The company had first approached the Uttar Pradesh Pollution Control Board (UPPCB) in 2012 to expand the plant by adding another line that can produce 600 PET bottles per minute at an investment of Rs 145 crore.
Incidentally, Varanasi is Prime Minister Narendra Modi's constituency.
As part of the conditional consent given by UPPCB for the project, the company was required to apply to the CWGA and obtain no objection certificate (NOC) for groundwater abstraction to meet its increased water requirements.
"However, due to inordinate delay in receiving of the aforesaid NOC, causing delay in expansion leading to financial losses, we have decided not to pursue the expansion at Varanasi plant," Coca Cola India said in a letter to Uttar Pradesh Chief Secretary.
The company will be exploring options to relocate the new line within the state of Uttar Pradesh after taking all regulatory approvals, it added.
"We will continue to operate our returnable glass bottle line at the plant as we have been doing for the past 15 years," the letter said.
In June, Varanasi plant was shut down temporarily after the UPPCB withdrew permission to operate over alleged violation of environmental norms.
The board had said the treatment system at the plant wasn't operated properly and that the company produced more than the permitted capacity by raising production to 36,000 cases a day from 20,000 cases a day.
It resumed operations following an order from the National Green Tribunal, which stayed UPPCB's directive to close the facility.
The order by the Tribunal, however, prevented the company from increasing its production from 600 bottles per minute till it gets a clearance from the CGWA.
Coca Cola India, in its letter, said it had submitted the application with CWGA for the first time in 2012.
As per the CWGA guidelines, the company was required to recharge 200 per cent of the water that was to be abstracted from the ground, the area being categorised as 'critical'.
The company said that in order to comply with the CGWA guidelines it identified community water bodies in addition to 38 rain harvesting projects were implemented to create the required 200 per cent ground water recharge.
The single-line plant at Mehandiganj, Varanasi produces soft drinks only in glass bottles and belongs to Hindustan Coca-Cola Beverages Pvt Ltd, the bottling operations unit of Coca-Cola.