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 principal service. The supply qualifies for GST exemption under Notification 12/2017-Central Tax entry 3A as it relates to Panchayat functions under Article 243G of Constitution. Value of goods component was 21.52% of total supply value, remaining below the 25% threshold required for exemption eligibility.

---

---

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 Exemption

Composite 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 Exempt

Since 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.

---