5% GST applicable on Paddy Custom Milling: AAR [Read Order]

The activity of Custom Milling Paddy is liable to Goods and Services Tax ( GST ) at the rate of 5% - ruled by the Authority of Advance Ruling ( AAR ), Chhattisgarh.

The applicant M/s Chopra Trading Company a partnership firm registered under the relevant provisions. It is a registered taxpayer engaged in the manufacturing of Rice, Broken Rice, Rice Bran etc.

The applicant asserted that the activity of rice custom milling is predicated upon the applicant's primary line of business. In the process of custom milling rice, the State Government distributes paddy to each and every rice miller in the State with instructions to transform the paddy into rice and then deliver it to the State Government.

The State Government subsequently supplies the rice to poor people under the public distribution scheme under the State as well as Central pool.

Furthermore submitted that the applicant has to work in accordance with the directions issued by the agency of the State Government, i.e. Chhattisgarh State Marketing Co-operative Federation (CG-MARKFED).

The officials of MARKFED direct the applicant to collect and procure paddy from assigned warehouses and thereafter once the paddy is converted into rice, the same has to be supplied to assigned warehouses.

It was submitted that the whole process involving the custom milling of rice involving transportation, storage, conversion, packaging, supply, etc. is a time bound process failing which the applicant is imposed huge penalties.

The authority noted that the applicant was asking for an advance judgement on the custom milling of paddy into rice and claiming tax exemption on the basis that this is a task assigned to a panchayat under Article 243C of the Indian Constitution.

It was observed that the applicant's contention that they are undertaking the public distribution system function, which is a function delegated to a Panchayat under the Constitution of India, is false and appears to be based on a misconstrued notion in that the applicant is engaged to conduct activity on behalf of the government in exchange for monetary consideration for purely commercial gain.

The bench of Sonal K. Mishra and Rajesh Kumar Singh mentioned that, pursuant to notification No. 31/2017-CT(R) [notification No. 11/2017-CT(Rate) dated 28.6.17, S. No. 26 refers], the 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 whittled down from 18% to 5%.

It was made abundantly clear that the processing fees for milling paddy into rice on a job-work basis are subject to GST at the rate of 5%. (and not on the entire value of rice).

To Read the full text of the Order CLICK HERE

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