Milling wheat into fortified atta for Public Distribution System exempt under GST Notification 12/2017

AAR West Bengal ruled that milling services for converting government-supplied wheat into fortified atta for Public Distribution System qualifies as exempt supply under Notification No. 12/2017. The composite supply involves milling as principal supply with goods component at 23.03% of total value (below 25% threshold). Total supply value calculated at Rs. 260.48 including cash consideration of Rs. 136.48 and non-cash consideration of Rs. 124 (by-products and gunny bags). Supply relates to Panchayat functions under Article 243G, satisfying exemption conditions rather than attracting 5% GST rate.

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Issues Involved:
1. Value of supply of services provided by the applicant to the State Government.
2. Rate of tax applicable on the value of supply and components to be included in the 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).

Summary:

1. Value of Supply of Services:
The applicant, a flour miller, entered into a contract with the State Government to convert wheat into fortified atta, retaining ownership of wheat and atta with the State Government. The applicant receives Rs. 179.48 per quintal for crushing, fortification, packing, and transportation, with Rs. 136.48 as cash consideration after deducting Rs. 43 for gunny bags. Additionally, the applicant retains bran and refraction generated during milling, valued at Rs. 20/kg and Re 1/kg respectively. Thus, the total value of supply is Rs. 260.48, comprising both cash and non-cash considerations.

2. Rate of Tax Applicable:
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 a function entrusted to a Panchayat under Article 243G of the Constitution. Notification No. 2/2018-Central Tax (Rate) exempts such composite supplies if the value of goods does not exceed 25% of the total value. Here, the value of goods (packing material and fortification charges) is Rs. 60, which is 23.03% of the total value of Rs. 260.48. Hence, the supply is exempt from GST under entry 3A of Notification No. 12/2017-Central Tax (Rate).

Observations and Findings:
The Authority noted that the activities undertaken by the applicant qualify as a composite supply where milling is the principal supply. The supply is made in relation to a function entrusted to a Panchayat under Article 243G. The value of goods involved does not exceed 25% of the total value of the composite supply, thus qualifying for exemption under Notification No. 12/2017-Central Tax (Rate).

Ruling:
The composite supply of services by way of milling 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 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 supply.

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