2018 (11) TMI 661 - AAR - GST

Liability of GST - supply of goods as well as service - composite supply - business of job work activity of custom milling of paddy involving milling activity, transportation of rice and usage charges of gunny bags - Held that - The transportation of paddy and rice are conditionally exempted under specific Notifications. All supplies would be treated as exempted supply only when the transportation works would be given full and unconditional exemption under corresponding Notification. On account of conditional exemption, the supplies involved in the instant case in hand would be exigible to tax. The part-exemption as sought by the applicant for the service supply of transportation of paddy and rice is not eligible to them, the same being under a false premise - The said supply involved here cannot be separated from the tax computation of composite supply - the custom milling of paddy being the principal supply (predominant supply) involved in the case in hand, the same would attract GST (2.5% CGST and 2.5% SGST). Ruling - There being a single contract for all above supplies of goods services and as the said contract comprises of two or more supplies (i.e. transportation, supply of packing material incentives) and one of which is principal supply i.e. custom milling of paddy, it shall treated as composite supply. The tax liability on a composite supply shall be decided as a supply of such principal supply under N/N. 31/2017-CT(R) N/N. 11/2017-CT (Rate) dated 28-06-2017 serial No. 26. (c), vide state notification no. F-10-82/2017/CT/V(146) dated 13.10.2017 i.e. 5%.

Summary

Issues Involved:
1. Tax liability on the service of transportation of paddy/rice.
2. Tax rate on custom milling of paddy.
3. Treatment of incentive received from the State Government.
4. Tax rate on usage charges of gunny bags.

Detailed Analysis:

1. Tax Liability on the Service of Transportation of Paddy/Rice:
The applicant contended that the transportation of paddy/rice is exempt under Sr.No. 21 and 18 of Notification No. 12/2017 (State/Central). However, the judgment clarified that the transportation of paddy/rice is part of a composite supply with custom milling as the principal supply. According to Section 8(a) of the CGGST Act, 2017, the entire composite supply, including transportation, is taxable at the rate applicable to the principal supply, which is custom milling. Therefore, the transportation charges are not exempt and attract a 5% GST.

2. Tax Rate on Custom Milling of Paddy:
The applicant stated that the tax rate on custom milling charges should be 5% (2.5% SGST + 2.5% CGST) under Notification No. 31/2017-CT(R) and Notification No. 11/2017-CT (Rate) dated 28-06-2017, Serial No. 26. The judgment upheld this contention, confirming that the custom milling of paddy is taxable at 5%.

3. Treatment of Incentive Received from the State Government:
The applicant argued that the incentive received from the State Government should be considered a subsidy and not included in the taxable value under Section 2(31) of the CGST Act, 2017. The judgment clarified that the incentive is not a subsidy. It distinguished between a subsidy (a benefit given to promote a social good or economic policy) and an incentive (a motivation for specific work). Since the contract explicitly mentions "incentive" and not "subsidy," the incentive amount is taxable at 5% GST as part of the composite supply.

4. Tax Rate on Usage Charges of Gunny Bags:
The applicant contended that the usage charges of gunny bags should be taxable at 5% GST. The judgment confirmed that the usage charges of gunny bags are part of the composite supply with custom milling as the principal supply. Therefore, the entire composite supply, including the usage charges of gunny bags, is taxable at 5% GST.

Conclusion:
The ruling concluded that the entire contract, including custom milling, transportation of paddy/rice, usage charges of gunny bags, and incentive received, constitutes a composite supply with custom milling as the principal supply. As per Section 8(a) of the CGGST Act, 2017, the composite supply is taxable at the rate applicable to the principal supply, which is 5% (2.5% CGST + 2.5% SGST). The applicant's contentions regarding exemptions and separate tax treatments were not upheld.