Company providing wheat crushing services for Public Distribution System qualifies for GST exemption under Notification 12/2017

The AAR, West Bengal ruled that a company providing wheat crushing services to convert wheat into fortified atta for the State Government's Public Distribution System qualifies for GST exemption. The composite supply involved goods valued at Rs. 60 against total supply value of Rs. 260.48, representing 23.03% of total value, which does not exceed the 25% threshold. The supply was deemed related to Panchayat functions under Article 243G of the Constitution. The service qualified for exemption under Notification No. 12/2017-Central Tax (Rate) as milling of food grains for PDS distribution met all specified conditions.

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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 Provided by the Applicant to the State Government

The applicant, a flour miller, provides services to the State Government for converting wheat into fortified atta, which is then distributed through the Public Distribution System (PDS). The ownership of the wheat and atta remains with the State Government throughout the process. The applicant charges Rs 179.48 per quintal for crushing, which includes various components like crushing charges, fortification charges, packing charges, and transportation & handling charges. Additionally, the applicant retains the gunny bags and by-products (bran and refraction) generated during the milling process, which are considered non-monetary considerations. The total value of supply is calculated as Rs 260.48, which includes both cash consideration (Rs 136.48) and non-cash consideration (Rs 124).

Issue 2: Rate of Tax Applicable and Components for Calculation

The applicant contends that the supply of services should be exempt from GST under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended by Notification No. 2/2018-Central Tax (Rate) dated 25.01.2018. This exemption applies if the value of goods in the composite supply does not exceed 25% of the total value. The applicant argues that the value of goods (packing material and vitamins) is Rs 60, which is 23.03% of the total value of supply (Rs 260.48). Therefore, the supply qualifies for exemption.

Observations and Findings:

1. The supply qualifies as a composite supply of goods and services, with the principal supply being the milling service.
2. The composite supply is made in relation to a function entrusted to a Panchayat under Article 243G of the Constitution, specifically public distribution.
3. The value of goods involved in the composite supply does not exceed 25% of the total value of supply, making the supply eligible for exemption under Notification No. 12/2017-Central Tax (Rate).

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) dated 28.06.2017, as amended, since the value of goods involved does not exceed 25% of the value of supply.

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