MAY 05, 2020

By M G Kodandaram

Potable water a fundamental right

WATER is a natural resource essential for the survival of all living forms. As summer heat rises, prayers for rains reach the pinnacle. Supply of potable water for the urban masses has become a huge challenge for the governments and enterprises/organizations engaged in this task. Providing clean drinking water to the smaller towns has remained a tough ask. In rural areas and smaller villages, reaching purified water has remained a distant dream. In public places like railway stations and Bus shelters, pure drinking water has remained obscure. People are exposed to severe health issues due to scarcity of pure water, the primary need of any person. Providing of clean drinking water to the citizens for sustenance of life on the earth has remained elusive.

In India, the right to clean drinking water, though not expressly guaranteed in our Constitution, has been the part of the right to 'clean environment' under the right to life. Article 21 of the Constitution of India states that ' no person shall be deprived of his life or personal liberty except according to the procedure established by law'. In Bandhua Mukti Morcha vs. Union of India [(1997) 10 SCC 549], the Supreme Court held that pure drinking water is absolutely essential requirement and a part of Right to life. Thereafter the Apex court has held time and again that 'the right to access to clean drinking water is fundamental to life and there is a duty on the state under Article 21 to provide clean drinking water to its citizens '

Pollution of drinking water

The rampant pollution of natural water resources like rivers, ponds, wells, ground water etc., has made the situation much more critical and grave. The Supreme Court has mandated the cleaning up of water sources including rivers, the coastline through several decisions. In Subhash Kumar v State of Bihar [1991 AIR 420], the Apex Court observed that 'the right to live includes the right of enjoyment of pollution-free water and air for full enjoyment of life.' It went on to hold that, "If anything endangers or impairs that quality of life in derogation of laws, a citizen has right to have recourse to Article 32 of the Constitution for removing the pollution of water or air which may be detrimental to the quality of life". Further in M.C. Mehta v Kamalnath [(1997)1 SCC 388] the Supreme Court ruled that 'the State is not only bound to regulate water supply, but should also realize that the right to healthy water is a way to prevent health hazards'. The court also stated that the welfare of the people is paramount and assigned the state with a positive role to help the people realize their rights and needs.

Added to the above concerns, the taxing of water at different rates by the governments has created innumerable difficulties for the entrepreneurs and organizations who contribute towards fulfilling this basic requirement to the thirsty. The taxpaying citizen is much worried as to why there are different rates of taxes for water in Goods and Services tax (GST) regime which started with an objective to provide one rate for the commodity, together with a simplified way of taxation. In reality, GST has complicated many issues including water, as it is taxed at different rates at different situations.

In this article, I am concentrating on the impact of GST rates, resulting in disruption of supply of clean drinking water. The members of GST Council are requested to find solutions to simplify the taxation aspects pertaining to clean drinking water and similar essential commodities and services.

Rates of water under GST schedule

Water and various related products, including mineral water, aerated water and non-alcoholic drinks are classified in Chapter 22 of GST tariff [hereinafter 'tariff' for brevity], titled 'Beverages, spirits and vinegar'. As per Notification No. 01/2017-ITR and 2/2017-ITR dated 28.6.2017 as amended, the rate of integrated GST imposed on water are as follows:

a) Water [other than aerated, mineral, purified, distilled, medicinal, ionic, battery, de-mineralized and water sold in sealed container ] [tariff 2201] @ Nil.

b) Drinking water packed in 20 litres bottle [tariff 2201] @ 12%.

c) 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 litres bottles[tariff 2201] @ 18%.

d) Other non-alcoholic beverages [other than tender coconut water and caffeinated beverages] [tariff 2202 91 00, 2202 99 90] @ 18%.

e) The Natural and artificial mineral water, and aerated water with no added sugar/other sweetening or flavouring agents [tariff 22011010, 22011020, 220190] @18%. 

f) Ice and snow water with no added sugar [tariff 2201 90 10]@5%.

g) All goods, including aerated water, with added sugar or other sweetening and flavouring agents [tariff 2202] @ 28%Plus GST compensation cess.

From the above, it can be concluded that drinking water is taxed at the rates ranging from NIL to 28%, and even more if it is 'aerated water with added sugar' as it is also subjected to GST compensation cess. The taxing of aerated water is a welcome step, but taxing of pure drinking water at different rates has caused more disruptions in reaching of potable water to the public.

The advance rulings on supply of water and services relating to the same have further aggravated the confusion in the minds of registered taxable persons and the consumers. Before detailing the some decisions of advance rulings, let us look at the CBIC Circular No. 52/26/2018-GST dated 9.8.2018 issued on the recommendations of GST Council, clarifying the rate of GST applicable on water. (only relevant parts reproduced for our discussions).

"Para 6.1 Applicability of GST on supply of safe drinking water for public purpose: Representations have been received seeking clarification regarding applicability of GST on supply of safe drinking water for public purpose.

6.2 Attention is drawn to the entry at S. No. 99 of notification No. 2/2017-Central Tax (Rate) dated 28.06.2017, by virtue of which water [other than aerated, mineral, purified, distilled, medicinal, ionic, battery, de-mineralized and water sold in sealed container] falling under HS code 2201 attracts NIL rate of GST.

6.3 Accordingly, supply of water, other than those excluded from S. No. 99 of notification No. 2/2017-Central Tax (Rate) dated 28.06.2017, would attract GST at NIL rate. Therefore, it is clarified that supply of drinking water for public purposes, if it is not supplied in a sealed container, is exempt from GST."

Advance Ruling Authority on water and related supplies

Extracts of Some of the advance rulings pertaining to supply of water, highlighting the classification and rates of tax are reproduced for our deliberations.

Case 1 - In re M/s. Membrane Filters (I) Pvt Ltd (GST AAR Maharashtra) Advance Ruling No. GST-ARA-06/2018-19/B- dated 09/07/2018. - 2018-TIOL-200-AAR-GST

In this case, the applicant engaged in providing purified drinking water to houses in villages as per the contacts entered into with Public Health Engineering Department (PHED) of Bihar Government, requested for a ruling on the rate & HSN code of GST applicable. After due process of law the advance ruling authorities ruled that this is a composite supply which attracts the provisions of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, under Sl. no 3 falling under Heading 9954 as Construction services and the same would attract a tax rate of 12%. So we have practically ended up in another rate of tax for purified drinking water.

Case 2 - In re Tag Solar System by Rajasthan Authority for Advance Ruling no RAJ/AAR/2018-19/11dated 18.8.2018 - 2018-TIOL-165-AAR-GST

The applicant engaged in Supply, Commissioning, Installation, and Maintenance of Solar Water Pumping System in a time bound period sought to know (1) Whether Supply, commissioning, installation and maintenance of Solar Water Pumping System would be taxable at the rate of 5% considering it as a composite supply where the principle supply being that of goods i.e. supply of Solar Power generating system having HSN Code 84 or 85? (2) Whether separate bills can be raised by the Applicant with respect to Supply and Goods and Supply of Services Purely in respect of the contract of the Applicant? (3) Will the said transaction be classified as a "Works Contract" and taxable at the rate of 18% being Supply of Services?

The AAR ruled that the impugned transaction for supply of Solar Photovoltaic water pumping system is a "works contract" and attracts 18% rate of tax under IGST.

The purpose of the installation is to generate power and drawing water using the said power for the agricultural purposes. The big question is what is the principal supply? Whether it is the power or the water? If water is treated as principal supply, then the whole transaction is to be treated exempted as the principal supply is exempted. Even if electricity is treated as the principal supply, then also the whole transaction to be treated as exempted as electricity is not taxable. But the legal interpretations have ended up in taxing of the subject goods. Is this the simplification expected from GST?

Case 3 : In re Vidarbha Infotech Private Limited (GST AAR Maharashtra) Order No. GST-ARA- 131/2018-19/B-70 dated 13/06/2019 - 2019-TIOL-236-AAR-GST

The applicant was awarded a contract from Nagpur Environmental Services Ltd. (NESL), a 100% subsidiary of the Nagpur Municipal Corporation, for providing services for the management of Non-Network Tanker with the help of GPRS system at Nagpur. The applicant stated that the services fall under Water supply for domestic, industrial and commercial purposes, of article 243 W of the constitution which was actually rendered to Nagpur Municipal Corporation through NESL.

To this, the authorities held that for providing services for the management of Non-Network Tanker with the help of GPRS system at Nagpur would be exempt from GST since it falls under the various exempt services in the article 243 W of the Constitution of India as well as services rendered to a local authority. The advance authority rulings clearly evidence the ambiguity that has lead to different rates of tax on water and related works, depending upon the nature of contract.

GST law a Barrier for fulfilling the obligation of pure water

Case 4: In re Aquaa Care (Surat) RO Technologies Private Limited (GST AAR Gujarat - Advance Ruling No. GUJ/GAAR/R/11/2019- Date of Order: 24/07/2019) - 2020-TIOL-68-AAR-GST.

The applicant planned to purify water using RO and UV technology and sell the same in glass (without seal or lid) and in bottles to the Customers on Railway station/Villages. For this purpose the company proposed to set up water stations at the railway platform and Water ATMs at the villages. The customers can fill the water in the containers carried by them. This will eliminate generation of waste and garbage. But in some cases where the customer doesn't carry any container, the company plans to provide bottle and glass for filling the water which are obviously not sealed.

The advance ruling recorded facts and law position as under:"The ordinary meaning of the Sr. No. 99 of the exemption Notification No. 01/2017 Central Tax (Rate) is, in our opinion, Water is exempt other than the following category: i) aerated, ii) mineral, iii) purified, iv) distilled, v) medicinal, vi) ionic, vii) battery, viii) de-mineralized and ix) water sold in sealed container. Since the applicant has himself claimed that they will be selling purified water, it is not eligible for benefit under Sr. No. 99 of the said exemption notification. As per the Notification the purified water, supplied in sealed containers or otherwise is taxable at the rate of 18%."

On the second issue it concurred that that selling water in containers is composite supply as the principal activity is selling of purified water only. This implies that the applicant has to pay GST @ 18% on purified drinking water supplied to railway travelers and villagers, even where he buys water using his own container.

Case 5: In re Water Health India Private Limited - Karnataka Advance Ruling No. KAR ADRG 12/2020 dated 18.03.2020. - 2020-TIOL-57-AAR-GST

The Applicant is engaged in the business of supplying purified water of three types viz., a) in unsealed form by filling customer empty cans (i.e., supply of purified water in a can which is being brought by the customer) b) in 20 litre unsealed cans; and c) Through piped network to establishments. The applicant has entered into an agreement (MOU) with local panchayats / municipalities by signing memorandum of understanding for the supply of purified water to the general public by installing community water treatment plant at economical price. The applicant sought advance ruling on the issue whether supply of purified water to public in empty unsealed cans is exempt under Entry No.99 of exemption notification No. 2/2017 -Integrated Tax (Rate) dated 28 June, 2017. The authorities ruled that the supply of purified drinking water to public in empty unsealed cans is not entitled for exemption from GST.

Is it a fair way to meet the constitutional obligations of providing clean drinking water to all, I wonder?

GST law- the breeding ground of litigations

The rulings cited above may be legally tenable or otherwise, but the moot point here is whether the GST law has eased the uncertainty created in the minds of citizen, businessman and the administration? Is this not a clear indication of mounting of litigation in the coming days? The pendency of cases under dispute in various forums in respect of legacy issues, even after Sabka Viswas scheme, may take a minimum of 20 years for closure. And if we fail to address the shortcomings in GST law and procedures now, we may have to spend all our time in courts and tribunals. This has arisen due to wrong approach followed by the lawmakers in formulating GST laws, the author feels.

The GST is a destination based consumption tax. As the tax is borne by the ultimate user namely, the person who consumes the goods or service or both, the registered taxable person (the intermediary) is a mere facilitator to pass on the tax so collected to the coffers of the nation, in a transparent manner. GST's principal objective is to bring taxes on goods and services at a uniform rate, without giving room division as goods and services, which leads to litigation. But now the destination we have reached is just opposite to the set objective as the facts in respect of water reveal. The law in place is not fair as it is a copy of the origin based taxation and unfortunately the framers of law have not switched their sides and views. The GST, being a consumption tax, gaining the confidence of the consumer should be the primary factor and not the convenience of intermediary or the administration. The lawmakers have failed to understand and adapt themselves to the new situation, which is the root cause of confusion and mounting litigation. Every consumer should be treated as an administrator of taxes and intend to make laws in a way to gain their confidence. This alone makes the voluntary compliance successful. For this, there is a need of examining the issues keeping the facilitation of the consumer as the most significant part of the decision. Further, when providing purified drinking water to a citizen which is their fundamental right assured by the Constitution of India, we should show much more concern to attend to the basic needs of the people.

It is time to think over the issue whether it is possible to convince the various slabs to the consumer who uses the water for his or her survival? Whether the common man is in a position to understand the funnier applications of law which we have tailored without the concern of the user into account? Or should we think of a rational way of drafting laws, with consumer as the chief concern. Reforms treating this as the starting point alone will usher confidence in both consumer and the intermediary. By doing so, government can further its goal of meeting the fundamental rights assured to the citizens.

The way forward

In this regard the author has some suggestions to make with an aim to get drinking water to the common public which is an assured fundamental right.

(1) The water used for agricultural and drinking water purposes including natural water, purified water, mineral water, de-mineralized water whether in sealed container or not could be taxed at a rate ranging upto maximum of 5%. The aerated water with added sugar or otherwise could be taxed at a higher rate as is done now as they are not absolute for survival of the common man. This will meet the cannons of equity required for a progressive taxation.

(2) The use of classification of services as inserted in chapter 99 of GST tariff may be removed as it is ambiguous and is becoming as a hub of all disputes. [The author's earlier article may kindly be gone through]. This could also be overcome by having one general rate for services.

(3) The section 8 of CGST Act 2017 mandating the concept of composite supply and mixed supply will be the centre of all litigations to come. The determination of principal supply could cause huge litigation. The advance rulings that are issued are clear indicators of the problem that hover around this concept. There is immediate need to review this provision, with a view to accommodate the end consumer. In the listed rulings, as the ultimate purpose of the service is to providing clean drinking water, the rates applicable to such goods are to be treated as principal supplies.

In this regard the GST Council should act on priority to make fair changes in GST laws as applicable to water and related services, as it is in promotion of the fundamental right guaranteed to the citizen. The council has shown concern in bringing one rate to lotteries so as to bring uniformity. In case of water, the very nature and essentiality of the product to all living beings, the entire fauna and flora should be the indicator for speeding up the measure. By doing so, we start our journey towards simplification of Law and thereby avoid unnecessary litigation.

(The author is IRS, Assistant Director (Retd), NACIN, Advocate and Consultant and the views expressed are strictly personal.)