2023 (9) TMI 120 - AAR - GST

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

In Re: M/s. Aryan Flour Mills Private Limited

The AAR, West Bengal ruled that a company providing wheat crushing services to convert wheat into fortified atta for the State Government's Public ... Exemption from GST - Valuation of supply of services provided by the applicant Company to the State Government - services of crushing wheat provided by the State Government, into fortified atta which in turn is supplied by the State Government through Public Distribution System - rate of tax applicable on the value of supply - components to be included in 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). HELD THAT:- The agreement between the applicant and the State Government for supply of fortified Wholemeal Atta/Atta is found to be executed in terms of G.O. No. 2834-F.S. dated 6th September, 2017. The said Notification provides guidelines for the procedure of empanelment of flour mills/ attachakki to convert wheat into fortified atta/wholemeal atta in pursuance of clauses 36 and 37 of the West Bengal Public Distribution System (Maintenance & Control) Order, 2013 and clauses 33 and 34 of the West Bengal Urban Public Distribution System (Maintenance & Control) Order, 2013 - the instant composite supply made by the applicant is found to be in relation to any function entrusted to a Panchayat under article 243G of the Constitution. Whether the value of supply of goods in this case exceeds 25 percent of the total value of the supply or not? - HELD THAT:- The contention of the applicant that the provisions of Rule 27(b) will be applicable for the instant case for the purpose of determination of value of supply has duly been considered. Rule 27 of the Central Goods and Services Tax Rules, 2017 and West Bengal Goods and Services Tax Rules, 2017 (collectively referred to as, the GST Rules) prescribes the manner of determination of value of supply where the consideration is not wholly in money - in the instant case, the amount of Rs. 124 may be considered as equivalent to the consideration not in money for the purpose of determination of value of supply under clause (b) of rule 27 of the GST Rules and such amount is admittedly known to the applicant at the time of supply. The total value of supply to be Rs. 260.48 out of which Rs. 136.48 is the cash consideration and Rs. 124 is the non-cash consideration - the value of goods involved in the instant supply stands at Rs. 60/- against total value of supply of Rs. 260.48, thereby the value of goods involved in the instant composite supply stands at 23.03% of the total value of supply i.e., it does not exceed 25% of the value of the composite supply. The instant supply of services by way of milling of food grains into flour (atta) to Food & Supplies Department, Govt. of West Bengal for distribution of such flour under Public Distribution System is eligible for exemption under serial no. 3A of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended, since the supply satisfies all the conditions specified in the said entry. 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 GovernmentThe 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 CalculationThe 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.