GST on Treated Water Sales: Tamil Nadu Advance Ruling TN/19/AAR/2023
The Authority for Advance Ruling confirmed that treated industrial water can be sold as tax-exempt goods under specific conditions.
- Ruling
- Advance Ruling No. 19/ARA/2023 Dated: 19.06.2023
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Effluent treatment plants can classify output as a sale of goods.
- Treated industrial water is exempt from GST under Notification No. 2/2017.
- The ruling requires a formal contract of sale to qualify as goods.
In short
The company asked if they could stop treating their business as a service and instead sell their treated water and recovered salts as goods. They wanted to know if this water would be exempt from Goods and Services Tax (GST).
What has changed
How it worked before
Businesses in this sector were often unsure if their output should be taxed as a service or as a sale of goods, leading to inconsistent tax treatment.
What has changed
The authority decided that if the business follows the Sale of Goods Act, they are selling goods, not providing a service. Furthermore, the treated water is exempt from GST because it does not qualify as mineral or aerated water.
Who this affects
Operators of effluent treatment plants and industrial water recycling facilities.
An example
A textile recycling plant in Tamil Nadu wants to sell its treated water to nearby factories. They draft a formal contract of sale to transfer ownership of the water for a set price. Based on this ruling, they might argue their water is exempt from GST, but they must first confirm their specific water quality matches the exempt category.
What you should do
This ruling only applies to the company that asked for it. If you run a similar plant, you cannot automatically apply this to your business; you should consult a tax professional to see if your specific process and contracts qualify for the same treatment.
If you do nothing
If you assume this ruling applies to you and stop paying GST without your own clarification, you risk a tax audit. If the tax department disagrees with your classification, you may be liable for unpaid taxes, interest, and penalties.
The terms explained
- Zero Liquid Discharge
- A water treatment process where all wastewater is purified and recycled, leaving no liquid waste to be discharged into the environment.
- Sale of Goods Act
- A law that defines the rules for buying and selling items, specifically focusing on the transfer of ownership from a seller to a buyer.
- Nil rate of tax
- A tax rate of zero percent, meaning no GST is collected on the supply of these specific goods.
The ruling in detail
Authority for Advance Ruling
M/s. Karaipudur Common Effluent Treatment Plant Private Limited
Advance Ruling No. 19/ARA/2023 Dated: 19.06.2023 · Tamil Nadu
Questions before the authority
- Whether the classification of supply of outputs as sale of goods is correct.
- Whether the classification of water sold as 'water including natural or artificial mineral waters and aerated waters, not containing added sugar or sweetening matter, not flavoured (other than drinking water packed in 20 litre bottles) under heading 2201 is correct.
Facts
The applicant operates a Zero Liquid Discharge plant that treats effluents received from member dyeing and bleaching units. They propose to transition from a service-based model to purchasing raw effluent and selling the resulting treated water and recovered salts as goods. The core issue is whether this proposed change in business model allows for the classification of these outputs as a sale of goods rather than a service.
Ruling
| Question | What the authority ruled |
|---|---|
| Classification of supply as sale of goods | Yes, subject to conditions Must follow the guidelines of a contract of sale as per the Sale of Goods Act |
| Classification of treated water under heading 2201 | Exempt (Nil rate) Classified under entry 99 of Notification No. 2/2017-Central Tax (Rate) |
The Authority ruled that the supply of outputs can be classified as a sale of goods provided the applicant adheres to the legal requirements of a contract of sale. Regarding the treated water, it was held that it is exempt from GST under the specified notification. The ruling confirms that the treated water does not fall under the taxable categories of mineral or de-mineralized water.
Reasoning
The Authority relied on the **Sale of Goods Act, 1930** and Supreme Court precedents to determine that a transfer of property for money consideration constitutes a sale. For the water classification, it analyzed the nature of the treated effluent, concluding it is not de-mineralized or mineral water, but rather water suitable for industrial reuse. It applied **Notification No. 2/2017-Central Tax (Rate)**, as amended, which grants a **Nil rate of tax** to water falling under heading 2201, excluding specific categories like aerated or mineral water.
Provisions relied on
- Section 98 of the CGST Act, 2017
- Section 103 of the CGST Act, 2017
- Section 4 of the Sale of Goods Act, 1930
- Notification No. 2/2017-Central Tax (Rate)
- Notification No. 7/2022-Central Tax (Rate)
For the practitioner
This ruling provides a pathway for effluent treatment plants to classify their output as a sale of goods rather than a service, provided they formalize their transactions as contracts of sale. It settles that treated industrial water from such plants is **exempt from GST** under the Nil rate category. Practitioners should note that this exemption is specific to the nature of the treated water and does not apply to other processed water types like de-mineralized or mineral water.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/19_aar_2023karaipudur.pdf
Legibility of the scan, as read: high.
Prepared 20-10-2026.
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