2022 (9) TMI 368 - AAR - GST

Miller's fortified flour supply to government distribution system gets GST exemption under Section 12/2017 entry 3A

AAR West Bengal ruled that milling wheat into fortified flour for government's Public Distribution System constitutes a composite supply with milling as ... Composite supply - exemption under entry 3A of Notification No. 12/2017-Central Tax (Rate) - value of supply including non-cash consideration - function entrusted under Article 243G/243W of the Constitution - job work rate of 5% under entry 26 of Notification No. 11/2017-Central Tax (Rate)Composite supply - Whether the supply of milling, fortification and packing of wheat into atta by the applicant constitutes a composite supply with milling as the principal supply. - HELD THAT: - The Authority found on the facts of the empanelment agreement that the activities of crushing wheat, fortification and packing are interconnected and the supply of services by way of milling is the principal supply, thus bringing the transaction within the definition of composite supply under clause (30) of section 2 of the GST Act. The Authority relied on the terms of the agreement requiring milling, fortification and specified packing to conclude that the composite supply character is established. [Paras 4]The supply qualifies as a composite supply with milling as the principal supply.Function entrusted under Article 243G/243W of the Constitution - Whether the composite supply is provided to the State Government in relation to a function entrusted to a Panchayat or Municipality under Article 243G/243W. - HELD THAT: - The Authority noted that the contract and empanelment arise under governmental orders and guidelines for the Public Distribution System (PDS) and referred to para 3.1 of Circular No. 153/09/2021-GST which recognises Public Distribution as an activity listed in the 11th Schedule (entry 28) that may be entrusted to Panchayats. On that basis, the Authority concluded that the composite supply to the State Government is in relation to a function entrusted under Article 243G of the Constitution. [Paras 4]The composite supply is in relation to a function entrusted to a Panchayat under Article 243G.Value of supply including non-cash consideration - exemption under entry 3A of Notification No. 12/2017-Central Tax (Rate) - Whether the value of supply of goods in the composite supply exceeds 25% of the total value when both cash and non-cash consideration are included, so as to determine eligibility for exemption under entry 3A. - HELD THAT: - The Authority applied Rule 27(b) for supplies where consideration is not wholly in money and held that non-cash elements (by products and retained gunny bags) must be included at their known monetary equivalents. It accepted the applicant's documents and the Department memo as establishing the market values of by products and bags known at the time of supply. Having aggregated cash and non cash consideration, the Authority computed the value of goods (fortification and packing) as Rs.60 against a total composite value of Rs.278.72, i.e. approximately 21.52%, which is not more than 25%. On this basis the Authority held that the supply satisfies the conditions of entry 3A and is therefore exempt. [Paras 4]The value of goods does not exceed 25% of the composite supply when non-cash consideration is included; the composite supply is eligible for exemption under serial 3A.Final Conclusion: The Authority ruled that the applicant's composite supply of milling, fortification and packing of wheat supplied to the State Government for distribution under the Public Distribution System qualifies as a composite supply related to a function entrusted under Article 243G and, after including known non cash consideration, the value of goods is not more than 25% of the composite value; accordingly the supply is exempt under serial 3A of Notification No. 12/2017-Central Tax (Rate). No separate rate determination was required. Issues Involved:1. Eligibility for GST exemption under entry No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.2. Rate of GST if the supply does not fall under entry No. 3A.Detailed Analysis:Issue 1: Eligibility for GST ExemptionComposite Supply Determination:The applicant entered into an agreement with the District Controller of Food and Supplies, Government of West Bengal, for the supply of fortified wholemeal atta. The process involves receiving whole, unpolished food grains from the government, crushing and processing them into flour, fortifying the flour with vitamins, and then packing it as required by the government. This activity qualifies as a 'composite supply' under clause (30) of section 2 of the GST Act, where the supply of services by way of milling is the principal supply.Function Entrusted to Panchayat or Municipality:The supply is made to the State Government and is related to the Public Distribution System (PDS), which is a function entrusted to a Panchayat under Article 243G of the Constitution. The Public Distribution System specifically figures at entry 28 of the 11th Schedule to the Constitution, thus fulfilling the requirement of being a function entrusted to a Panchayat.Value of Supply of Goods:The value of supply of goods must not exceed 25% of the total value of the composite supply. The applicant provided detailed calculations showing that the value of goods (fortification and packing charges) is Rs. 60 out of a total value of Rs. 278.72, which is 21.52% of the total value. This is below the 25% threshold.Conclusion:The Authority concluded that the supply of milling services to convert wheat into fortified atta for the Food & Supplies Department, Government of West Bengal, qualifies for exemption under entry No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. This is because the supply meets all the necessary conditions: it is a composite supply, it relates to a function entrusted to a Panchayat, and the value of goods does not exceed 25% of the total value of the supply.Issue 2: Rate of GST if Not ExemptSince the supply qualifies for exemption under entry No. 3A, the question regarding the applicable GST rate if the supply does not fall under entry No. 3A is rendered moot and does not require an answer.Ruling:1. The composite supply of service by way of milling of food grains into flour to the Food & Supplies Department, Government of West Bengal, for distribution under the Public Distribution System is eligible for exemption under entry No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.2. No answer is required regarding the rate of GST since the supply falls under entry No. 3A.Observations:The Authority thoroughly examined the submissions and evidence provided by the applicant, including the agreement details, cash and non-cash considerations, and relevant notifications and circulars. The decision was supported by similar rulings from other jurisdictions and detailed analysis of the value of supply components.