Composite supply principle applied to paddy milling contract, with GST determined by custom milling as the principal supply.

AAR held that a single contract covering custom milling of paddy, transportation, gunny bags and incentive-linked payments amounted to a composite supply because the elements were naturally bundled and supplied together in the ordinary course of business. Custom milling was the principal supply, so GST on the entire arrangement followed the tax treatment applicable to that principal supply. The claim for separate exemption of transportation was rejected because it formed part of the composite arrangement rather than an independent exempt supply. The incentive payment was also not treated as a subsidy, as the contract described it as an incentive and not a public welfare subsidy.

---

---

Issues: Whether the contract for custom milling of paddy, transportation of paddy and rice, supply of gunny bags, and receipt of incentive amounts constituted a composite supply with custom milling as the principal supply, and whether the transportation charges and incentive amounts were separately exempt or taxable.

Analysis: The contract covered several supplies under a single arrangement, namely custom milling, transportation, packing material, and incentive-linked payments. The supplies were held to be naturally bundled and supplied in conjunction with one another in the ordinary course of business. The custom milling activity was identified as the predominant element and therefore the principal supply. Once the arrangement was treated as a composite supply, the tax liability had to follow the principal supply. The claimed separate exemption for transportation was not accepted because the transportation formed part of the composite arrangement and was not shown to be an independent, unconditional exempt supply. The incentive amount was also not treated as subsidy, since the contract described it as incentive and not as a public welfare subsidy.

Conclusion: The entire contract was held to be a composite supply with custom milling of paddy as the principal supply, and the composite supply was taxable at the rate applicable to that principal supply.

Final Conclusion: Separate treatment of transportation, packing material, and incentive payments was disallowed, and the ruling fixed GST on the composite arrangement at 5% in accordance with the principal supply.

Ratio Decidendi: Where multiple supplies are naturally bundled under a single contract and one supply is the principal supply, the tax liability of the entire arrangement is determined by that principal supply.

---