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 constitutes a composite supply with milling as the principal supply. The supply qualifies for exemption under Notification No. 12/2017-Central Tax (Rate) entry 3A since it relates to functions entrusted to Panchayats under Article 243G of the Constitution and the value of goods (fortification materials, packing) at 23.03% does not exceed the 25% threshold of total supply value. The applicant's services are therefore exempt from GST.

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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.

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