Sakshi Jhajharaa (GST AAR West Bangal); Order No. 41 of WBAAR/2020-2021; Dated: 10/02/2020

Representative: Mr. Manish Raj Dhandharia, FCA

Case Study on Crushing Services provided to the State Government for supply through PDS.

A recent development in the services supplied by the millers to the State Government has been unearthed wherein the qualification of food grain crushing services for PDS supply covered under Sl. No. 3 or 3A under Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017, as amended from time to time has been put to question ever since the Government came up with Circular 126/45/2019-GST dated 22.11.2019 for clarifications relating to various job work services as mentioned in the amended Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017.

Doubts had been raised relating to understanding of the items mentioned under (id) and (iv) under SAC 9988 as they were construed as residuary provisions. The Tax Research Unit later clarified that the services falling under (id) would qualify as job work services and would be taxed @5% whereas those under item (iv) would not qualify as job work, consequently being taxable @18%.

Some of the taxpayers were considering this supply as job work services and paying tax at the rate of 5%, i.e. as per the applicable rate under SAC 9988, failing to give cognisance to that fact the Government is treated as an unregistered person under the Goods and Services Tax Laws.

This means that the above-mentioned services do not qualify as job work services but are Manufacturing services falling under item (iv) as mentioned in Notification No. 20/2019-Central Tax (Rate), dated 30.09.2019. Moreover, the value of supply was often calculated without taking into consideration the non-cash consideration received from the State Government.

The matter was put before the Hon’ble Advance Ruling Authority of West Bengal.

In the said Advance Ruling filed before the Learned Authority, it was ruled that

 “lf the Applicant’s agreement with the State Government binds both the supplier and the recipient in such a way that neither can divert the food grains to any use other than distribution through PDS, the Applicant’s composite supply of crushing the food grains belonging to the State Government and delivery of the crushed grains will be exempt under Sl No. 3A of Notification No 12-2017 CT (Rate) dated 28/06/2017 (corresponding State Notification No. 1136 – FT dated 28/06/2017), as amended, provided the proportion of the packing materials in the composite supply in value terms does not exceed 25%”

In conclusion, it was ruled that, if the proportion of packing materials exceeds 25% of the value of composite supply, the outward supplies in this case, will be taxable. However, if the packing materials, i.e. the component of goods in the composite supply does not exceed 25%, the outward supplies would be exempt in pursuance of Notification No. 12/2017- Central Tax (Rate), dated 28.06.2017 as amended from time to time.

After obtaining the advance ruling, the tentative values were calculated to examine the applicability of 25% goods component.

The Estimated Consideration is as follows:

Flour Millers to be paid for crushing of 100 Kg of Wheat Cost of 95 Kg Atta (In ₹)






Crushing Charges

Fortification Costs

Packing Charges

Transportation & Handling Charges

Consideration from sale of Bran (4*₹20/kg) (Non-Cash)

Consideration from Sale of Refractors (1*₹1/Kg) (Non-Cash)







G Total (A+B+C+D) 260.48



Less: Non-Cash Consideration

Less: Cost of 2 Gunny Bags

Less: Receipt from Sale of Bran and Refractor



K Net Total (Cash Consideration) 136.48

The business process is explained in the following steps:

  • The State Government consigns (say) 1 Quintal, i.e. 100 Kgs of Wheat for Crushing to the Millers.
  • 1 Quintal would tentatively produce 95 Kgs of Atta and by-products in the form of 4 Kgs of Bran and 1 Kg of Refractors.
  • The Consideration for Crushing, Fortification, Packing and Transportation for Atta is Estimated to be calculated at Rs 179.48.
  • The by-products generated are sold in open market at Rs 20/kg of Bran and Rs 1/Kg of Refractor realising a total of Rs 81/Quintal.
  • The Packing Charges paid here by the State Government, i.e. Rs 50 per 95 Kgs of Atta is paid in respect of Packing of Atta in Plastic packaging
  • The cost of Gunny Bags that has been reduced is the bag used by the State Government for furnishing the wheat to the Milling Company. It is sold by the Milling Company in open market.
  • The consideration received from sale of Bran and Refractors is reduced as they are equivalent to consideration other than cash.

In view of the above, it may be inferred that Rs 136.48 is the cash consideration while Rs 124 is the consideration other than Cash.

To explain further, when the State Government is providing 100 Kgs of Wheat, it is taking 95 Kgs of Atta. 5 Kgs of by-products are generated which is bifurcated into Bran and Refractions in the Ratio 4:1. These by-products are sold in the open market for a consideration of Rs 81 (approximately). The amount realised from these by-products may be construed as consideration received from the Government in forms other than cash. The realised value should therefore be included in the Value of Supply as per Central Goods and Services Tax Act, 2017.

The total Value of Supply is ₹ 260.48

The Packing charges received in this transaction being Rs 50, is 19.20% of the total Value of Supply. The amount of money paid in this transaction for packing charges includes the goods as well as services component, bifurcation of which will naturally render the value of goods only component as less than 25% of the total value of supply.

We are of the opinion that in a situation like this, the taxpayer should avail the exemption available under Notification 12/2017-CT(R), dated 28.06.2017. We had applied for an Advance Ruling for determination of rate of tax in the capacity of a practitioner. We would appreciate suggestions and counter arguments, if any from your end.

Disclaimer: The views expressed in this article are based on the interpretation and analysis of the author and should not be used practically without consultation with the author. It is not legally binding.


Amended Notification 12/2017-Central Tax (Rate), dated 28.06.2017

Amended Notification 11/2017-Central Tax (Rate), dated 28.06.2017

Notification 20/2019-Central Tax (Rate) dated 30.09.2019

Circular 126/45/2019-CGST, dated 22.11.2019

Author Bio

Qualification: CA in Practice
Company: Kedia Dhandharia & Co.
Location: Kolkata, West Bengal, IN
Member Since: 15 May 2018 | Total Posts: 4

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