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TMI Blog2025 (3) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... 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:- Reference made to 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:- The contention of the applicant that the provisions of Rule 27(b) will be applicable for the instant case for the purpose of determination of value of supply has duly been considered. Rule 27 of the Central Goods and Services Tax Rules, 2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Government is by nature a composite 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 and such is eligible for exemption under entry serial no. 3A of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended, since the value of goods involved in such composite supply does not exceed 25% of the value of supply. X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant humbly submits that no show cause notice or order has been passed in connection with the said inquiry, till date. Therefore, it can be successfully contented that no proceeding was neither initiated by the department nor has been adjudicated by the department. Hence, the inquiry so initiated by the department draws no connection with the subject matter involved before the Advance Ruling authority. Under such circumstances, the bar on the admissibility of the Advance Ruling as envisaged in provision of Section 98 (2) of the GST Act, is not applicable in the given facts and circumstances of the case. First proviso to Section 98 (2) imposes a bar on the admissibility of the application only to the extent that the questions raised in the advance ruling are already pending or decided in any proceedings in the case of an applicant under any of the provisions of this Act. Therefore, it is not the case that any proceeding will act as a bar on the admissibility of the advance ruling application. Only those proceeding, the subject matter of which is identical with the questions of the application is restricted by the provision of Section 98 (2) of the CGST Act, 2017. Furthermore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d filed the application for advance ruling on11.05.2019. From the order dated 03.06.2022, it is evident that notice was issued to the petitioner by DGGI on 15.12.2021 much after filing of the application for advance ruling. In our considered opinion, the same cannot be a bar under the first proviso to sub-section (2) of Section 98 of the CGST Act and the question of petitioner informing the Authority that it was being enquired into did not arise because the application was filed much prior in point of time. With regard to questions raised in the advance ruling application on the value of supply of services, value of supply of goods and rate of GST applicable on such supplies provided by the Applicant to the State Government, the applicant humbly submits that no proceeding has been initiated on this issue and the impugned question is free from any proceeding under this Act. In such backdrop, the company humbly submits that the questions raised in the instant application are not pending or decided in any proceeding under this Act. Therefore, the application in all its legal right deserves to be admitted. 1.5 In terms of first proviso to sub-section (2) of section 98 of the GST Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta, for distribution by the State Government through Public Distribution System (for brevity, PDS), as entrusted under the Eleventh Schedule of the Constitution of India. 2.2 The applicant has been selected for empanelment for crushing of wheat meal atta and fortify it by premixing of micro nutrients containing (i) Vitamin A-500 μg RE-750 μg RE, (ii) Vitamin B12-0.75 μg-1.25 μg, (iii) Iron: Ferrous(II) Citrate:28mg-42.5mg or Sodium Iron(III) EDTA: 14 mg-21.5 mg, (iv) Folic Acid-75μg-125μg per kg in 1 Kg poly pouch/packet(1 kg wheat ≅ 950gm fortified atta)(having thickness of poly pouch not less than 50 microns). 2.3 Under the contract it shall obtain stock of wheat from the State Government. The ownership of wheat remains with the State Government and the applicant is required to convert the wheat into atta by way of crushing and mixing other ingredients as mentioned above. 2.4 As per the contract, the State Government and/or Director shall have the right to reduce and enhance the allocation of wheat of the existing mills any time depending upon inclusion of new mills in the scheme and exclusion of existing mills or changes in demand/requirement or any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. 2.13 The applicant will charge crushing charges from the State Government valued at Rs 179.48 per quintal. This rate was last notified by the Government of West Bengal, Food and Supplies Department vide memo no. 2583(3) - FS/Sectt/Food/4P-02/2016 dated 07-09-2018. The following table reflects the bifurcation of this amount: Particulars Amount (in Rs.) Crushing Charges 90.78 Fortification Charges 10.00 Packing Charges 50.00 Transportation & Handling Charges 28.70 Total 179.48 2.14 The applicant will receive wheat from the State Government in gunny bags and the State Government will leave it with the applicant for retention as well as non-monetary consideration. 2.15 The applicant will receive Rs 136.48 per quintal from the State Government after deduction of Rs 43/- for the 2 gunny bags, which is non-monetary consideration. 2.16 The applicant is engaged in the provision of services to the State Government by way of an activity in relation to a 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. 2.17 Notification No. 2/2018-Central Tax (Rate) da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that a person registered only for the purpose of deduction of tax under section 51 of the CGST Act is also a registered person for the purposes of the said entry No. 26, and thus said supply to such person is also entitled for 5% rate. 2.21 The provisions regarding value of supply are contained in Section 15 of the Act. Sub-section (1) of Section 15 states that the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. According to the applicant, price is not the sole consideration for the supply in the given case. 2.22 The applicant reiterates that as per the contract the amount of consideration is as follows: Particulars Amount (in Rs.) Crushing Charges 90.78 Fortification Charges 10.00 Packing Charges 50.00 Transportation & Handling Charges 28.70 Total 179.48 2.23 According to the applicant, in addition to the above, the cost of gunny bags is reduced from the amount of Rs 179.48/- as the State Government considers the reten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus contends that that the value of supply comes at Rs 260.48/- wherein the consideration for component of goods is received as packing charges and fortification charges received which amounts to Rs 60/-. Hence, the ratio comes to 60/260.48 x 100 = 23.03%. Since the component of goods in the composite supply does not exceed 25% of the value of supply, therefore the supply shall be exempted from GST. 2.25 The Applicant also submits that the Department of Food & Supplies of the Government of West Bengal, in its memo no. 569(3)-FS/ Sectt./Food/4P-02/2016/2021 (Annexure 4) dated 18.02.2022 explained that as the maximum value of involvement of goods in the composite supply is less than 25% of the total value of the said composite supply, it qualifies for exemption as per Entry 3A of Notification No. 12/2017-CT (Rate) dated 28.06.2017 read with State Notification No. 1136-FT dated 28.06.2017. 2.26 The West Bengal Appellate Authority for Advance Ruling in the case of M/s Maa Laxmi Enterprise on 31.05.2022 has observed as follows: The supply value of milling of wheat in the instant case cannot be dependent on actual receipts by the miller in future from third parties in disposal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services of crushing/ grinding of wheat as well as supply of goods, such as, packing materials, fortification materials is considered as " composite supply" under the provisions of CGST Act, 2017, wherein supply of service of crushing wheat is the principal supply and supply of goods (packing materials and fortification materials) are ancillary to the principal supply. 3.3 Memo No. 2979 (3)-FS/Sectt/Food/4P-02/2016 dated 08.12.2020 issued by FSD, Govt. of West Bengal laid out the estimated consideration for the conversion of wheat into fortified atta as follows: Flour Mills to be paid for crushing of 100 kg of wheat Estimated Cost (in Rs.) A Crushing Charges 90.78 B Fortification Cost 10.00 C Packing Charges 50.00 D Transportation & Handling Charges 28.70 E Consideration from sake of Bran (4* Rs. 20/Kg) (Non-cash) 80 F Consideration from sale of Refractors (1* Rs. 1/Kg) ( Non-cash) 1 G Total(A+B+C+D+E+F) 260.48 H Less: Non-cash Considerations I Less: Cost of 2 Gunny Bags -43 J Less: Receipt from sale of Bran and Refractor -81 K Net Total (Cash Consideration) 136.48 Further, an explanation dated 18.02.2022 was issued by FSD, Govt. of West ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th fortified Atta in 950 gms of pouches: Rs. 76 to Rs. 85 per 95 Kgs of Atta c) Cost of packing materials supplied with fortified Atta in 475 gms of pouches: Rs. 110 to Rs. 118 per 95 Kgs of Atta d) Cost of HDPE bags for further packing of pouches at (b) and (c) above: Rs. 14 to Rs. 16 for 02 bags. So the estimated cost of goods i.e.(packaging+ fortification) as per DGGI investigation arrives at Rs. 81 to Rs.123 which is 31% to 47% of total value of composite supply. (Details in Annexure A) 3.6 Therefore, the flour mills/ millers were required to pay GST @5% in respect of such composite supply to FSD, Govt of West Bengal from the date of registration obtained by jurisdictional office(s) of FSD and GST @18% is payable prior to date of registration/ GSTIN of jurisdictional FSD, namely, District Controller, Food & Supplies. 3.7 The rate was last notified by Govt of West Bengal, FDS vide memo dated 08.12.2020 (copy enclosed marked as Annexure B) which is as follows- Flour Mills to be paid for crushing of 100 kg of wheat Estimated Cost (in Rs.) A Crushing Charges 90.78 B Fortification Cost 10.00 C Packing Charges 50.00 D Transportation & Handling Charges 28.70 E C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be paid and % of tax ii. Determination of value of goods (as percentage of composite supply) Already many SCNs have been issued all over West Bengal including this applicant (SCN No. 02/AE/AC/SKRFM//CGST/ASN-I/24-25 dt 03.08.2024). 3.12 As per Section 98 (2) of the Act, the Advance Ruling authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provision of the Act. As the issue regarding taxability of milling service was examined by the GST council in 43rd meeting held on 28.05.21 and clear cut guideline issued vide Circular No. 153/09/2021-GST dated 17.06.2021 thus no question of admitting any application in this regard arises. It is to be mentioned that DGGI, Delhi had initiated investigation in the year 2022 on this issue which is a specialized wing of CGST department. So any findings by the DGGI is accepted by the department. 3.13 As many taxpayers were involved in the instant issue, so the issue was elaborately discussed in GST Council meeting and Circular clarifying all aspects was issued. So there is no question of admitting any application re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the observation of the Hon'ble High Court of Telangana in the case of Srico Projects Pvt Ltd [2022] 142 taxmann.com 5 (Telangana) where the Hon'ble High Court has held as follows: Though the word "proceedings" has neither been defined in Chapter XVII nor in the definition clause i.e., in Section 2 of the CGST Act, if the said word is understood in the context in which it is being applied, namely, any proceedings pending or decided in the case of an applicant under the provisions of the CGST Act, it would mean proceedings where the question raised in the application for advance ruling has already been decided or is pending decision. Therefore, inquiry or investigation would not come within the ambit of the word "proceedings" The Hon'ble High Court of Allahabad in G.K. Trading Company vs Union of India [2021] 126 taxmann.com 211 (Allahabad) has observed as follows: "The words "subject-matter", "proceedings" and "inquiry" have not been defined either under the State G.S.T. Act or the Union Territory G.S.T. Act or the C.G.S.T. Act. Therefore, these words have to be interpreted in the context of the aforesaid Acts. The word "inquiry" in section 70 has a special connotation and a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial and packing material) has been found to be in the range of Rs. 81 to Rs. 123 (approx.) per quintal of wheat. However, no such material documents have been produced before us. In this context, we like to make it clear that we are dealing with the issue based on the records which have been made available before us. We also like to refer sub-section (1) of section 104 of the GST Act which empowers the authority to declare an advance ruling to be void ab initio if such authority finds that the ruling has been obtained by the applicant or the appellant by fraud or suppression of material facts or misrepresentation of facts. 4.5 In light of the aforesaid observation, we now proceed to deal with the case. The issue involved in the instant case, as we find, is to determine 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. 4.6 The issue, therefore, is required to be analyzed consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 4.10 The issue now left with us is to ascertain whether the value of supply of goods in this case exceeds 25 percent of the total value of the supply or not. The applicant states that it will charge crushing charges from the State Government valued at Rs 179.48 per quintal. This rate was last notified by the Government of West Bengal, Food and Supplies Department vide memo no. 2583(3) - FS/Sectt/Food/4P-02/2016 dated 07.09.2018. The applicant further states it will receive wheat from the State Government in gunny bags and the State Government will leave it with them for retention as well as non-monetary consideration and so the cost of gunny bags valued at Rs. 43/- is reduced from the amount of Rs 179.48/- as the State Government considers the retention of gunny bags by the applicant as non-monetary consideration. Therefore, the cash consideration paid by the State Government is Rs 179.48/- reduced by Rs 43/-, which comes at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of composite supply.' 4.13 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. 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 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 value of supply and also to be termed as a bona fide form of consideration' 4.15 We are also of the same view that in the instant case, value of supply shall be the consideration in money and shall also include all the components towards non-cash consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply where the consideration is not wholly in money. In terms of clause (b) of the said rule, the value of supply shall be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply. We like to reiterate that 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, we find that the value of supply involved in this case is = Crushing Charges: Rs. 90.78 + Fortification Cost: Rs. 10.00 + Packing Charges: Rs. 50.00 + Transportation & Handling Charges: Rs. 28.70 + Consideration from sale of Bran (4 x Rs. 20/Kg): Rs. 80.00 + Consideration from sale of Refractors (1 x Rs. 1/Kg): Rs. 1.00 = Rs. 260.48. The total non-cash consideration for bi-products and gunny bags allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective of actual disposal price of those gunny bags and by-products in future. The supply value of milling of wheat in the instant case cannot be dependent on actual receipts by the miller in future from third parties in disposal of the retained goods. It is clear from Memo No. 2979(3)-FS/Sect./Food/4P-02/2016 dated 08.12.2020 read with Memo No. 569(3)-FS/Sect./Food/4P-02/2016/2021 dated 18.02.2022 that the total supply price is Rs.260.48 for milling services to produce 95 kg fortified atta from 100 kg wheat. The value of goods in the composite supply is not more than Rs.60/- being cost of elements for fortification and packing materials. So the percentage of value of goods in the composite supply is established to be lesser than 25% of the total supply value." 4.20 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, as amended, since the supply satisfies all the conditions specified in the said entr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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