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TMI Blog2022 (9) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-8-2022 - MR. BRAJESH KUMAR SINGH, AND MR. JOYJIT BANIK, MEMBERS Applicant s representative heard : Mr. Shubham Khaitan, CA Mr. Gaurav Sharma, CA Preamble A person within the ambit of Section 100 (1) of the Central Goods and Services Tax Act, 2017 or West Bengal Goods and Services Tax Act, 2017 (hereinafter collectively called the GST Act ), if aggrieved by this Ruling, may appeal against it before the West Bengal Appellate Authority for Advance Ruling, constituted under Section 99 of the West Bengal Goods and Services Tax Act, 2017, within a period of thirty days from the date of communication of this Ruling, or within such further time as mentioned in the proviso to Section 100 (2) of the GST Act. Every such appeal shall be filed in accordance with Section 100 (3) of the GST Act and the Rules prescribed thereunder, and the Regulations prescribed by the West Bengal Authority for Advance Ruling Regulations, 2018. 1.1 At the outset, we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Govt. (Food Supplies Department) sends the whole, unpolished food grain to the applicant for crushing and processing it into flour. The applicant returns the flour (atta) packed in the manner as the State Govt. requires by fortifying the crushed grain with the vitamin which is then distributed through the Public Distribution System (PDS) by the State Govt. 2.2 The applicant receives following charges for carrying out the aforesaid activities: Crushing charges for processing of wheat into wholemeal atta; Fortification charges for mixing of micronutrients and vitamins; Packing charges for packaging of atta into small packets; Transportation Handling charges for sending the finished products to / receiving the raw materials from the designated distributors of State Government 2.3 It is submitted by the applicant that as per clause 6(1) of the agreement, the output generated from the process of milling is 95% per quintal of wheat. The balance of 4% is for de-branning and 1% in the form of refraction for cleaning. These bran and refractors generated are retained by the applicant for sale in the open market. In addition to this, the applicant retains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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: The Indian Food Security System was established to distribute food and non-food items to India s poor at subsided rates. Major commodities are distributed including staple food grain, sugar and essential things like kerosene through a network of fair price shops distribution and is managed by State Government through the ration shops. Basic objective of Public Distribution System is to serve the below poverty line family. The Essential Commodities Act, 1955 was legislated to provide in the interest of general public control of production, supply and distribution and trade and commerce in certain commodities. Control, Production, supply, distribution etc. of essential commodity is controlled as per the provision of section 3 of the said Act 1955. The West Bengal Public Distribution System (Maintenance and Control) Order, 2013 has been issued in exercise of power conferred by section 3 of The Essential Commodities Act1955 and the same extends to the whole of West Bengal except the area wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od: a. The State Govt. (Food Supplies Department) sends the whole, unpolished food grain to the applicant for crushing and processing into flour. b. The applicant returns the flour packed in the manner as the State Govt. requires by fortifying the crushed grain with the vitamin. The packing material is supplied by the applicant. c. By crushing 100 kgs of wheat, 95 kgs of flour and by-product in the form of 4 Kgs of Bran and 1 kg of refractor is generated. d. The cash consideration earned from the senders of crushing is ₹ 136.48 for 95kg of atta. e. Further, the applicant also gets non-cash consideration in the form of being allowed to retain 4 Kgs of bran and 1 kg of refractor which is sold in the open market realizing ₹ 99.24. f. Also, there are 2 gunny bags which are retained by the applicant for 100 kg of wheat sent. The sale value of each gunny bag in the market is Rs. 22. The Government deducts Rs. 43 as cost of two gunny bags which are retained by the applicant. g. Therefore, total non-cash consideration is ₹ 142.24/-. h. Details of cash and non-cash consideration are provided below: Sl No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that all the conditions for the exemption entry no. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 seem to have been satisfied in respect of the instant supply of services and therefore the supply would fall within the ambit of the said entry. 2.8 The applicant has submitted that the Department of Food and Supplies, Government of West Bengal has issued memo no. 569(3)-FS/Sectt./Food/4P-02/2016/2021 dated 18th February 2022 wherein the Government has explained the full process of crushing of wheat into Fortified Atta for Public Distribution System. After considering both the cash and non-cash consideration, it came to the conclusion that maximum value of involvement of goods is less than 25% of the total value of composite supply. Therefore, it was provided that the said process would qualify for exemption as per entry no. 3A of Notification no. 12/2017-CT (Rate) read with State Notification no. 1136-FT dated 28th June 2017. 2.9 The applicant has also submitted that if the exemption entry is not applicable to the instant supply, the same would be taxable @ 5% vide entry no. 26 of Notification no. 11/2017-Central Tax (rate) dated 28th June 2017. Relevant ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitutes not more than 25% of the value of the said composite supply provided to the Central Govt, State Govt. or Union territory or local authority or a Governmental authority or a Governmental Entity by way of any activity 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 . 3.2 In the case highlighted by the applicant on page no 12-14 of the attachments to FORM GST ARA-01, the total value of supply will be Rs. 278.72/- per quintal that consists of crushing charges of Rs. 90.78/-, fortification charges of Rs. 10/-, packing charges Rs. 50/-, transportation handling charges Rs. 28.70/-, consideration from sale of Bran Rs. 97/- consideration from sale of refractor Rs. 2.24/- as per provision of sec.15 of the CGST ACT, 2017 read with rule 27 of the CGST Rules 2017. The consideration from the sale of bran Rs. 97/-, refractor Rs. 2.24/- gunny bags Rs. 43/- may be construed as consideration received from the government in forms other than cash. The realised value should therefore be included in the value of supply as per CGST Act, 2017. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and (b) are found to be affirmative, whether the value of supply of goods constitutes not more than 25 percent of the value of the said composite supply. 4.4 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 40 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. 4.5 Now we take the issue to decide 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. 4.6 The agreement between the applicant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.72. 4.10 In the instant case, the applicant receives Rs.10/- and Rs. 50/- i.e., Rs. 60/- in total against fortification cost and packing charges for crushing of 100 kgs of wheat which involves supply of goods. The authorized representative of the applicant, in course of personal hearing, has furnished photocopies of invoices in support of purchase of Vitamin (used to fortify the atta) and packing materials (used for packing of fortified atta). 4.11 The authorized representative has also furnished before us photocopies of cash memo in support of sale of bran, refraction and jute bags respectively which has been claimed as non-cash consideration for the purpose of determination of value of supply. 4.12 In this context, we find that in a similar kind of activity, the Appellate Authority for Advance Ruling (AAAR, for short), Andhra Pradesh in the matter of Sri Kanakadurga Rice and Flour Mill reported in [2020] 121 taxmann.com 121 (AA - GST - AP) held that it is clear that the value of by-products so retained by the appellant yielded during CMR milling, which were allowed to be retained by the appellant to meet the CMR activity cost shall obviously be included as part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of goods involved in the instant supply stands at Rs.60/- against total value of supply of Rs. 278.72 which is claimed to have been received by the applicant in cash as well as non-cash consideration. The value of goods involved in the instant composite supply thus found to be 21.52% of the total value of supply and thus constitutes not more than 25 percent of the value of the composite supply We, therefore, hold that 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 since the supply satisfies all the conditions specified in the said entry. In view of the above discussions, we rule as under: RULING Question: Whether the instant composite supply of service by way of milling of food grains into flour to Food Supplies Department, Govt. of West Bengal for distribution of such flour under Public Distribution System is eligible for exemption under entry No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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