AI Drafter 
TaxTMI 
TaxTMI 
2022 (9) TMI 367
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.... 2018. 1.1 At the outset, we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression 'GST Act' would mean the CGST Act and the WBGST Act both. 1.2 The Applicant is a flour miller, engaged in providing 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. The ownership of wheat or atta is never transferred to the Applicant. 1.3 The applicant has made this application under sub section (1) of section 97 of the GST Act and the rules made there under raising following questions vide serial number 14 of the application in FORM GST ARA-01: (i) What is the value of supply....
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....ct, will retain 1 kg refraction and 4 kg bran against conversion of 100 kg wheat. The applicant will further retain 2 gunny bags in which 100 kgs of wheat is supplied to him. 2.5 The contract stipulates that it shall pack the crushed stock of whole wheat atta after fortification into the poly pouches of 1 kilogram each in properly labelled poly-packs having thickness of 50 microns and or above and it will deliver the stock to the M.R. Distributors as nominated by the State Government for distribution to the consumers, immediately after the process of crushing. 2.6 The applicant does not gain ownership of either wheat or atta in the entire process of crushing it. This is substantiated by Clause 10(4) of the contract which states that the applicant shall under no circumstances sell the stock of atta in the open market. The atta is distributed only through PDS. 2.7 During the process of conversion of wheat into atta, two types of wastes are generated, namely bran and refraction. The bran and refraction so generated will subsequently be retained by it and sold in the open market at the prevailing market rates which is generally around Rs 20/- per kg for bran and Re 1/- per kg ....
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....hat value of goods supply in such a composite supply exceeds 25%, then the applicable GST rate would be 5% if such composite supply is provided to a registered person, being a job work service (entry No. 26 of notification No. 11/2017- Central Tax (Rate) dated 28.06.2017). Combined reading of the definition of job-work [section 2(68), 2(94), 22, 24, 25 and section 51] makes it clear that a person registered only for the purpose of deduction of tax under section 51 of the CGST Act is also a registered person for the purposes of the said entry No. 26, and thus said supply to such person is also entitled for 5% rate. 2.14 The provisions regarding value of supply are contained in Section 15 of the Act. Sub-section (1) of Section 15 states that the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. 2.15 In the given case price is not the sole consideration for the supply and as per the contract the amount of consideration is as follows: P....
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....e (b) or clause (c), be the sum total of consideration in money and such further amount in money that is equivalent to consideration not in money as determined by the application of rule 30 or rule 31 in that order. 2.20 Further, since the crushing services supplied by the applicant is customized, its open market value is not available at the time of supply and therefore the provisions of Rule 27(b) will be applicable for the instant case. 2.21 The cash consideration is Rs 136.48/- per quintal. The non-monetary considerations include gunny bags, bran and refraction. The value of these non-monetary considerations is known at the time of supply as the net realizable value is ascertainable. 2.22 Value of 2 gunny bags should be included in value of supply on the basis of consideration as defined by the Food and Supplies Department of Government of West Bengal in their Department vide memo no. 2583(3) - FS/Sectt/Food/4P-02/2016. 2.23 Value of supply shall include the cash consideration received and net realizable value (i.e., sale value reduced by further processing costs) of non-monetary consideration which include gunny bags, bran and refraction. 2.24 As per Circular No....
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....d services in which the value of supply of goods constitutes not more than 25 per cent. of the value of the said composite supply provided to the Central Government, State Government or Union territory or local authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution. NIL NIL 1.1.2 The determination of exemption granted by the aforesaid notification depends on the value of supply of goods in the value of composite supply. In case the value of supply of goods in value of composite supply does not exceed 25%, the said supply is exempt from GST. Further, as per the submission made along with the application for advance ruling, the value of supply was arrived at Rs 260.48/- per quintal. 1.1.3 The component of goods in the said composite supply is packing material only. The value of supply of such packing material as per the cost sheet provided by the State Government is Rs 50/- per quintal. The value of the packing material is calculated as per the cost sheet provided by the State Government and not as per actu....
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....mposite supply is only packing material. Hence, the value of goods must be construed to be packing charges only. Such charges are derived from the cost sheet given by the State Government specifying the packing charges to be Rs 50. There is no iota of doubt that fortification process is a service and not liable to be considered as the component of goods in the said composite supply. Further, as the value of goods does not exceed 25% of the value of composite supply, the service provided by the applicant is exempt from GST. 3. Submission of the Revenue The submission of the officer concerned from the revenue is reproduced herein under in verbatim: • What is the value of supply of services provided by the Applicant Company to the State Government? 3.1 Section 15 of the GST Act deals with the provisions of value of taxable supply and as per provision of sub section (1) of section 15, the value of supply of goods or services or both is the transaction value, only where the supplier and the recipient of the supply are not related persons and the price is the sole consideration for the supply. According to the "explanation" appended to section 15, persons shall be d....
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....Department of Revenue Entry No 3A of Notification No. 2/2018 Central Tax (Rate) dated 25-001-2018 states that "Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent of the value of the said composite supply provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Governmental Entity by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution." is exempted from tax. Paragraph No 3.1 and 3.2 of Circular No 153/09/2021- GST is represented here under: • "3.1 Public Distribution specifically figures at entry 28 of the 11th Schedule to the constitution, which lists the activities that may be entrusted to a Panchayat under Article 243G of the Constitution. Hence, said entry No. 3A would apply to composite supply of milling of wheat and fortification thereof by miller, or of paddy into rice, provided that value of goods supplied in such composite supply (goods used for fortification, packi....
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....e entry no. 3A of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 (as amended vide Notification No. 2/2018- Central Tax (Rate) dated 25.01.2018) or the same shall be taxable @ 5% as clarified in para 3.2 of the Circular No. 153/09/2021-GST dated 17.06.2021 issued by the CBIC. 4.3 The issue, therefore, is required to be analysed considering the following aspects: (a) whether the supply made by the applicant can be regarded as composite supply of goods and services; (b) if the supply qualifies as composite supply, whether the same is made by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution; (c) if the answers of (a) and (b) are found to be affirmative, whether the value of supply of goods constitutes not more than 25 percent of the value of the said composite supply. 4.4 The applicant has been selected for empanelment for crushing of wheat into wholemeal atta and fortify it by premixing of micro-nutrients containing Iron, Folic acid and Vitamin to a specific percentage. The agree....
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....they would be regarded as 'related person'. We therefore do not incline to agree with the view taken by the officer concerned from the revenue that in the instant case, the value of supply should be determined according to the provisions made u/s 15(4) of the GST Act and rules made there under. 4.8 The applicant states that it will charge crushing charges from the State Government valued at Rs 179.48 per quintal. This rate was last notified by the Government of West Bengal, Food and Supplies Department vide memo no. 2583(3) - FS/Sectt/Food/4P-02/2016 dated 07.09.2018. The applicant further states it will receive wheat from the State Government in gunny bags and the State Government will leave it with him for retention as well as non-monetary consideration and so the cost of gunny bags valued at Rs.43/- is reduced from the amount of Rs 179.48/- as the State Government considers the retention of gunny bags by the applicant as non-monetary consideration. Therefore, the cash consideration paid by the State Government is Rs 179.48/- reduced by Rs 43/-, which comes at Rs 136.48/- per quintal. Further, the contract entered into with the State Government stipulates that the applicant wi....
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....Rs.179.48 for crushing of 100 kgs of wheat which includes fortification cost of Rs.10/- and packing charges of Rs.50/-. In para 3.1 of Circular No. 153/09/2021-GST dated 17.06.2021, it has been clarified that '...entry No. 3A would apply to composite supply of milling of wheat and fortification thereof by miller, or of paddy into rice, provided that value of goods supplied in such composite supply (goods used for fortification, packing material etc) does not exceed 25% of the value of composite supply.' 4.12 Thus, in the instant case, the applicant receives Rs.10/- and Rs. 50/- i.e., Rs. 60/- in total against fortification cost and packing charges respectively for crushing of 100 kgs of wheat which involves supply of goods. We have to determine whether such value exceeds 25% of the total value of supply or not. According to the applicant, total value of supply would be Rs 260.48/- which includes both cash and non-cash consideration. In this context, we find that in a similar kind of activity, the Appellate Authority for Advance Ruling (AAAR, for short), Andhra Pradesh in the matter of Sri Kanakadurga Rice and Flour Mill reported in [2020] 121 taxmann.com 121 (AA - GST - AP) held....
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....ue of supply to be Rs.260.48 as we find in his submission noted in point no. 1.1.8 in Para 2.29 wherein the applicant has stated that 'without prejudice to the above, even if the fortification charges are considered to be a supply of goods, the value of supply of goods as a proportion to the value of the composite supply is 23.03% [i.e., 60/260.48 x 100].' 4.15 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 terms of clause (b) of the said rule, the value of supply shall be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply. We like to reiterate that Department of Food & Supplies, Government of West Bengal vide memo no. 569(3)-FS/Sectt./Food/4P-02/2016/2021 dated 18....