretation and reasoning: The Authority examined the nature of the water supplied by the applicant, which is sourced from dug wells, bore wells, and occasionally Kerala Water Authority. The water undergoes filtration to remove suspended solids and organic matter and chlorination to eliminate pathogens, thereby meeting potable water standards. The supply is made in bulk tanker lorries (capacities from 2,000 to 30,000 kilolitres), not in sealed containers.

The Authority analyzed the categories of water excluded from exemption under Serial No. 99, namely aerated, mineral, distilled, medicinal, ionic, battery, and demineralized water, as well as water sold in sealed containers. It found that the applicant's water does not fall into any of these excluded categories. The purification methods used (filtration and chlorination) are basic treatments to render water potable and do not transform the water into any of the excluded types.

Key evidence and findings: The applicant provided details of the purification processes and agreements with customers, including Indian Railways, evidencing the supply of potable water in bulk. The supply agreements specify the scope including procurement, transportation, and delivery of potable water. The Authority also noted the absence of any pending or decided proceedings against the applicant on this issue.

Application of law to facts: Applying the exemption notification to the facts, the Authority concluded that the potable water supplied by the applicant in bulk tanker lorries qualifies for exemption under Serial No. 99 of Notification No. 2/2017-Central Tax (Rate), as it is not aerated, mineral, distilled, medicinal, ionic, battery, demineralized, nor sold in sealed containers.

Treatment of competing arguments: The jurisdictional officer contended that the supply was not eligible for exemption, citing a prior advance ruling. However, the Authority distinguished the applicant's supply based on the nature and mode of supply and found the exemption applicable. The applicant's argument that water is a basic necessity and should be exempt like food grains and milk was also considered in the context of the notification provisions.

Conclusions: The potable drinking water supplied in bulk tanker lorries by the applicant is exempt from GST under Serial No. 99 of Notification No. 2/2017-Central Tax (Rate), dated 28.06.2017.

Issue 2: Applicable GST rate and classification if exemption does not apply

Relevant legal framework: The relevant taxable classifications under Notification No. 1/2017-Central Tax (Rate) include:

• Drinking water packed in 20-litre bottles (12% GST)
• Natural or artificial mineral waters and aerated waters not containing added sugar or sweeteners (18% GST)

Court's interpretation and reasoning: Since the Authority found the supply exempt under the exemption notification, it did not proceed to classify the supply under taxable categories or determine applicable GST rates.

Conclusions: No ruling was given on this issue as it was rendered moot by the exemption ruling.

3. SIGNIFICANT HOLDINGS

Verbatim crucial legal reasoning:

"The drinking water supplied by the applicant in bulk to various customers, including Government institutions, through tanker lorries having capacities ranging from 2,000 kiloliters to 30,000 kiloliters, is eligible for exemption from tax under GST as per entry at serial No. 99 of Notification No. 02/2017-Central Tax (Rate), dated 28.06.2017."

Core principles established:

• Potable water supplied in bulk tanker lorries, purified by filtration and chlorination, and not falling under excluded categories (aerated, mineral, distilled, medicinal, ionic, battery, demineralized, or sold in sealed containers), qualifies for GST exemption under Serial No. 99 of Notification No. 2/2017-Central Tax (Rate).
• The mode of supply (bulk tanker lorries vs. sealed containers) and the nature of purification are critical in determining GST applicability.
• Basic purification processes to make water potable do not alter its classification to taxable categories if it remains outside the specifically excluded types.

Final determinations:

• The supply of potable drinking water by the applicant through tanker lorries is exempt from GST under the specified exemption notification.
• No ruling was issued on applicable GST rates or classification if exemption does not apply, as exemption was affirmed.