Wheat milling services with fortification and packing qualify as exempt composite supply under Notification 12/2017

The AAR WB ruled that the applicant's composite supply of wheat milling services, fortification, and packing for the State Government's Public Distribution System qualified as an exempt supply under Notification No. 12/2017. The Authority determined this was a composite supply where milling services constituted the principal supply, performed in relation to Panchayat functions under Article 243G of the Constitution. The value of goods (fortification materials and packing) at Rs. 60 represented only 23.03% of the total supply value of Rs. 260.48, remaining below the 25% threshold required for exemption eligibility.

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Issues Involved:
1. Value of supply of services provided by the applicant to the State Government.
2. Applicable tax rate 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 under Notification No. 2/2018-Central Tax (Rate).

Summary:

Issue 1: Value of Supply of Services
The applicant, a flour miller, converts wheat provided by the State Government into fortified atta. The ownership of the wheat or atta does not transfer to the applicant. The value of supply includes both cash consideration and non-monetary consideration (gunny bags, bran, and refraction). The cash consideration is Rs. 136.48 per quintal after deducting Rs. 43 for gunny bags from the total Rs. 179.48. Non-monetary considerations include the value of gunny bags, bran, and refraction, valued at Rs. 124 per 100 kg of wheat.

Issue 2: Applicable Tax Rate and Calculation of Composite Supply
The supply qualifies as a composite supply of goods and services, primarily services, under clause (30) of section 2 of the GST Act. The supply is in relation to a function entrusted to a Panchayat under article 243G of the Constitution. The value of goods in the composite supply (packing material and vitamins) does not exceed 25% of the total value of supply, thus qualifying for exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The value of goods involved is Rs. 60 against a total value of Rs. 260.48, making the percentage 23.03%.

Observations and Findings:
The application is admitted as no specific question or show cause notice has been issued by the DGGI at this stage. However, during the refund claim proceeding, it was observed that the supply was not exempt from tax and GST @18% is applicable as the supply was not made to a registered person. Thus, the refund claim of Rs. 5,50,62,464 was found non-refundable. Consequently, the present case is hit by the first provision to Section 98(2) of the GST Act, and no ruling can be passed.

Conclusion:
The Authority refrains from pronouncing any ruling due to the prior decision by the jurisdictional authority on the same issue.

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