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2023 (7) TMI 186 - AAR - GSTValuation of supply - 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 tax applicable on the value of supply - components 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). Whether the instant supply shall qualify as an exempt supply vide 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? 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, Citrate, EDTA and Vitamins 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 them 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 - The agreement between the applicant and the State Government for supply of fortified Wholemeal Atta/Atta is found to be executed in terms of G.O. No. 2834-F.S. dated 6th September, 2017. The said Notification provides guidelines for the procedure of empanelment of flour mills/ attachakki to convert wheat into fortified atta/wholemeal atta in pursuance of clauses 36 and 37 of the West Bengal Public Distribution System (Maintenance Control) Order, 2013 and clauses 33 and 34 of the West Bengal Urban Public Distribution System (Maintenance Control) Order, 2013 - 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 - It is found from the agreement made between the applicant and the State Government that the applicant has been selected for empanelment for crushing of wheat into whole meal atta and fortify it by pre-mixing micro-nutrients and to pack it in 1Kg poly pouch/packet and to deliver the same to the nominated M.R. Distributors - such 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. The State Government agrees to pay the applicant a total amount of Rs. 179.48 for crushing of 100 kgs of wheat which includes fortification cost of Rs. 10/- and packing charges of Rs. 50/- - 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. Department of Food Supplies, Government of West Bengal vide memo no. 569(3)-FS/Sectt./Food/4P-02/2016/2021 dated 18th February 2022 has explained that These bi-products are valued as per market price @ Rs. 20/kg of Bran and Re 1/kg of Refractor. So, consideration from sale of 4kg Bran and 1kg refractor comes to Rs. 81 only. 100 Kg wheat is supplied to flour millers in 2 gunny bags. The flour millers retained those 2 gunny bags, which are valued at Rs. 43 only. Thus the total non-cash consideration for bi-products and gunny bags allowed to flower millers is Rs. 124 only for each 100 kg wheat - So, in the instant case, the amount of Rs. 124 may be considered as equivalent to the consideration not in money for the purpose of determination of value of supply under clause (b) of rule 27 of the GST Rules and such amount is admittedly known to the applicant at the time of supply. It is found that the total value of supply to be Rs. 260.48 out of which Rs. 136.48 is the cash consideration and Rs. 124 is the non-cash consideration, as it has been explained in the aforesaid memo. 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.
Issues Involved:
1. Determination of the value of supply of services provided by the applicant to the State Government. 2. Applicable rate of tax on the value of supply and the components to be included in the 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 1: Determination of the Value of Supply The applicant, a flour miller, is engaged in converting wheat provided by the State Government into fortified atta, without transferring ownership of the wheat or atta. The application was made under Section 97(1) of the GST Act, seeking to determine the value of supply of services provided to the State Government. The applicant argued that the value of supply should include both monetary and non-monetary considerations, such as the retention of gunny bags, bran, and refraction generated during the milling process. The applicant provided detailed calculations, stating that the cash consideration paid by the State Government is Rs 136.48 per quintal after deducting Rs 43 for the gunny bags. The non-monetary considerations include the value of bran and refraction, valued at Rs 20 per kg and Re 1 per kg, respectively. The total value of supply was determined to be Rs 260.48, which includes Rs 136.48 in cash and Rs 124 in non-cash consideration. Issue 2: Applicable Rate of Tax and Components for Calculation The applicant contended that the supply of services should be exempt from GST under Notification No. 2/2018-Central Tax (Rate) if the value of goods in the composite supply does not exceed 25% of the total value. The applicant argued that the value of goods, including packing material and fortification charges, amounts to Rs 60, which is 23.03% of the total value of supply (Rs 260.48). Therefore, the supply should be exempt from GST. The Authority analyzed whether the supply qualifies as a composite supply and if it is related to any function entrusted to a Panchayat under Article 243G of the Constitution. It was determined that the activities undertaken by the applicant qualify as a composite supply, where the principal supply is the service of milling. The agreement between the applicant and the State Government was found to be in relation to a function entrusted to a Panchayat under Article 243G. The Authority also examined whether the value of goods in the composite supply exceeds 25% of the total value. It was concluded that the value of goods (Rs 60) does not exceed 25% of the total value of supply (Rs 260.48), making the supply eligible for exemption under Notification No. 12/2017-Central Tax (Rate). Ruling: The value of supply shall include both monetary and non-cash considerations. 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 eligible for exemption under entry serial no. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended, since the value of goods involved does not exceed 25% of the value of supply.
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