Milling food grains into flour for PDS qualifies for GST exemption under Notification 12/2017 entry 3A

The AAAR, West Bengal ruled that milling of food grains into flour for the Food Supplies Department under PDS qualifies for GST exemption under entry 3A of Notification No. 12/2017-Central Tax (Rate). The Authority corrected the lower tribunal's valuation error, holding that composite supply value includes the agreed price of Rs.124/- per 100 kg for gunny bags and by-products retained by millers, not their actual market disposal value. Since goods constitute less than 25% of total supply value (Rs.60/- for fortification and packing materials), the supply is exempt from GST taxation.

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Issues Involved:
1. Eligibility for tax exemption under entry no. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
2. Valuation of composite supply, including cash and non-cash considerations.

Issue-wise Detailed Analysis:

1. Eligibility for Tax Exemption:
The primary issue was whether the composite supply of services by milling food grains into flour for the Food & Supplies Department, Government of West Bengal, is eligible for exemption under entry no. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. According to the West Bengal Authority for Advance Ruling (WBAAR), for a supply to qualify for exemption, it must:
- Be provided to a Government/Local Authority/Governmental Authority/Government Entity.
- Relate to any function entrusted to a Panchayat under article 243G or a Municipality under article 243W of the Constitution.
- Ensure the value of goods in the composite supply does not exceed 25% of the total supply value.

The WBAAR acknowledged that the first two criteria were met. However, the critical question was whether the value of goods supplied (micronutrients and packing materials) exceeded 25% of the total value of the composite supply. The WBAAR initially ruled that the valuation of non-cash considerations (gunny bags, bran, and refractor) was inconclusive due to a lack of documentary evidence.

2. Valuation of Composite Supply:
The appellant argued that the valuation should be based on the agreed price between the appellant and the Food & Supplies Department, which includes both cash and non-cash considerations. The total consideration for milling 100 kg of wheat was Rs. 260.48, comprising:
- Cash consideration: Rs. 136.48
- Non-cash consideration: Rs. 124.00 (including the value of gunny bags, bran, and refractor)

The appellant contended that the WBAAR erred by considering the actual market value of non-cash considerations rather than the agreed notional value. The appellant provided documentary evidence, including invoices and memos from the Food & Supplies Department, supporting the agreed valuation.

Judgment:
The appellate authority examined the submissions and concluded that the valuation of the composite supply should be based on the agreed price of Rs. 260.48, which includes the notional value of non-cash considerations. They determined that the value of goods (Rs. 60 for micronutrients and packing materials) in the composite supply was less than 25% of the total supply value, thus fulfilling the exemption criteria under entry no. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

Conclusion:
The appellate authority ruled that the supply of fortified wholemeal flour to the Food & Supplies Department qualifies for tax exemption under the specified notification. The Advance Ruling No. 16/WBAAR/2021-22 dated 31.12.2021 was modified accordingly, and the appeal was disposed of. Copies of the order were sent to both the appellant and the respondent for their information.

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