Gujarat High Court Quashes GST Demand Against Environmental Entity, Holds Effluent Treatment Exempt

The Gujarat High Court has held that an environmental protection entity qualified for a nil GST rate on activities falling within charitable activities involving preservation of the environment.

The court also found no deliberate intention to evade tax and quashed the show-cause notice issued by the GST authorities.

A Division Bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati allowed the petition filed by Naroda Enviro Projects Ltd. and its co-petitioner.

The dispute concerned GST proposed for July 1, 2017 to May 12, 2022. An earlier 2019 judgment had held that the entity's pollution-control treatment of industrial waste amounted to charitable activity involving preservation of environment. The Supreme Court later disposed of the Revenue's appeal on January 30, 2025, due to low tax effect.

The petitioners had claimed GST exemption under Notification No.12/2017 and did not pay GST. After a November 2022 search, the authorities alleged that tax remained unpaid for the earlier period.

A demand was proposed for July 1, 2017 to May 12, 2022, followed by the impugned show-cause notice dated September 5, 2023 under Section 74.

The Revenue argued that the earlier income-tax ruling could not govern the GST exemption because the two laws operated in different fields.

It relied on Notification No.11/2017 and Heading 9994, which covers sewage and waste collection, treatment and disposal and other environmental protection services and prescribes GST at 9%. It also alleged that the petitioners had rendered services worth about ₹79.53 crore without paying GST.

The court, however, read the earlier judgment together with Notification No.12/2017. The notification provides a nil rate for services supplied by an eligible charitable entity, and its definition expressly includes preservation of environment, including watershed, forests and wildlife. The court concluded that the petitioners' activities fell within this category.

The court rejected the attempt to apply the 9% rate. It held that the levy could not be imposed on the petitioners, observing that the 9% provision would apply to private entities carrying out the specified services, while the petitioners' activities were covered by the Chapter 99 provision applicable to entities registered under Section 12AA undertaking charitable activities.

"Thus, the rate prescribed under the Notification No.12/2017 dated 28.06.2017 for the entities registered on section 12AA of the Act, which carry out charitable activities and are found under chapter 99 and the activities which mentioned in clause 2(r)(iv) relating to preservation of environment including watershed, forest, and wildlife is 'Nil'", it ruled.

Section 74 was also invoked. It permits recovery of unpaid or short-paid GST where the liability arose because of fraud, wilful misstatement or suppression of facts with an intent to evade tax.

The court stressed that invoking this provision requires a strict showing of such conduct.

Referring to Supreme Court decisions, the court observed that mere failure to declare does not amount to wilful suppression; a positive act to evade tax is required.

It found no fraud, suppression, wilful misstatement or deliberate intent to evade tax. Holding that the authorities could not ignore its earlier ruling on the petitioners' activities, the court quashed the September 5, 2023 show-cause notice and made the Rule absolute

For Petitioners: Uchit N. Sheth

For Respondents: Ms. Hetvi H. Sancheti