The Gujarat High Court has delivered an important ruling on GST exemption for environmental protection activities, holding that services undertaken by an eligible charitable entity for treatment and management of industrial effluent can qualify for a Nil GST rate where the activities fall within the scope of charitable activities relating to preservation of the environment.
The Court also held that the stringent provisions of Section 74 of the CGST Act cannot be invoked merely because GST was not paid or disclosed, unless the department establishes fraud, wilful misstatement, suppression of facts and an intention to evade tax.
A Division Bench comprising Justice A.S. Supehia and Justice Vaibhavi D. Nanavati allowed the petition filed by Naroda Enviro Projects Ltd. and another, and quashed the show-cause notice issued by the GST authorities.
Background of the GST Dispute
The dispute arose in relation to GST allegedly payable for the period from July 1, 2017 to May 12, 2022.
The petitioners were engaged in activities relating to pollution control and treatment of industrial waste and effluent. They claimed that their activities constituted charitable activities involving preservation of the environment and were therefore eligible for exemption under Notification No. 12/2017-Central Tax (Rate).
The petitioners had consequently not discharged GST on the relevant activities.
An earlier judgment concerning the petitioners’ activities had already held that their pollution-control and treatment activities constituted charitable activity connected with environmental preservation. Although the Revenue challenged that decision before the Supreme Court, the appeal was subsequently disposed of on January 30, 2025, on account of the low tax effect.
Following a search conducted by the GST authorities in November 2022, the department subsequently questioned the petitioners’ non-payment of GST for the earlier period.
A show-cause notice dated September 5, 2023 was therefore issued under Section 74 of the CGST Act, proposing recovery of GST.
Revenue’s Stand on GST Liability
The GST authorities contended that the earlier decision under the income-tax law could not automatically determine the question of GST exemption because the two statutes operate in different fields.
The Revenue relied upon Notification No. 11/2017-Central Tax (Rate) and Heading 9994, covering services relating to sewage and waste collection, treatment and disposal and other environmental protection services.
According to the department, such services attracted GST at the applicable rate of 9%.
The authorities further alleged that the petitioners had supplied services valued at approximately ₹79.53 crore without payment of GST.
On this basis, the department sought to impose GST liability and proceeded under the extended provisions of Section 74.
High Court Examines the GST Exemption Notification
The Gujarat High Court examined the competing provisions of the GST rate notifications and the nature of the petitioners’ activities.
The Court placed particular emphasis on Notification No. 12/2017-Central Tax (Rate), which provides a Nil rate of GST for specified services supplied by an eligible charitable entity.
Importantly, the notification’s definition of charitable activities includes activities relating to the preservation of the environment, including preservation of watersheds, forests and wildlife.
The Court considered the nature of the services provided by the petitioners and the earlier judicial determination concerning their environmental activities.
It concluded that the petitioners’ activities were covered by the charitable-activity exemption contemplated under the notification.
9% GST Rate Not Applicable
The Court rejected the Revenue’s contention that the general environmental protection service classification carrying a 9% GST rate should be applied to the petitioners.
According to the Court, the relevant provisions had to be read in the context of the status of the service provider and the specific exemption available to an eligible charitable entity.
The Court observed that the 9% rate relied upon by the department could apply to entities providing the specified environmental services in circumstances not covered by the specific charitable exemption.
Where an entity registered under the relevant provisions of the Income-tax Act undertakes activities falling within the notified category of charitable activities relating to preservation of the environment, the specific Nil-rated treatment under Notification No. 12/2017 would apply.
The Court therefore concluded that GST could not be demanded from the petitioners on the disputed activities.
Section 74 Requires Proof of Intent to Evade Tax
The Court also examined the validity of invoking Section 74 of the CGST Act.
Section 74 is applicable where tax has not been paid, or has been short-paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised, due to fraud, wilful misstatement or suppression of facts with an intention to evade tax.
The Court stressed that these ingredients cannot be presumed merely because tax was not paid.
Relying upon principles laid down by the Supreme Court, the Court noted that mere non-disclosure or failure to make a declaration does not automatically constitute wilful suppression. There must be a positive element of deliberate conduct aimed at evading tax.
After examining the facts, the Court found no material establishing fraud, wilful misstatement, suppression of facts or deliberate intention on the part of the petitioners to evade GST.
Consequently, the invocation of Section 74 was also found unsustainable.
Show-Cause Notice Quashed
The Gujarat High Court ultimately held that the GST authorities could not disregard the earlier judicial determination regarding the nature of the petitioners’ environmental activities.
Since the activities were covered by the charitable exemption under Notification No. 12/2017 and the ingredients necessary for invoking Section 74 were absent, the Court quashed the show-cause notice dated September 5, 2023.
The Rule was accordingly made absolute.
Key Takeaways for Charitable and Environmental Organisations
The judgment provides several important takeaways for entities engaged in environmental protection and waste-treatment activities:
- Environmental preservation can qualify as a charitable activity when the conditions prescribed under the GST exemption notification are satisfied.
- An eligible charitable entity may obtain Nil GST treatment for services specifically covered by Notification No. 12/2017.
- A general GST rate applicable to environmental services cannot necessarily override a specific exemption available to an eligible charitable organisation.
- Section 74 cannot be invoked mechanically merely because GST was not paid.
- Fraud, wilful misstatement, suppression of facts and intent to evade tax must be established before invoking the penal consequences of Section 74.
- Earlier judicial findings concerning the nature of an assessee’s activities can be highly relevant while determining the availability of GST exemption.
Conclusion
The Gujarat High Court’s decision is significant for GST exemption on environmental services, particularly for charitable and not-for-profit entities involved in pollution control, effluent treatment and environmental preservation.
The ruling reinforces the principle that GST exemptions must be examined by considering the specific nature of the service, the status of the service provider and the precise language of the applicable notification. It also reiterates that the serious consequences associated with Section 74 require more than a simple allegation of non-payment or non-disclosure.
For charitable organisations engaged in environmental protection, the judgment provides useful guidance on claiming GST exemption and defending demands raised by tax authorities under Section 74.
Case Details
Case Title: Naroda Enviro Projects Ltd. & Anr. v. Union of India & Ors.
Case Number: R/Special Civil Application No. 17756 of 2023
Court: Gujarat High Court
Bench: Justice A.S. Supehia and Justice Vaibhavi D. Nanavati
Petitioners’ Counsel: Uchit N. Sheth
Respondents’ Counsel: Ms. Hetvi H. Sancheti
Key Provisions: Section 74 of the CGST Act; Notification No. 12/2017-Central Tax (Rate); Notification No. 11/2017-Central Tax (Rate); Heading 9994
Key Issue: Whether environmental and effluent-treatment activities undertaken by an eligible charitable entity qualify for Nil GST under the exemption notification.