Milling services for fortified flour under Public Distribution System exempt from GST as composite supply 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 supply relates to Panchayat functions under Article 243G of Constitution. Since goods value (Rs. 60) constitutes 23.03% of total supply value (Rs. 260.48), not exceeding 25% threshold, the service is exempt from GST under Notification No. 12/2017-Central Tax (Rate). Revenue department's contrary view was rejected.

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Issues Involved:
1. Eligibility for exemption under entry No. 3A of Notification No. 12/2017-Central Tax (Rate) for the composite supply of milling food grains into flour.
2. Applicable rate of GST if the exemption is not applicable.

Summary:

Issue 1: Eligibility for Exemption under Entry No. 3A of Notification No. 12/2017-Central Tax (Rate)
The applicant, engaged in milling food grains into flour for the Food & Supplies Department, Govt. of West Bengal, sought a ruling on whether this service is exempt under entry No. 3A of Notification No. 12/2017-Central Tax (Rate). The Authority examined whether the supply qualifies as a composite supply of goods and services, if it relates to functions entrusted to a Panchayat or Municipality under the Constitution, and if the value of goods in the composite supply is not more than 25% of the total value.

The Authority confirmed that:
- The supply qualifies as a composite supply under Section 2(30) of the GST Act, where milling is the principal supply.
- The supply is related to functions entrusted to Panchayats under Article 243G of the Constitution, specifically public distribution.
- The value of goods (fortification and packing charges) constitutes 23.03% of the total value of the composite supply, which is less than the 25% threshold.

Thus, the composite supply of milling food grains into flour for the PDS is eligible for exemption under entry No. 3A of Notification No. 12/2017-Central Tax (Rate).

Issue 2: Applicable GST Rate if Exemption is Not Applicable
If the value of goods in the composite supply 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).

Ruling:
1. The composite supply of milling food grains into flour for the PDS is exempt under entry No. 3A of Notification No. 12/2017-Central Tax (Rate) as the value of goods does not exceed 25% of the total value.
2. If the value of goods exceeds 25%, the supply will attract a GST rate of 5%.

This ruling is subject to the provisions under Section 103 until declared void under Section 104(1) of the GST Act.

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