Company's wheat crushing service for Public Distribution System qualifies as composite supply with milling as principal supply, exempt under notification 3A.

The AAR, West Bengal ruled that a company's service of crushing wheat into fortified atta for the State Government's Public Distribution System qualifies as composite supply with milling as the principal supply. The supply relates to functions entrusted to Panchayats under Article 243G of the Constitution. Since the value of goods (Rs. 60) constitutes only 23.03% of total supply value (Rs. 260.48), which is below the 25% threshold, the supply qualifies for exemption under entry 3A of Notification No. 12/2017-Central Tax (Rate) rather than being taxable at 5%.

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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 percentage of value of goods in the total value of composite supply for the purpose of Notification No. 2/2018-Central Tax (Rate).

Summary:

Issue 1: Value of Supply of Services
The applicant, a flour miller, engaged in converting wheat provided by the State Government into fortified atta, sought to determine the value of supply of services. The ownership of wheat or atta is never transferred to the applicant. The applicant receives Rs 179.48 per quintal, which includes crushing, fortification, packing, and transportation charges. The applicant also retains gunny bags and by-products (bran and refraction) as non-monetary consideration. The total value of supply is determined to be Rs 260.48, including both cash and non-cash considerations.

Issue 2: Rate of Tax Applicable
The determination of whether the supply qualifies for exemption under entry no. 3A of Notification No. 12/2017-Central Tax (Rate) hinges on whether the value of goods in the composite supply exceeds 25% of the total value. The applicant argued that the value of goods (packing material and vitamins) is Rs 60/- per quintal, which constitutes 23.03% of the total value of supply (Rs 260.48). Hence, the supply qualifies for exemption as it does not exceed the 25% threshold.

Findings:
The Authority for Advance Ruling (AAR) analyzed the composite supply, including milling, fortification, and packing, and confirmed it qualifies as a composite supply of services. The supply is made in relation to a function entrusted to a Panchayat under Article 243G of the Constitution. The value of goods involved in the supply is 23.03% of the total value, thus not exceeding the 25% threshold.

Ruling:
The composite supply of services by way of milling of food grains into flour (atta) to the Food & Supplies Department, Government 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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