2023 (7) TMI 184 - AAR - GST

Milling wheat into fortified flour for Public Distribution System qualifies as composite supply eligible for GST exemption under Notification 12/2017

AAR West Bengal ruled that milling services for converting wheat into fortified flour for Public Distribution System qualify as composite supply with ... Exemption from GST - composite supply of service by way of milling of food grains into flour to Food & Supplies Department, Govt. of West Bengal for distribution of such flour under Public Distribution System - entry No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 - Valuation - inclusion of non-cash consideration - HELD THAT:- It appears that the 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. 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 - Para 3.1 of the Circular No. 153/09/2021-GST dated 17.06.2021 states 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:- The value of supply for providing milling services to convert 100 kgs of wheat supplied by the State Government into 95 kg of fortified atta, according to the applicant, comes at Rs. 136.48 + Rs. 124.00 [Cost of 02 gunny bags : Rs. 43/- + Receipt from sale of bran and refractors : Rs. 81/-] = Rs. 260.48 - 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. 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. Eligibility for exemption under entry No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.2. Applicable rate of GST if the supply does not fall under entry No. 3A.Summary:Issue 1: Eligibility for Exemption under Entry No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017The applicant, engaged in milling food grains into flour for the Food & Supplies Department, Government of West Bengal, sought a ruling on whether this supply qualifies for exemption under entry No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The key criteria for this exemption include:1. Composite Supply: The supply must be a composite supply of goods and services. The Authority confirmed that the applicant's activities, including milling, fortification, and packing, constitute a composite supply with milling as the principal supply.2. Relation to Functions Entrusted to Panchayats or Municipalities: The supply must relate to functions under Article 243G or 243W of the Constitution. The Authority found that public distribution, which includes the supply of fortified atta, is a function entrusted to Panchayats under Article 243G.3. Value of Goods in Composite Supply: The value of goods in the composite supply must not exceed 25% of the total value. The Authority determined that the value of goods (Rs. 60) constituted 23.03% of the total supply value (Rs. 260.48), meeting the criteria for exemption.The Authority concluded that the supply qualifies for exemption under entry No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.Issue 2: Applicable Rate of GST if the Supply Does Not Fall Under Entry No. 3AIf the value of goods in the composite supply exceeds 25%, the supply would not qualify for the exemption under entry No. 3A. In such cases, the applicable GST rate would be 5% (CGST @ 2.5% + WBGST @ 2.5%) as per entry No. 26 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.Ruling:1. The supply of services by way of milling of food grains into flour (atta) to the Food & Supplies Department, Govt. 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, as the value of goods involved does not exceed 25% of the value of the supply.2. If the value of goods exceeds 25%, the supply will attract a GST rate of 5% (CGST @ 2.5% + WBGST @ 2.5%) under entry No. 26 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.This ruling is valid subject to the provisions under Section 103 until declared void under Section 104(1) of the GST Act.