Milling Services for PDS Flour Exempt from GST as Goods Component Stays Below 25% Threshold: AAR [Read Order]

The West Bengal bench of the Authority for Advance Ruling (AAR) held that milling services provided for the production of fortified flour distributed under the Public Distribution System (PDS) are exempt from Goods and Services Tax (GST). It was observed by the bench that the exemption applies as the value of goods involved in the composite supply does not exceed 25% of the total value of the supply, meeting the criteria under Entry No. 3A of Notification No. 12/2017-Central Tax (Rate).

It is to be noted that the applicant, Shree Krishna Roller & Flour Mills, had contracted with the Governor of West Bengal, represented by the District Controller of Food & Supplies, to convert wheat owned by the State Government into atta/fortified atta for distribution through the Public Distribution System (PDS), as per the Eleventh Schedule of the Constitution of India.

 Two important questions were raised by the applicant and they include:

• What is the value of supply and rate of tax of services of conversion of wheat into fortified atta which in turn is supplied by the State Government through the Distribution system?
• What components are to be included to calculate the value of goods involved in the supply for the purpose of Notification No. 2/2018- Central Tax (Rate)?

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The bench noted that the applicant was empaneled to mill wheat into wholemeal atta, fortify it with essential nutrients, and pack it in labelled poly-packs (50 microns or more) and these activities qualify as a "composite supply" under Section 2(30) of the GST Act, with milling as the principal supply.

The AAR further observed that the applicant's milling services for the West Bengal government, supplying atta for PDS distribution, qualify as a composite supply under Article 243G of the Constitution and as per entry 28 of the Eleventh Schedule, and since the goods' value remains within 25% of the total supply, it falls within this classification.

The AAR noted that the company’s activities qualify as a composite supply under the GST Act, where the principal supply is the service of milling wheat into flour, and the ancillary supplies include fortification and packing materials. The total value of the supply was determined to be Rs. 260.48 per quintal of wheat, which includes both cash and non-cash considerations. The cash consideration amounts to Rs. 136.48, while the non-cash consideration includes the retention of gunny bags, bran, and refraction, valued at Rs. 124. The value of goods involved in the supply, such as fortification materials and packing charges, was calculated at Rs. 60, which constitutes 23.03% of the total value of the composite supply.

The AAR comprising of  Members Tanisha Dutta and Joyjit Banik noted that the applicant's milling services for the West Bengal government, supplying atta for PDS distribution, qualify as a composite supply and are exempt under Entry 3A of Notification 12/2017-Central Tax (Rate), as the goods' value does not exceed 25% of the total supply.

To Read the full text of the Order CLICK HERE

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