Composite supply exemption for PDS grain milling depends on goods remaining within the prescribed value threshold.
Composite supply of milling, micronutrient fortification and packaging of Government-supplied food grains for Public Distribution System delivery is eligible for GST exemption where the services are naturally bundled and the goods component does not exceed 25% of total supply value. Milling is the principal supply, while fortification and packaging are ancillary. Public Distribution System distribution constitutes a function entrusted to a Panchayat. The goods-value condition must be assessed on the facts and agreed consideration, including non-cash consideration. If the goods component exceeds 25%, the exemption does not apply and GST is chargeable at 5% on total consideration.
Issues: (i) Whether the milling, fortification and packing of Government-supplied food grains for distribution through the Public Distribution System is a composite supply eligible for exemption under Serial No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017; (ii) The GST rate applicable to that composite supply if the value of goods exceeds the 25% threshold under Serial No. 3A.
Issue (i): Whether the milling, fortification and packing of Government-supplied food grains for distribution through the Public Distribution System is a composite supply eligible for exemption under Serial No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
Analysis: The contractual arrangement required milling of wheat, fortification with micronutrients and packaging of the resultant flour for delivery to the State Government. These supplies were naturally bundled, with milling being the principal supply and fortification and packaging being ancillary supplies; therefore, the arrangement constituted a Composite Supply under Section 2(30) of the Central Goods and Services Tax Act, 2017.
Analysis: The agreed Value of Supply was Rs. 260.48 per 100 kilograms of wheat, including cash payment and the agreed Non-Cash Consideration represented by retention of gunny bags, bran and refractor. The goods component, comprising fortification and packing materials, was Rs. 60, or 23.03% of the total value. Distribution through the Public Distribution System is covered by Entry 28 of the Eleventh Schedule and is a Function Entrusted to a Panchayat under Article 243G of the Constitution of India. Circular No. 153/09/2021-GST requires the 25% goods-value condition to be determined on the facts of each case.
Conclusion: On the stated valuation, the composite supply qualifies for exemption under Serial No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, provided that the value of goods does not exceed 25% of the value of the composite supply.
Issue (ii): The GST rate applicable to that composite supply if the value of goods exceeds the 25% threshold under Serial No. 3A.
Analysis: Exceeding the prescribed 25% value threshold renders the composite milling supply ineligible for the Serial No. 3A exemption. The applicable rate in that event is prescribed under Serial No. 26(i)(f) of Notification No. 11/2017-Central Tax (Rate).
Conclusion: Where the value of goods exceeds 25% of the value of the composite supply, GST is chargeable at 5% on the total consideration, comprising CGST at 2.5% and SGST at 2.5%.
Final Conclusion: Milling, fortification and packing of food grains for Public Distribution System distribution remains exempt while the goods component stays within the 25% statutory threshold; otherwise, the supply is taxable at the specified concessional rate.
Ratio Decidendi: A naturally bundled Government supply of milling, fortification and packaging for the Public Distribution System is eligible for the Serial No. 3A exemption only where the value of goods used in the composite supply does not exceed 25% of its total value.