GST on custom milling of paddy upheld as taxable job work, not an exempt cultivation-linked process.

Custom milling of paddy into rice was treated as taxable job work rather than an exempt Panchayat function. The AAR held that exemption under Article 243C and the circular on activities in relation to Panchayat functions did not apply because the milling was carried out for consideration in a commercial arrangement and was not shown to form part of a Panchayat function or the public distribution system. It further held that milling is not an intermediate production process in relation to cultivation, as it occurs after harvesting, is performed by rice millers rather than cultivators, and changes the essential character of paddy. The activity was therefore held liable to GST at 5% on the processing charges.

---

---

Issues: Whether the activity of custom milling of paddy into rice is exempt from GST as a function entrusted to a Panchayat, or is taxable as job work liable to GST at 5%.

Analysis: The application of exemption based on Article 243C and the circular on activities in relation to Panchayat functions was rejected because the milling activity was undertaken for consideration on behalf of the Government in a commercial arrangement and was not shown to be part of a Panchayat function or the public distribution system. Custom milling of paddy was also held not to be an intermediate production process in relation to cultivation of plants, because milling occurs after harvesting, is carried out by rice millers rather than cultivators, and alters the essential character of paddy. The clarificatory circular on custom milling of paddy was relied upon to support the view that such activity is not exempt under the relevant exemption notification and is instead taxable as job work on the processing charges.

Conclusion: The activity of custom milling of paddy is not exempt from GST and is liable to GST at 5%.

Ratio Decidendi: Milling of paddy into rice, when undertaken as a commercial job-work activity for consideration, is not an exempt intermediate production process related to cultivation and does not qualify for exemption merely because the end product is supplied to the Government.

---