Wheat crushing services provided to the State Government are eligible for exemption if the ‘value of goods’ is less than 25% of the value of the supply.
The AAR, West Bengal, in Aryan Flour Mills Private Limited [Advance Ruling No. 14/WBAAR/2023-24 dated July 13, 2023] held that, crushing of wheat and addition of nutrients in atta is a composite supply and the principal supply is crushing service. The service are provided to state government under Public distribution and since the value of goods involved in such composite supply does not exceed 25% of the value of supply thus, the Applicant is eligible for exemption under Sl. No. 3A of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017 (“the service rate exemption notification”).
Facts:
M/s. Aryan Flour Mills Private Limited (“the Applicant”) is a floor miller, engaged in providing services of wheat crushing. As per the contract between the Applicant and the West Bengal State Government dated September 06, 2017 the Applicant will be provided with the wheat which is owned by the State Government, for conversion into fortified atta for distribution to public through Public Distribution System (PDS).
The Applicant thereafter is required to pack the crushed stock of whole wheat atta, which is later delivered to the Distributors for further distribution to the consumers.
The Applicant contended that the process of crushing does not amount to supply of goods rather it is a process carried out which is supply of services and addition of nutrients to the atta cannot be considered as a separate/ distinct supply of goods since, it is an integral part of the process of such conversion.
The Applicant has sought an advance whether it is eligible for exemption and if not what will be the value of supply and rate of tax applicable on supply of service.
Issue:
Whether the Applicant is eligible for exemption provided under Sl. No. 3A of the service rate exemption notification.
Held:
The AAR, West Bengal, in Advance Ruling No. 14/WBAAR/2023-24 held as under:
- Observed that, the crushing of wheat and addition of nutrients to atta is a composite supply of service.
- Noted that, in light of Circular No. 153/09/2021-GST dated June 17, 2021, the service provided by the Applicant is in relation to any function entrusted to a Panchayat under article 243G of the Constitution.
Further noted that, as per Circular No. 153/09/2021- GST dated June 17, 2021 entry No. 3A only apply to composite supply of milling of wheat and fortification thereof if the value of goods supplied in such composite supply does not exceed 25% of the value of composite supply.
- In respect of valuation, the Authority relied upon the Judgement of AAAR, Andhra Pradesh in Re: Sri Kanakadurga Rice and Flour Mill [Advance Ruling No. 180 of 2020 dated March 24, 2020] wherein it was held that, the value of by-products so retained by the Appellant shall be included as part of value of supply and also to be termed as a bona fide form of consideration.
- Opined that, value of supply shall be the consideration in money and also include all the components towards non-cash consideration.
- Noted that, the value of goods involved in the present case is within the limit specified in Sl. No. 3A of the service rate exemption notification.
- Held that, the Applicant is eligible for exemption under Sl. No. 3A of the service exemption notification.
Conclusion: The AAR West Bengal’s ruling in favor of Aryan Flour Mills sets a precedent for similar service providers engaged in wheat crushing for state governments. This case confirms that when the value of goods involved is less than 25% of the composite supply, the service provider is eligible for tax exemption. The decision brings clarity in tax treatment, giving a boost to service providers like Aryan Flour Mills, contributing to public distribution systems.
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