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 milling as principal supply. The activity relates to Panchayat functions under Article 243G of Constitution as public distribution is listed in 11th Schedule. Since goods value (Rs. 60) constitutes 23.03% of total supply value (Rs. 260.48), not exceeding 25% threshold, the composite supply is eligible for GST exemption under entry 3A of Notification 12/2017-Central Tax (Rate).

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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 28.06.2017

The 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. 3A

If 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.

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