2022 (12) TMI 1325 - AAR - GST

Exemption from GST - activity of custom milling of paddy - entitlement for exemption under which notification? - HELD THAT - The contention of the applicant, claiming that they are carrying out the function of public distribution system which is a function entrusted to a Panchayat under the Constitution of India, is incorrect and appears to be based on misconstrued notion in as much as the applicant is engaged for the aforesaid activity on behalf of the government, in lieu of monitory consideration for purely commercial gains. The applicant neither forms a part of public distribution system of the state government nor panchayat body, therefore its activity of custom milling does not comes under entry No. 3A to Notification No, 12/2017- Central Tax (Rate) New Delhi, the 28th June, 2017 as amended vide Notification No. 2/2018- Central Tax (Rate), 25th January, 2018. Accordingly, the claimed benefit of tax exemption, citing reference of Circular No. 51/25/2018-GST dated 31/07/2018 is misplaced and thus it is concluded that the applicants claim of any tax exemption on custom milling of paddy merit rejection. Circular No. 19/19/2017-GST dated 20.11.2017 from F. No. 354/263/2017-TRU issued by Government of India Ministry of Finance Department of Revenue Tax research Unit, North Block, New Delhi, clarifies on the subject of taxability of custom milling of paddy holding that milling of paddy into rice is not eligible for exemption under S. No 55 of Notification 12/2017 - Central Tax (Rate) dated 28th June 2017 and corresponding notifications issued under IGST and UTGST Acts. GST rate on services by way of job work in relation to all food and food products falling under Chapters 1 to 22 has been reduced from 18% to5% vide notification No. 31/2017-CT(R) notification No. 11/2017-CT (Rate) dated 28.6.17, S.No. 26 refers . Therefore, it is hereby clarified that milling of paddy into rice on job work basis, is liable to GST at the rate of 5%, on the processing charges (and not on the entire value of rice). The activity of custom milling of paddy carried out by the applicant is not exempted from the purview of Goods and Service Tax and is liable to GST at the rate of 5%.

Summary

Issues Involved:
1. Whether the activity of custom milling of paddy is exempted from the purview of Goods and Service Tax?

Analysis:
The applicant, a partnership firm engaged in the manufacturing of rice, sought an advance ruling on the exemption of custom milling of paddy from GST. The firm's primary objective is to supply food grains and rice under the public distribution system in Chhattisgarh. The applicant highlighted the process of custom milling of rice, which involves processing paddy into rice for supply to the State Government. The applicant emphasized that their business is regulated by the State Government agency, MARKFED, and is dependent on policies governing rice supply. They argued that custom milling is a composite supply under the CGGST Act, with rice milling being the principal supply and ancillary activities forming part of the composite supply.

The applicant contended that their activity falls under Entry No. 3A of Circular No. 51/25/2018-GST, which exempts composite supply of goods and services provided for functions entrusted to a Panchayat under the Constitution. The applicant highlighted the mandatory nature of custom milling imposed by the State Government, emphasizing their role in the public distribution system. They claimed that the introduction of GST burdened them with indirect taxes exempted under various circulars and notifications.

During the personal hearing, the applicant reiterated their contentions, seeking tax exemption based on their role in custom milling as a function entrusted to a Panchayat. However, the Authority for Advance Ruling analyzed the legal position and discussed relevant provisions under the CGST Act and CGGST Act. The authority clarified that the applicant's activity of custom milling does not qualify for tax exemption under Notification No. 12/2017-Central Tax (Rate) and Circular No. 51/25/2018-GST. They concluded that the applicant's claim for tax exemption on custom milling of paddy was not valid.

In support of their ruling, the authority referred to Circular No. 19/19/2017-GST, which clarified that milling of paddy into rice is not eligible for exemption under Notification No. 12/2017-Central Tax (Rate). The circular highlighted that milling of paddy into rice does not constitute an intermediate production process related to cultivation of plants for food or agricultural produce. It further specified that milling of paddy into rice is liable to GST at the rate of 5% on processing charges, not the entire value of rice.

Therefore, the Authority for Advance Ruling concluded that the activity of custom milling of paddy carried out by the applicant is not exempted from GST and is liable to GST at the rate of 5% (2.5% CGST and 2.5% CGGST).