Composite supply exemption for grain crushing applies when tied to Public Distribution System use and packing value stays within the limit.

A composite supply of crushing food grains for the State Government, with delivery of the crushed grains and ancillary packing materials, is treated as exempt under Sl. No. 3A of Notification No. 12/2017-Central Tax (Rate) where the activity is linked to distribution through the Public Distribution System and the agreement prevents diversion of the grains to any other use. The ruling treats crushing as the principal supply and packing as incidental, and the exemption remains available only if the composite-supply condition on the value of goods is satisfied, including that packing materials do not exceed 25% of the value of the supply.

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Issues: Whether the applicant's composite supply of crushing food grains belonging to the State Government and delivering the crushed grains is exempt under Sl. No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28/06/2017, where the supply is linked to distribution through the Public Distribution System and the value of packing materials does not exceed 25%.

Analysis: The supply was found to be a composite supply in which crushing of food grains is the principal supply and packing materials are ancillary. The recipient is the State Government. Exemption under Sl. No. 3A applies where the supply is in relation to a function entrusted to a Panchayat or Municipality, and the activity connected with distribution through the Public Distribution System was treated as falling within that framework when the agreement binds both parties so that the grains cannot be diverted to any other use. The exemption further depends on the supply remaining within the prescribed composite-supply condition regarding the value of goods.

Conclusion: The composite supply is exempt under Sl. No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28/06/2017 if the agreement restricts diversion of the food grains to uses other than Public Distribution System distribution and the value of packing materials does not exceed 25%.

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