Contract of Job Work Activity of Custom Milling of Paddy, Transportation of Rice and Usage Charges of Gunny Bags Taxable at 5% as ‘Composite Supply’: AAR [Read Order]

The Chattisgarh Authority of Advance Ruling in an application filed by M/s. Taranjeet Singh Tuteja & Brothers ruled that a contract for custom milling involves transportation of paddy. Hence, custom milling being the principal supply attracts 5% GST by virtue of being ‘Composite Supply’ under Chattisgarh Goods and Services Tax Act (CG GST Act, 2017).

The advance ruling was requested regarding tax liability in the business of job work activity of custom milling of paddy involving milling activity of transportation of rice and usage charges of gunny bags.

The applicant has executed an agreement for custom milling of paddy with the Chattisgarh State Marketing Co-Operative Federation Ltd., Raipur for production of rice on job work. The applicant in fulfillment of its obligations under the agreement has to collect paddy from primary Co-operative Societies and transport its 67% to applicant’s milling site and from such site to the various delivery centers of Food Corporation of India the transport costs for all of which shall be borne by MARKFED. Applicant receives milling charges and incentive as decided by the State Govt. of Chattisgarh.

The applicant contends that the transport of paddy and rice is exempt under Notification No. 12/2017. Further, that the ‘incentive’ given by the MARKFED should be considered as ‘subsidy’ and not be included in taxable value under Section 2(31) of CGST Act, 2017.

The bench constituting of Shri. S.K. Buxy and Shri. Rajesh Kumar Singh while analyzing the relevant provisions points out 3 service supplies rendered by the applicant. These include: milling of paddy, transport of paddy and rice and incentive for custom milling of paddy.

The Authority while ruling for the applicant’s contention of ‘exemption’ went to examine the meaning of ‘subsidy’ to be related with State welfare of the public and which is extended to public at large. It ruled that the present service is not a ‘subsidy’ but ‘incentive’. With regard to the treatment of transportation supply of paddy and rice, it was pointed out that the contract with MARKED was primarily for custom milling which involves transportation of paddy. Hence, this makes custom milling the ‘Principal Supply’ attracting 5% GST by virtue of being ‘Composite Supply’.