Miller's food grain processing for PDS qualifies as exempt composite supply under GST Notification 12/2017 entry 3A

The AAAR West Bengal ruled that milling of food grains into flour for the Food Supplies Department under PDS constitutes an exempt composite supply under entry 3A of Notification No. 12/2017-Central Tax (Rate). The authority determined that the total supply value includes both cash and non-cash considerations, including the notional value of retained gunny bags and by-products. Since goods constitute less than 25% of the total supply value (only fortification and packing materials worth Rs.60/-), the supply qualifies for GST exemption. The AAAR corrected the lower authority's valuation methodology regarding composite supply consideration.

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Issues Involved:
1. Eligibility for exemption under entry no. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
2. Valuation of composite supply for tax purposes.
3. Inclusion of non-cash consideration in the valuation of composite supply.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption:
The appellant, a flour miller, sought an advance ruling to determine whether their composite supply of services by milling food grains into flour for the Food & Supplies Department, Government of West Bengal, for distribution under the Public Distribution Scheme (PDS) qualifies for exemption under entry no. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The West Bengal Authority for Advance Ruling (WBAAR) observed that the supply meets two criteria: it is provided to a government entity, and it relates to a function entrusted to a Panchayat under Article 243G of the Constitution. The moot question was whether the value of goods supplied in the composite supply exceeds 25% of the total supply value.

2. Valuation of Composite Supply:
The WBAAR initially ruled that the valuation of the composite supply, which includes both cash and non-cash considerations, was inconclusive due to the appellant's failure to produce documents substantiating the sale proceeds from gunny bags, bran, and refractor. The appellant contended that the valuation of non-cash consideration is not dependent on actual sale proceeds but should be based on the notional values fixed by the Food & Supplies Department. The WBAAR's failure to consider the agreed-upon price between the flour millers and the Food & Supplies Department, which includes the notional value of non-cash considerations, was a point of contention.

3. Inclusion of Non-Cash Consideration:
The appellant argued that the total consideration for crushing 100 kg of wheat, including both cash and non-cash components, was Rs. 260.48 as agreed upon with the Food & Supplies Department. The non-cash consideration, comprising gunny bags, bran, and refractor, was fixed at Rs. 124/-. The appellant submitted that the WBAAR erred in considering the actual market value of these items instead of the notional value agreed upon. The appellate authority examined the submissions and concluded that the agreed-upon price, including the notional value of non-cash considerations, should be used for valuation.

Conclusion:
The appellate authority ruled that the supply of fortified wholemeal flour to the Food & Supplies Department qualifies for exemption under entry no. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The authority observed that the value of goods in the composite supply is less than 25% of the total supply value, fulfilling all criteria for exemption. The Advance Ruling No. 18/WBAAR/2021-22 dated 31.12.2021 was modified to reflect this decision, and the appeal was disposed of accordingly. Copies of the order were directed to be sent to both the appellant and the respondent for information.

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