AAR refuses advance ruling on GST valuation for wheat conversion services due to pending proceedings under GST Act

AAR declined to provide advance ruling on GST valuation for wheat conversion services supplied to State Government for Public Distribution System. The applicant sought clarification on service value calculation and components for determining goods value in composite supply under Notification No. 2/2018. Despite CBIC Circular No. 153/09/2021 providing rate clarification, AAR found the questions were subject matter of pending proceedings under GST Act involving the same applicant, preventing issuance of advance ruling.

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Issues Involved:
1. Value of supply of services provided by the applicant to the State Government.
2. Rate of tax applicable on the value of supply and the components to be included in the calculation of the percentage of value of goods in the total value of composite supply for the purpose of Notification No. 2/2018 – Central Tax (Rate).

Detailed Analysis:

Issue 1: Value of Supply of Services
- The applicant, a flour miller, converts wheat provided by the State Government into fortified atta. The ownership of wheat or atta is never transferred to the applicant.
- The applicant receives Rs. 179.48 per quintal for the conversion, which includes crushing, fortification, packing, and transportation charges.
- The applicant retains the bran and refraction generated during the process, which are sold in the open market.
- The State Government considers the retention of gunny bags as a non-monetary consideration, reducing the cash consideration to Rs. 136.48 per quintal.
- The applicant argues that the value of supply should be Rs. 179.48 per quintal as per Section 15 of the GST Act read with Rule 27 of the Rules, which includes both monetary and non-monetary considerations.

Issue 2: Rate of Tax Applicable
- The applicant contends that their services fall under an activity related to a function entrusted to a Panchayat under Article 243G or a Municipality under Article 243W of the Constitution.
- Notification No. 2/2018- Central Tax (Rate) exempts composite supply of goods and services where the value of goods does not exceed 25% of the total value.
- Circular No. 153/09/2021-GST clarifies that if the value of goods exceeds 25%, the applicable GST rate is 5% for job work services provided to a registered person.
- The applicant calculates that the value of goods (packing charges) is Rs. 50 out of Rs. 179.48, which is 27.86%, thus exceeding the 25% threshold, making the applicable GST rate 5%.

Observations & Findings:
- The Authority observed that the core issue is whether the supply qualifies as an exempt supply under entry serial no. 3A of Notification No. 12/2017 or is taxable at 5% as per Circular No. 153/09/2021-GST.
- During the hearing, it was revealed that a proceeding by the Directorate General of GST Intelligence (DGGI) is pending against the applicant, and a writ petition has been filed before the High Court.
- The applicant argued that no specific matter is pending or decided by the DGGI as no show cause notice or demand order was issued.
- The High Court noted a dispute regarding the classification of the entry under which the transaction falls, with differing opinions between State and Central GST authorities.
- The Authority concluded that the question raised is pending in proceedings under the GST Act, thus disqualifying the application under the first proviso of section 98(2) of the GST Act.

Conclusion:
No ruling is given since the questions raised in the application are pending in proceedings under the provisions of the GST Act.

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