An agreement for water supply is a sale, not an assignment of natural-resource use rights.

Bharat Aluminium Company Limited (BALCO), which operated a captive power plant, entered into an agreement with the Chhattisgarh Water Resources Department to draw water from the Huskdev Barrage.

BALCO was responsible for the works needed to convey the water and had to pay charges for at least 90% of the quantity allotted, even if it drew less.

A show cause notice covering April 2016 to June 2017 resulted in a demand of ₹7,29,52,576, interest and a penalty under Section 78; the Commissioner confirmed the proposals.

BALCO appealed, arguing principally that the arrangement was a sale of water, not a service, and that the demand was also barred by limitation.

Whether the agreement to draw water from the barrage was a sale of water or an assignment of a right to use a natural resource taxable as a service

Whether the demand could be sustained in light of revenue neutrality and the limitation defence

Section 66D of the Finance Act, 1994 was invoked by the Department on the basis that the agreement assigned a right to use a natural resource.

The Tribunal applied its decision in Sasan Power Limited v. Commissioner, Central Excise & CGST, Jabalpur, 2024 (5) TMI 326 (CESTAT, New Delhi), which treated a comparable arrangement as a supply of water rather than an assignment of access to a water resource; it noted that this approach had also been followed in National Aluminium Company Limited v. Commissioner of GST, Excise & Customs, Bhubaneswar, Final Order No. 76921 of 2024.

The Tribunal further applied the revenue-neutrality principle: where reverse-charge tax would be available as CENVAT credit, the demand may not be sustained on limitation grounds; it also referred to Section 142 of the CGST Act, 2017 concerning the treatment of credit after the CENVAT Credit Rules ceased to apply.

The Tribunal found the agreement’s substance to be the supply of water, notwithstanding BALCO’s obligation to arrange for its conveyance and the minimum-charge condition.

Following Sasan Power and the subsequent NALCO order, it concluded that the arrangement was not an assignment of the right to use a natural resource.

It also reasoned that any service tax paid under reverse charge could have been taken as CENVAT credit and used against excise duty; in the circumstances, the demand was revenue-neutral, and the Tribunal held that it could not be sustained on limitation grounds.

It allowed the appeal on both merits and limitation, set aside the impugned order, and granted consequential relief.