2022 (9) TMI 367 - AAR - GST

Flour miller's fortified atta supply for Public Distribution System qualifies for GST exemption under Notification 12/2017

The AAR, West Bengal ruled that a flour miller's composite supply of crushing wheat into fortified atta for the State Government's Public Distribution ... Composite supply - value of supply including non-monetary consideration - application of Rule 27(b) for consideration not wholly in money - exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate) for composite supply to Government where value of goods does not exceed 25% - public distribution as activity entrusted under the 11th Schedule (Article 243G/243W) - 5% GST as job-work rate if exemption under Entry 3A does not applyComposite supply - public distribution as activity entrusted under the 11th Schedule (Article 243G/243W) - value of supply including non-monetary consideration - application of Rule 27(b) for consideration not wholly in money - exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate) for composite supply to Government where value of goods does not exceed 25% - Whether the supply by the applicant (milling, fortification and packing of wheat into atta for distribution under PDS) is an exempt composite supply under Entry 3A of Notification No.12/2017-CT(Rate), having regard to the nature of the supply and the value of goods component. - HELD THAT: - The activities undertaken-milling of wheat into atta, fortification by premixing micronutrients and packing into labelled poly-pouches-constitute a composite supply with milling (service) as the principal supply. The supply is made to the Food & Supplies Department for distribution under the Public Distribution System; public distribution figures in the 11th Schedule and therefore the supply is in relation to a function that may be entrusted under Article 243G/243W. Where consideration is not wholly in money, Rule 27 applies; clause (b) of Rule 27 permits valuation as the sum of the monetary consideration and an amount equivalent to known non-monetary consideration at the time of supply. The Department's memo (reproduced in the record) fixes the non-cash consideration-proceeds from retained by-products (bran and refraction) and retention of gunny bags-at Rs.124 per 100 kg. The applicant accepted the total value of supply of Rs.260.48 (cash plus the non-cash consideration) and the goods component (packing and, if treated as goods, fortification consumables) is Rs.60. On that basis the goods component amounts to 23.03% of the total value, which does not exceed 25%. In absence of cogent documentary evidence to the contrary, the Authority accepts the Rule 27(b) valuation approach and the Department's valuation of non-monetary consideration, and concludes that the goods component is under 25%, bringing the composite supply within Entry 3A and thus exempt from GST. The Authority rejected the revenue's contention that the parties should be treated as related persons so as to invoke a different valuation provision, observing that mere contractual conditions do not automatically render the parties related for subsection (1) valuation purposes.The composite supply (milling, fortification and packing) to the State Government is eligible for exemption under Entry 3A of Notification No.12/2017-CT(Rate) because, applying Rule 27(b), the value of goods in the composite supply (23.03%) does not exceed 25% of the total value.Final Conclusion: Value of supply includes both monetary consideration and known non-monetary consideration under Rule 27(b); on the facts and valuations on record the goods component is 23.03% of the composite supply value and the supply is therefore exempt under Entry 3A of Notification No.12/2017-CT(Rate). Issues Involved:1. Determination of the value of supply of services provided by the applicant to the State Government.2. Identification of the applicable tax rate on the value of supply.3. Calculation of the percentage of the value of goods in the total value of composite supply for the purpose of Notification No. 2/2018-Central Tax (Rate).Issue-wise Detailed Analysis:1. Determination of the Value of Supply:The applicant, a flour miller, converts wheat provided by the State Government into fortified atta. The ownership of the wheat and atta remains with the State Government. The applicant charges Rs. 179.48 per quintal for crushing services, which includes Rs. 50 for packing charges and Rs. 10 for fortification charges. Additionally, the applicant retains gunny bags valued at Rs. 43 as non-monetary consideration and sells by-products (bran and refraction) valued at Rs. 81 in the open market.The value of supply is determined under Section 15 of the GST Act, which includes both monetary and non-monetary considerations. Rule 27(b) of the GST Rules applies since the consideration is not wholly in money. The total value of supply is Rs. 260.48, comprising Rs. 136.48 in cash and Rs. 124 in non-cash consideration.2. Identification of the Applicable Tax Rate:The applicant contends that the supply qualifies for exemption under Notification No. 2/2018-Central Tax (Rate) if the value of goods in the composite supply does not exceed 25%. If the exemption does not apply, the applicable GST rate would be 5% as per Circular No. 153/09/2021-GST.The supply involves milling of wheat into fortified atta, which is a composite supply of goods and services. The principal supply is the service of milling. The contract is executed under the West Bengal Public Distribution System, which is a function entrusted to a Panchayat under Article 243G of the Constitution.3. Calculation of the Percentage of the Value of Goods:The value of goods in the composite supply includes packing charges (Rs. 50) and fortification charges (Rs. 10), totaling Rs. 60. The total value of supply is Rs. 260.48. The percentage of the value of goods is calculated as follows:\[ \frac{60}{260.48} \times 100 = 23.03\% \]Since the value of goods does not exceed 25% of the total value of the composite supply, the supply qualifies for exemption under Notification No. 12/2017-Central Tax (Rate), as amended.Observations and Findings:The supply of services by way of milling of food grains into flour for the State Government qualifies as a composite supply. The supply is in relation to a function entrusted to a Panchayat under Article 243G of the Constitution. The value of goods involved in the composite supply does not exceed 25% of the total value of supply, making it eligible for exemption from GST.Ruling:The composite supply of services by way of milling food grains into flour (atta) to the Food & Supplies Department, Government of West Bengal, for distribution under the Public Distribution System is exempt from GST under entry serial no. 3A of Notification No. 12/2017-Central Tax (Rate), as amended, since the value of goods involved does not exceed 25% of the total value of supply.