Supplies for dairy plant not eligible for lower GST rate

The authority ruled that the supplies made or to be made by the applicant do not qualify for the lower GST rate of 12% under the specified notification. The contract for setting up a dairy plant was not considered a composite supply of works contract eligible for the lower rate, as certain components did not meet the criteria outlined in the notification. Additionally, the processing of milk into various products did not align with the definition of "agricultural produce" under the relevant regulations.

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Issues Involved:
1. Applicability of Notification No. 20/2017-Central Tax (Rate) dated 22nd August 2017.
2. Definition and scope of "agricultural produce" under the CGST Act, 2017.
3. Classification of the contract as a "composite supply of works contract."
4. Eligibility of the dairy plant setup under the specified notification.

Issue-wise Detailed Analysis:

1. Applicability of Notification No. 20/2017-Central Tax (Rate):

The applicant sought clarification on whether the composite supply of works contract for setting up a dairy plant falls under the purview of Notification No. 20/2017-Central Tax (Rate), which amends Notification No. 11/2017-Central Tax (Rate). This notification pertains to the construction, erection, commissioning, or installation of original works related to mechanized food grains handling systems, machinery, or equipment for units processing agricultural produce as foodstuff, excluding alcoholic beverages.

2. Definition and Scope of "Agricultural Produce":

The applicant argued that "agricultural produce" includes milk, as it is a product of rearing animals for food. The definition under Notification No. 12/2017-Central Tax (Rate) was cited, which includes produce from the rearing of animals for food, provided no further processing is done that alters its essential characteristics. The applicant contended that since raw milk is obtained from farmers and processed into pasteurized milk and milk products, it should be considered agricultural produce.

3. Classification of the Contract as a "Composite Supply of Works Contract":

The applicant claimed that the contract is a composite supply of works contract, encompassing both civil and electro-mechanical works. The civil work involves constructing the dairy plant building and related structures, while the electro-mechanical work includes designing, supplying, installing, and commissioning dairy equipment. The applicant argued that both parts of the contract meet the definition of "works contract" under Section 2(119) of the CGST Act, 2017, as they involve constructing immovable property and transferring property in goods.

4. Eligibility of the Dairy Plant Setup under the Specified Notification:

The applicant contended that the dairy plant setup meets the conditions specified in Entry No. 3(v)(f) of Notification No. 11/2017-Central Tax (Rate), as amended by Notification No. 20/2017-Central Tax (Rate). They argued that:
- The contract is a composite supply of works contract.
- The supply involves constructing, erecting, commissioning, or installing original works.
- The dairy plant processes agricultural produce (milk) into foodstuff.

Discussion and Findings:

The authority examined the submissions and found that the civil work component does not involve supplying machinery or equipment, thus not falling under Entry No. 3(v)(f) of Notification No. 11/2017-Central Tax (Rate). The electro-mechanical work includes the supply and installation of various dairy equipment, with the primary product being pouch milk. However, the authority noted that the supply of the Pouch Filling Machine with online pouch coding machine does not constitute a composite supply of works contract, as it is a movable item and not an immovable property.

The authority also observed that the definition of "agricultural produce" excludes further processed products unless the processing is done by a cultivator or producer without altering the essential characteristics. Since the milk undergoes various processes before being packed, it does not qualify as agricultural produce under the specified notification.

Conclusion:

The authority ruled that the supplies made or to be made by the applicant under the work order issued by the Bihar State Milk Cooperative Federation Ltd. do not fall under Entry No. 3(v)(f) of Notification No. 11/2017-Central Tax (Rate), as amended by Notification No. 20/2017-Central Tax (Rate). Therefore, the lower GST rate of 12% is not applicable to the works contracts pertaining to the dairy industry in this case.

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