Water is classified as an essential & supply of the same is exempt through notification no 2/2017- Central Tax Rate dated 28th June,2017. The relevant extract is as under:
| S. No. | Heading | Description of Goods | Rate (%) | Condition |
| 99 | 2201 | Water (Other than aerated, mineral, purified, distilled, medicinal, ionic, battery, de-mineralised and water sold in sealed container) | NIL | NIL |
The recent ruling of M/s Latest Developers Advisory Ltd. dated 07.02.2020 (RAJ/ AAR/ 2019-20/32), provides an insight on the taxability of water under GST.
Facts of the case
M/s Latest Developers Advisory Ltd. (hereinafter referred as ‘applicant’) is an unregistered person and had entered into contract for providing maintenance services (hereinafter referred as ‘contract -I’) to RWA & for supply of water (hereinafter referred as ‘contract -II’) to members of RWA.
Applicant’s Submission
The applicant submit that since the project is located in an area where there is no proper water supply, the customer intends to enter into a contract with the application for supply of water. The transaction under the contract II shall involve purchase of water from vendor & supply to customer ‘as such’ therefore the same shall be exempt under heading 2201.
Also, it is assumed that supply of goods (water) & services involved in contract -II, then supply will be a composite supply of water. Since principal supply is exempted from GST, the whole supply of contract – II is exempt from GST.
Question on which the advance ruling is sought
Whether the applicant is required to pay GST on water charges collected from the customers for supply of water under contract-II?
Finding & Analysis
The applicant is involved in two contracts where contract -I is for maintenance service provided to the RWA & Contract -II is for supply of water to the individual resident residing in RWA.
Considering the notification no 12/2017-Central Tax Rate, dated 28.06.2017, read with circular no. 109/28/2019-GST dated 22.07.2019, it is clarified that GST on services provided by the Resident Welfare Association (RWA) to its resident members is /a 18%» when each unit household in a society pays more than Rs. 75O0/ – per month for said services and the supplier of services (RWA in the present case) is registered by way of crossing over of threshold limit of Rs. 20 lakhs.
The applicant is providing services to RWA in two parts viz. all services of maintenance (other than supply of water) and supply of water but in general practice across trade, the maintenance services is inclusive of supply of water.
Hence supply of water provided by the applicant through a separate agreement raises a suspicion in its activity. The reason behind the suspicion is that the water received by RWA is used for multiple purpose and is stored in the common underground water tank which is maintained by RWA.
It seems to have bifurcated the services provided to RWA in order to escape the condition of Rs. 7500 per month per member or it might be crossing the GST registration threshold limit of Rs.20 lakh.
Ruling
Contract-I and Contract-II appears to be directly linked with each other as there is no case of direct supply of water by the applicant to the individual residents of the society therefore the applicant is required to pay GST as applicable on Contract-1.
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Posted by:
CA Tarun Kapoor
AKGVG & Associates