Chennai Water Board’s Activities and Exemption Scope Misinterpreted by Authorities: Madras HC remands Rs. 96 Cr GST Demand on Pre-deposit [Read Order]

In a recent ruling, the Madras High Court set aside and remanded the case involving a Rs. 96 crore GST demand imposed, along with interest and penalties, on the Chennai Metropolitan Water Supply and Sewerage Board ( CMWSSB ).

The board, constituted under Tamil Nadu Legislature for water supply and sewerage in Greater Chennai, received a summons in September 2021, following which a show cause notice was issued in September 2023 due to dissatisfaction with its response. The subsequent order, challenged on December 22, 2023, formed the basis of the legal dispute.

The petitioner's counsel Mr. R. Vijayaraghavan, for Mr. Subbaraya Aiyar Padmanabhan, argued that CMWSSB's activities fell under exemption provisions for services provided by governmental authorities, citing Notification No.12/2017 and Notification No.2/2017 which exempt water supply, including purified water provided for public purposes. Additionally, he pointed out that Notification No.14/2017 clarified that certain activities of local bodies are not considered supplies under GST.

On the other hand, the respondent’s counsel, Mr.Ramesh Kutty contended that GST applied to CMWSSB's distribution services, including water distribution, under Heading 9969. They argued that CMWSSB's activities, which included supplying water via pipelines and tankers at commercial rates, constituted a taxable composite supply.

The bench of Justice Senthilkumar Ramamoorthy noted two critical issues with the impugned order: firstly, the misinterpretation of CMWSSB's activities as involving purified water without distinguishing it from potable water; and secondly, the inadequate consideration of the value and nature of water supplied through various methods (pipelines, tankers, mobile units), leading to an erroneous classification of the principal supply.

The court stated that “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, I am of the view that the petitioner should remit a sum of Rs.3 Crore.”

Consequently, the High Court ordered a remand to reconsider the applicability of exemption notifications and the classification of CMWSSB's services. However, recognizing the interests of both CMWSSB and revenue, the Court directed CMWSSB to deposit Rs. 3 crores as a precondition for the remand as agreed by the petitioner. Upon receipt of this deposit, the respondents were instructed to provide CMWSSB with an opportunity for a fair hearing in the matter. The writ petition was disposed of accordingly.

To Read the full text of the Order CLICK HERE

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