2020 (2) TMI 593 - AAR - GST

Exemption from GST - Composite Supply or not - service of crushing food grains - The Government will send to the Applicant the whole, unpolished food grain for processing. The Applicant will return the grain after crushing. - SI No. 3 or 3A of Notification No 12/2017 CT (Rate) dated 28/06/2017 (corresponding State Notification No. 1136 - FT dated 28/06/2017) - Circular No. 51/25/2018-GST dated 31/07/2018 - HELD THAT - The Applicant intends to deliver the crushed food grains packed in the manner the recipient requires. The packing material is supplied by the Applicant. The Applicant is, therefore, making supply of a bundle consisting of the service of crushing the grains and supply of materials required to pack the crushed grains, where the former is the predominant supply. They are supplied in conjunction with each other in the ordinary course of business as food grain cannot be transported without proper packing. It is, therefore, a composite supply of goods and services where service of crushing food grains is the principal supply and providing packing materials is ancillary to it - The Applicant intends to make the composite supply to the State Government. The recipient is, therefore, the State Government. It will be an activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution, and its supply to the State Government should be exempt under Sl No. 3A of the Exemption Notification, provided the proportion of the packing materials in the composite supply in value terms does not exceed 25%.

Summary

Issues involved:
1. Admissibility of the Application
2. Submission of the Applicant
3. Observations & Findings of the Authority

Admissibility of the Application:
The Applicant sought a ruling on whether supplying the service of crushing food grains to the State Government for distribution through the Public Distribution System (PDS) is exempt under specific notifications. The question was deemed admissible under the GST Act as the Applicant was unregistered, and the requirements under the Act were dispensed with.

Submission of the Applicant:
The Applicant clarified that they would only provide the service of crushing food grains, with the State Government retaining ownership of the grains. The Applicant argued that this service falls under a function entrusted to a Panchayat under the Constitution and should be exempt under relevant notifications. They highlighted that the crushing of grains is related to PDS distribution, covered under the Constitution.

Observations & Findings of the Authority:
The Authority referred to a Circular clarifying the exemption for services provided to the government under previous notifications, which continued under the GST regime. They emphasized that the supply should be a pure service or a composite supply not exceeding 25% of goods' value. The Authority analyzed the Applicant's case as a composite supply of crushing grains and providing packing materials, with the former being the principal supply. They concluded that if the agreement binds both parties to distribute grains through PDS, the supply would be exempt under specific notifications.

Ruling:
The Authority ruled that if the agreement binds both the Applicant and the State Government to distribute grains through PDS exclusively, the supply of crushing and delivering grains will be exempt under relevant notifications, provided the value of packing materials in the composite supply does not exceed 25%.

This ruling remains valid unless declared void under the GST Act provisions.