In re PR Flour Mills Pvt Ltd (GST AAR West Bengal)
This article analyzes the case of PR Flour Mills Pvt Ltd in West Bengal, focusing on the value of supply of services for the conversion of wheat provided by the State Government into atta/fortified atta. The main question addressed is the determination of the applicable tax rate for this supply. The analysis delves into whether the supply qualifies as a composite supply and if it relates to functions entrusted to a Panchayat or Municipality. Additionally, it assesses whether the value of goods exceeds 25% of the total supply value, which impacts the eligibility for exemption under the GST Act.
Analysis: The applicant has entered into an agreement with the District Controller of Food and Supplies, Government of West Bengal, for the supply of fortified atta. This supply involves the conversion of wheat into atta/fortified atta. To assess the applicable tax rate, it is crucial to determine if this supply qualifies as a composite supply and if it is related to functions entrusted to a Panchayat or Municipality.
According to the definition in clause (30) of section 2 of the GST Act, a composite supply involves two or more taxable supplies of goods or services bundled and supplied together, with one being the principal supply. In this case, the milling services provided by PR Flour Mills Pvt Ltd constitute the principal supply, as they are integral to the conversion process.
To establish if the supply is related to functions entrusted to a Panchayat or Municipality, the agreement between the applicant and the State Government is examined. The agreement is executed in accordance with relevant guidelines and orders governing the Public Distribution System. Based on these provisions, the supply can be deemed to be in relation to functions entrusted to a Panchayat under article 243G of the Constitution.
Another crucial aspect is whether the value of goods in the composite supply exceeds 25% of the total supply value. The applicant claims that the value of supply of services for milling wheat should be Rs. 260.48, considering non-cash considerations such as retained gunny bags and proceeds from the sale of bran and refractors. However, the value of goods in the supply is Rs. 60, which constitutes 23.03% of the total supply value, well below the 25% threshold.
Conclusion: Based on the analysis, it can be concluded that the supply of services for the conversion of wheat into atta/fortified atta by PR Flour Mills Pvt Ltd qualifies as a composite supply. Furthermore, it is related to functions entrusted to a Panchayat under the Constitution. As the value of goods in this supply does not exceed 25% of the total supply value, it meets the exemption criteria under entry serial no. 3A of the Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017.
The applicable tax rate for this composite supply would be 5% if provided to a registered person as a job work service. However, since the applicant receives consideration in cash only to the tune of Rs. 136.48, itdoes not meet the criteria for job work service. Therefore, the composite supply remains eligible for exemption under entry serial no. 3A of the mentioned notification.
In conclusion, PR Flour Mills Pvt Ltd’s supply of services for wheat conversion into atta/fortified atta is analyzed in terms of its value and tax rate. The article explores the composite nature of the supply, its relation to Panchayat functions, and the percentage of goods’ value in the total supply. Ultimately, it is determined that the supply qualifies for exemption and is not subject to the job work service tax rate.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, WEST BENGAL
1.1 At the outset, we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression GST Act’ would mean the CGST Act and the WBGST Act both.
1.2 The applicant is stated to be engaged in the business of selling flour (atta) and providing service of job work in the nature of crushing food grains supplied and owned by Food & Supplies Department, Government of West Bengal.
1.3 The applicant submits that he has entered into an agreement with the District Controller of Food and Supplies, Kolkata, Government of West Bengal for supply of fortified Wholemeal Atta. According to the said agreement, the State Govt. (Food & Supplies Department) sends the whole, unpolished food grain to the applicant for crushing and processing it into flour. The applicant returns the flour(atta) packed in the manner as the State Govt. requires by fortifying the crushed grain with the vitamin which is then distributed through the Public Distribution System (PDS) by the State Govt. (Foods & Supplies Department).
1.4 The applicant has made this application under sub-section (1) of section 97 of the GST Act and the rules made there under raising following questions vide serial number 14 of the application in FORM GST ARA-01:-
(i) Whether the instant composite supply of service by way of milling of food grains into flour to Food & Supplies Department, Govt. of West Bengal for distribution of such flour under Public Distribution System is eligible for exemption under entry No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017?
(ii) What shall be rate of GST on such milling, if it does not fall under entry No. 3A?
1.5 The aforesaid questions on which the advance ruling is sought for are found to be covered under clause (b) and (e) of sub-section (2) of section 97 of the GST Act.
1.6 The applicant states that the question raised in the application has neither been decided by nor is pending before any authority under any provision of the GST Act.
1.7 The officer concerned from the revenue has raised no objection to the admission of the application.
1.8 The application is, therefore, admitted.
2. Submission of the Applicant
Fact of the case as submitted by the applicant along with interpretation of law made by him is reproduced herein under:
2.1 The Indian Food Security System was established to distribute food and non-food items to India’s poor at subsided rates. Major commodities are distributed including staple food grain, sugar and essential things like kerosene through a network of fair price shops distribution and is managed by State Government through the ration shops. Basic objective of Public Distribution System is to serve the below poverty line family. The Essential Commodities Act, 1955 was legislated to provide in the interest of general public control of production, supply and distribution and trade and commerce in certain commodities. Control, Production, supply, distribution etc. of essential commodity is controlled as per the provision of section 3 of the said Act 1955. The West Bengal Public Distribution System (Maintenance and Control) Order, 2013 has been issued in exercise of power conferred by Section 3 of The Essential Commodities Act 1955 and the same extends to the whole of West Bengal except the area where the West Bengal Urban Public Distribution System (Maintenance and Control) Order, 2013 is in force with Government of India Ministry of Consumer Affairs.
2.2 The West Bengal Urban Public Distribution System (Maintenance and Control) Order, 2013 has been issued in exercise of the power conferred by Section 3 of the Essential Commodities Act 1955 read with the Ministry of Consumer Affairs, Food and Public Distribution Department Order No. G.S.R. 630(E) dated 31.08.2001. It extends to the urban area of West Bengal.
2.3 The West Bengal Public Distribution System (Empanelment of Flour Mill and Milling of Fortified Atta/Wholemeal Atta) guidelines 2017 has been framed in pursuance of clause 36 and
37 of the West Bengal Public Distribution system (Maintenance and Control) Order 2013 and class 33 and 34 of West Bengal Urban Public Distribution System and is in control 2013. Agreement herein means agreement made between the state government and owners of flour mills thereof in accordance with the provision of the said Guidelines, 2017, as defined in Para 2(1)(a) of the said Guidelines. Para 3 deals with empanelment of flour mills whereas para 6 deals with renewal of empanelment. Paragraph 4(2) of the said guideline, 2017 provides that the empanelled flour mill shall not indulge in private milling for commercial purpose except with the prior consent of the state Government. Para 20 of the said Guideline reads as follows:-
20. Maintenance of Register and furnishing returns –
(1) A separate register shall be maintained by the owner of flour mill to keep records of wheat received, milled and fortified atta/whole meal atta delivered by you.
(2) Every owner of flour mill shall furnish fortnightly return to the district controller (food and supplies) containing as abstract of the above account and a monthly return which must reach the District Controller, Food and Supply as per format as may be provided by District Controller, Food and Supply or by the Director, District Distribution of Procurement & Supply (DDP&S).
2.4 The aforesaid activity of Public Distribution System is in relation to the function of safe guarding the interest of weaker section of the society, entrusted to a municipality under Article 243W read with twelfth schedule of the Constitution of India as because para 2(f) of the West Bengal Urban Public Distribution System (Maintenance and Control) Order, 2013 is relevant which speaks as follows:-
2(f) “Below poverty line family” means those family who have been identifies as such by the concerned authority under the Government of West Bengal and to whom BPL Ration Cards have been issued for distribution of public Distribution Commodities under BPL Scheme along with other specified items of daily use under Public Distribution System.
2.5 The applicant has given a brief account of the job work done in the nature of crushing food grains supplied and owned by Food & Supplies Department, Govt. of West Bengal which is enumerated as below:-
(a) The State Govt. (Food & Supplies Department) sends the whole, unpolished food grain to the applicant for crushing and processing into flour.
(b) The applicant returns the flour packed in the manner as the State Govt. requires by fortifying the crushed grain with the vitamin. The packing material is supplied by the applicant.
(c) The flour is disturbed through the Public Distribution System (PDS) by the State Govt. (Foods & Supplies Department).
(d) By crushing 100 kgs of wheat, 95 kgs of flour and by -product in the form of 4 Kgs of Bran and 1 kg of refractor is generated.
(e) The cash consideration paid for the senders of crushing is Rs.136.48/-.
(f) Further, the applicant also gets non cash consideration in the form of being allowed to retain 4 Kgs of Bran and 1 kg of refractor which is sold in the open market realizing Rs.81. Further Rs.43/- is realized by selling gunny bags which is used by the State Government for sending gunny bags to the applicant.
(g) Therefore, total non-cash consideration is Rs.124/-.
(h) Details of cash and non-cash consideration is as below: –
