2023 (2) TMI 874 - AAR - GST

Milling services for fortified atta under PDS exempt from GST as composite supply under Notification 12/2017 entry 3A

The AAR-West Bengal ruled that milling services provided to the State Government for converting wheat into fortified atta for Public Distribution System ... Valuation of supply of services provided by the applicant Company to the State Government - composite supply/principal supply - rate of tax - conversion of wheat provided by the State Government and owned by the State Government, at all times, into atta/ fortified atta, for distribution by the State Government through Public Distribution System - exempt supply or not - What components are to be included in calculation of the % of value of goods in the total value of composite supply for the purpose of Notification No. 2/2018- Central Tax (Rate)? HELD THAT:- The applicant has been selected for empanelment for crushing of wheat into wholemeal atta and fortify it by premixing of micro-nutrients containing Iron, Folic acid, Citrate, EDTA and Vitamins to a specific percentage. The agreement further requires the applicant to pack the crushed stock of wholemeal atta after fortification into properly labelled poly-packs having thickness of 50 microns or above. It, therefore, appears that the activities undertaken by them for milling of wheat into wheat flour, along with fortification and supplied upon packing of the same qualify the definition of ‘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. Whether this composite supply is made in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution? - HELD THAT:- The agreement between the applicant and the State Government for supply of fortified Wholemeal Atta/Atta is found to be executed in terms of G.O. No. 2834-F.S. dated 6th September, 2017. The said Notification provides guidelines for the procedure of empanelment of flour mills/ attachakki to convert wheat into fortified atta/wholemeal atta in pursuance of clauses 36 and 37 of the West Bengal Public Distribution System (Maintenance & Control) Order, 2013 and clauses 33 and 34 of the West Bengal Urban Public Distribution System (Maintenance & Control) Order, 2013 - reference made to Para 3.1 of the Circular No. 153/09/2021-GST dated 17.06.2021 where it is stated that ‘Public Distribution specifically figures at entry 28 of the 11th Schedule to the constitution, which lists the activities that may be entrusted to a Panchayat under Article 243G of the Constitution.’ Hence, the instant composite supply made by the applicant is found to be in relation to any function entrusted to a Panchayat under article 243G of the Constitution. Whether the value of supply of goods in this case exceeds 25 percent of the total value of the supply or not? - HELD THAT:- Such activities undertaken by the applicant for milling of wheat into wheat flour, along with fortification and supplied upon packing of the same qualify the definition of ‘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. The State Government agrees to pay the applicant a total amount of Rs.179.48 for crushing of 100 kgs of wheat which includes fortification cost of Rs.10/- and packing charges of Rs.50/-. In para 3.1 of Circular No. 153/09/2021-GST dated 17.06.2021, it has been clarified that ‘…entry No. 3A would apply to composite supply of milling of wheat and fortification thereof by miller, or of paddy into rice, provided that value of goods supplied in such composite supply (goods used for fortification, packing material etc) does not exceed 25% of the value of composite supply.’ The total non-cash consideration for bi-products and gunny bags allowed to flower millers is Rs.124 only for each 100 kg wheat’. So, in the instant case, the amount of Rs.124 may be considered as equivalent to the consideration not in money for the purpose of determination of value of supply under clause (b) of rule 27 of the GST Rules and such amount is admittedly known to the applicant at the time of supply - the value of goods involved in the instant supply stands at Rs.60/- against total value of supply of Rs. 260.48, thereby the value of goods involved in the instant composite supply stands at 23.03% of the total value of supply i.e., it does not exceed 25% of the value of the composite supply. Thus, the instant supply of services by way of milling of food grains into flour (atta) to Food & Supplies Department, Govt. of West Bengal for distribution of such flour under Public Distribution System is eligible for exemption under serial no. 3A of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended, since the supply satisfies all the conditions specified in the said entry. Issues Involved:1. Determination of the value of supply of services provided by the applicant to the State Government.2. Determination of the applicable tax rate on the value of supply and the components to be included in the 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).Detailed Analysis:1. Determination of the Value of Supply:The applicant is a flour miller who converts wheat provided by the State Government into atta/fortified atta. The ownership of the wheat remains with the State Government throughout the process. The applicant charges Rs 179.48 per quintal for crushing wheat, which includes crushing charges, fortification charges, packing charges, and transportation & handling charges. The applicant retains 1 kg of refraction and 4 kg of bran per 100 kg of wheat, which are sold in the open market. The value of these by-products and gunny bags retained by the applicant is Rs 124 per 100 kg of wheat.The value of supply includes both monetary and non-monetary considerations. The monetary consideration is Rs 136.48 per quintal (after deducting Rs 43 for gunny bags from Rs 179.48). The non-monetary consideration includes the value of bran, refraction, and gunny bags, totaling Rs 124. The total value of supply is therefore Rs 260.48 per quintal.2. Determination of Applicable Tax Rate and Components for Calculation:The supply in question is a composite supply of goods and services, where the principal supply is the service of milling wheat into fortified atta. The supply is made in relation to a function entrusted to a Panchayat under Article 243G of the Constitution, specifically public distribution, which is listed in the Eleventh Schedule.To determine if the supply qualifies for exemption under Notification No. 2/2018-Central Tax (Rate), the value of goods in the composite supply must not exceed 25% of the total value of the supply. The value of goods includes packing material and fortification charges, amounting to Rs 60 per quintal. The ratio of the value of goods to the total value of supply is 23.03% (60/260.48 x 100), which is less than 25%.Therefore, the supply qualifies for exemption under Notification No. 12/2017-Central Tax (Rate), as amended by Notification No. 2/2018-Central Tax (Rate).Observations and Findings:The Authority for Advance Ruling determined that the supply of services by the applicant qualifies as a composite supply where the principal supply is the service of milling wheat into fortified atta. This composite supply is made in relation to a function entrusted to a Panchayat under Article 243G of the Constitution.The total value of supply is Rs 260.48 per quintal, which includes both cash consideration (Rs 136.48) and non-cash consideration (Rs 124). The value of goods involved in the composite supply is Rs 60, which is 23.03% of the total value of supply, thereby not exceeding the 25% threshold.Ruling:The composite supply of services by way of milling wheat into flour (atta) to the Food & Supplies Department, Government of West Bengal, for distribution under the Public Distribution System is eligible for exemption under 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 value of the composite supply.