2022 (9) TMI 367 - AAR - GST

Exemption from GST - fortified atta - Valuation of of supply of services provided by the applicant to the State Government - 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 - rate of GST - What components and at what value are 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 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 agreement further requires the applicant to pack the crushed stock of wholemeal atta after fortification into properly labelled poly-packs having thickness of 50 microns or above. It, therefore, appears that the activities undertaken by the applicant for milling of wheat into wheat flour, along with fortification and supplied upon packing of the same qualify the definition of composite supply under clause (30) of section 2 of the GST Act where the supply of services by way of milling is the principal supply. Whether this composite supply is made 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? - HELD THAT - Reliance placed in Para 3.1 of the Circular No. 153/09/2021-GST dated 17.06.2021 where it is stated that 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, 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 - 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 the instant case, value of supply shall be the consideration in money and shall also include all the components towards 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.

Summary

Issues Involved:
1. Determination of the value of supply of services provided by the applicant to the State Government.
2. Identification of the applicable tax rate on the value of supply.
3. Calculation of the percentage of the value of goods in the total value of composite supply for the purpose of Notification No. 2/2018-Central Tax (Rate).

Issue-wise Detailed Analysis:

1. Determination of the Value of Supply:
The applicant, a flour miller, converts wheat provided by the State Government into fortified atta. The ownership of the wheat and atta remains with the State Government. The applicant charges Rs. 179.48 per quintal for crushing services, which includes Rs. 50 for packing charges and Rs. 10 for fortification charges. Additionally, the applicant retains gunny bags valued at Rs. 43 as non-monetary consideration and sells by-products (bran and refraction) valued at Rs. 81 in the open market.

The value of supply is determined under Section 15 of the GST Act, which includes both monetary and non-monetary considerations. Rule 27(b) of the GST Rules applies since the consideration is not wholly in money. The total value of supply is Rs. 260.48, comprising Rs. 136.48 in cash and Rs. 124 in non-cash consideration.

2. Identification of the Applicable Tax Rate:
The applicant contends that the supply qualifies for exemption under Notification No. 2/2018-Central Tax (Rate) if the value of goods in the composite supply does not exceed 25%. If the exemption does not apply, the applicable GST rate would be 5% as per Circular No. 153/09/2021-GST.

The supply involves milling of wheat into fortified atta, which is a composite supply of goods and services. The principal supply is the service of milling. The contract is executed under the West Bengal Public Distribution System, which is a function entrusted to a Panchayat under Article 243G of the Constitution.

3. Calculation of the Percentage of the Value of Goods:
The value of goods in the composite supply includes packing charges (Rs. 50) and fortification charges (Rs. 10), totaling Rs. 60. The total value of supply is Rs. 260.48. The percentage of the value of goods is calculated as follows:
\[ \frac{60}{260.48} \times 100 = 23.03\% \]

Since the value of goods does not exceed 25% of the total value of the composite supply, the supply qualifies for exemption under Notification No. 12/2017-Central Tax (Rate), as amended.

Observations and Findings:
The supply of services by way of milling of food grains into flour for the State Government qualifies as a composite supply. The supply is in relation to a function entrusted to a Panchayat under Article 243G of the Constitution. The value of goods involved in the composite supply does not exceed 25% of the total value of supply, making it eligible for exemption from GST.

Ruling:
The composite supply of services by way of milling food grains into flour (atta) to the Food & Supplies Department, Government of West Bengal, for distribution under the Public Distribution System is exempt from GST under entry serial no. 3A of Notification No. 12/2017-Central Tax (Rate), as amended, since the value of goods involved does not exceed 25% of the total value of supply.