Service Tax Not Payable On The Amount Collected From The Member Units For Treatment Of Effluent Water: CESTAT

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service tax is not payable on the remuneration collected from the member units for the activity of treating effluent water.

The two-member bench of Sulekha Beevi C.S. (Judicial Member) and Vasa VASA Seshagiri Rao (Accountant Member) has observed that as per Notification No. 08/2017-S.T. dated February 20, 2017, the service tax payable on the services by the operators of the common effluent treatment plant, under section 66B of the Finance Act of 1994, but for the practice, from the 1st of July 2012 and ending with the 31st of March 2015, shall not be required to be paid.

The appellant company is engaged in the activity of treating effluent discharged from the member units. They also collected fixed and variable costs from each member unit by raising the bill for the quantity of effluent water discharged from these units. The appellant collected 10% of the fixed cost for the emergency or capital expenditure account, which would be used to meet the emergency expenditures for treating the effluents.

The department noted that the activity falls under the definition of "service" as per Section 65B (44) of the Finance Act of 1994. The appellant did not register themselves with the department and did not discharge their service tax liability.

The appellant contended that the appellant unit is situated in SIPCOT, Perundurai, and is registered as a non-profit organization that is formed collectively by 14 textile processing units under a financial grant or subsidy from the central or state government. The effluent water generated by the member units is treated by the appellant and converted into usable water. After treatment, 90% of this treated water is supplied back to the units for captive industrial use. The appellant collects only the actual expenditure incurred for the treatment of the effluent water; there is no profit distribution to the members.

The issue raised was whether the appellant is liable to pay service tax on the remuneration collected from the member units for the activity of treating effluent water.

The Tribunal while relying on notification No. 08/2017-S.T. dated February 20, 2017, states that during the time period from July 1, 2012, to March 31, 2015, there was no service tax levied on the services provided by operators of Common Effluent Treatment Plant in the form of effluent treatment, even though these services were subject to service tax during that time period but were not paid in accordance with the said practice.

The tribunal set aside the service tax demand on the remuneration collected from the member units for the activity of treating effluent water.

Case Title: M/s. Perundurai Common Effluent Treatment Plant Versus The Commissioner of Central Excise and Service Tax

Citation: Service Tax Appeal No. 40450 of 2015

Date: 03.03.2023

Counsel For Appellant: K. Venkatesan

Counsel For Respondent: R. Rajaraman

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