Value of Supply of Services Includes Both Cash & Non-Cash Consideration: AAR [Read Order]

The West Bengal Authority for Advance Ruling (AAR) has held that the value of supply of services shall include both cash and non-cash consideration.

The applicant, Aryan Flour Mills Private Limited, a flour miller based in West Bengal, provides services to the State Government of West Bengal by converting wheat into fortified atta (flour) for distribution through the Public Distribution System (PDS).

The applicant, represented by Mr. Manish Raj sought clarification regarding the value of supply of services provided by them to the State Government and the Goods and Services Tax (GST) rate applicable on the value of supply.

The applicant also needed clarity on what components are to be included in the calculation of the percentage of value of goods in the total value of composite supply for the purpose of Notification No. 2/2018- Central Tax (Rate).

The AAR recognised that the services provided by the applicant constitute a composite supply of goods and services wherein the principal supply in this composite supply is the service of milling wheat into flour. The agreement with the State Government involves not only milling but also fortification and packing of the flour.

The applicant argued that the value of goods involved in the supply should be considered only in cash terms.

The authority determined that the composite supply is made in relation to a function entrusted to a Panchayat under Article 243G of the Constitution of India and certain exemptions apply to supplies related to such functions.

However, the AAR disagreed and stated that the value of supply includes both cash and non-cash considerations which included gunny bags, bran and refraction. The value of these non-monetary considerations was known at the time of supply, making them a part of the total value.

The authority referenced a memo from the Department of Food & Supplies, Government of West Bengal, which clarified that the total value of supply included the notional value of gunny bags and by-products (bran and refraction) retained by the miller, irrespective of the actual disposal price of these goods in the future.

The authority comprising Tanisha Dutta (CGST Member) and Joyjit Banik (SGST Member) concluded that the value of goods involved in the composite supply did not exceed 25% of the total supply value, and therefore, the instant supply of services by the applicant to the State Government for milling wheat into flour, fortification and distribution under the PDS was eligible for exemption under entry serial no. 3A of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

This ruling highlights the importance of considering the total value of supply, including non-cash components, when determining the tax implications of a transaction.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates