Case Law Details
In re Shree Krishna Roller & Flour Mills (GST AAR West Bengal)
West Bengal Authority for Advance Ruling (AAR) examined the GST implications on the conversion of wheat into fortified atta under a contract with the State Government for distribution through the Public Distribution System (PDS). The applicant, Krishna Roller & Flour Mills, provides milling services but does not take ownership of the wheat or atta. The ruling primarily focused on determining the value of supply, applicable GST rate, and components to be included in the valuation under Notification No. 2/2018- Central Tax (Rate).
The applicant argued that its services fell under an activity entrusted to a Panchayat under Article 243G of the Constitution, making them eligible for GST exemption. Relying on Circular No. 153/09/2021-GST, it claimed that if the value of supplied goods in a composite supply exceeded 25%, the applicable GST rate would be 5% under Entry 26 of Notification No. 11/2017- Central Tax (Rate). The State Government paid Rs. 179.48 per quintal for the service, with Rs. 43 deducted for gunny bags retained by the applicant as non-monetary consideration. The applicant also retained by-products like bran and refraction, which were sold in the open market.
Regarding admissibility, the AAR considered whether a pending Directorate General of GST Intelligence (DGGI) inquiry barred the advance ruling application under Section 98(2) of the CGST Act. Referring to the Telangana High Court’s decision in M/s Srico Projects Pvt. Ltd. vs. Telangana State Authority for Advance Ruling (2022), the AAR held that an inquiry does not constitute a “proceeding” under the Act unless it involves specific adjudication. Since no show-cause notice or demand order had been issued, the AAR admitted the application.
The ruling is expected to clarify the taxability of similar contracts across India, particularly those involving public welfare schemes. It also reinforces the criteria for determining whether milling services qualify as exempt supplies under GST or attract a 5% rate under job work provisions.
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 Public Distribution System and 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).
FULL TEXT OF ORDER OF AUTHORITY OF 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 a flour miller, engaged in providing services of crushing wheat provided by the State Government, into fortified atta which in turn is supplied by the State Government through Public Distribution System. The ownership of wheat or atta is never transferred to the applicant.
1.3 The applicant has made this application under sub section (1) of section 97 of the GST Act and the rules made there under seeking an advance ruling in respect of following questions:
i. What is the value of supply of services provided by the applicant company to the State Government?
ii. What is the rate of tax applicable on the value of supply? What components are to be included in calculation of the % of value of goods in the total value of composite supply for the purpose of Notification No. 2/2018- Central Tax (Rate)?
ADMISSIBILITY OF THE APPLICATION (Admission hearing on 21.06.2024)
1.4 The applicant submits that the first proviso to Section 98(2) of the CGST Act, 2017, stipulates a bar on the admissibility of the application before the Advance Ruling only if the question raised in the application is already pending or decided in any proceedings in the case of an applicant. In the instant case, the advance ruling has been filed on the question of value of supply and rate of tax.
During the month of December, 2020, summon were issued by the Directorate General of GST Intelligence (DGGI) under section 70 of the CGST Act, 2017. The inquiry so initiated by the DGGI has no whisper of any specific matter/allegation in relation to which inquiry was held.
The applicant humbly submits that no show cause notice or order has been passed in connection with the said inquiry, till date.
Therefore, it can be successfully contented that no proceeding was neither initiated by the department nor has been adjudicated by the department. Hence, the inquiry so initiated by the department draws no connection with the subject matter involved before the Advance Ruling authority. Under such circumstances, the bar on the admissibility of the Advance Ruling as envisaged in provision of Section 98(2) of the GST Act, is not applicable in the given facts and circumstances of the case.
First proviso to Section 98(2) imposes a bar on the admissibility of the application only to the extent that the questions raised in the advance ruling are already pending or decided in any proceedings in the case of an applicant under any of the provisions of this Act. Therefore, it is not the case that any proceeding will act as a bar on the admissibility of the advance ruling application. Only those proceeding, the subject matter of which is identical with the questions of the application is restricted by the provision of Section 98(2) of the CGST Act, 2017.
Furthermore, such restriction has been imposed by legislature with the intent to restrict parallel proceeding on the same cause of action and to avoid ambiguity in the decision of the authority.
The Applicant relies upon the decision of Hon‟ble Telangana High Court in the matter of M/s. Srico Projects Pvt. Ltd., vs. Telangana State Authority for Advance Ruling reported in 2022 (9) TMI 418 wherein the Hon‟ble Court had quashed and set aside the order passed by the respondent authority and held that the respondent was not justified in rejecting the advance ruling application of the petitioner. It was observed that in the absence of any specific definition of the word „proceeding‟, the said word has to be understood in the context in which it is being applied, namely, any proceedings pending or decided in the case of an applicant under the provisions of the CGST Act, it would only mean proceedings where the question raised in the application for advance ruling has already been decided or is pending decision. Therefore, inquiry or investigation which is not in the nature of any proceeding would not come within the ambit of the word “any proceedings”. It cannot be a bar under the first proviso to sub-section (2) of Section 98 of the CGST Act, 2017.
Furthermore, the Hon‟ble High Court in para 13 has thrown light on the whole issue by using the word “Be that as it may”, meaning thereby that in any application before the Advance Ruling, the first proviso to Section 98(2) shall not be bar just because that any proceeding is pending or decided, it must have a direct correlation with the subject matter or the questions raised before the Advance Ruling authority. Relevant paras has been reproduced below:
12. Though the word “proceedings” has neither been defined in Chapter XVII nor in the definition clause i.e., in Section 2 of the CGST Act, if the said word is understood in the context in which it is being applied, namely, any proceedings pending or decided in the case of an applicant under the provisions of the CGST Act, 2017, it would mean proceedings where the question raised in the application for advance ruling has already been decided or is pending decision. Therefore, inquiry or investigation would not come within the ambit of the word “proceedings”.
13. Be that as it may, in so far the present case is concerned, there is no dispute to the fact that the petitioner had filed the application for advance ruling on11.05.2019. From the order dated 03.06.2022, it is evident that notice was issued to the petitioner by DGGI on 15.12.2021 much after filing of the application for advance ruling. In our considered opinion, the same cannot be a bar under the first proviso to sub-section (2) of Section 98 of the CGST Act and the question of petitioner informing the Authority that it was being enquired into did not arise because the application was filed much prior in point of time.
With regard to questions raised in the advance ruling application on the value of supply of services, value of supply of goods and rate of GST applicable on such supplies provided by the Applicant to the State Government, the applicant humbly submits that no proceeding has been initiated on this issue and the impugned question is free from any proceeding under this Act.
In such backdrop, the company humbly submits that the questions raised in the instant application are not pending or decided in any proceeding under this Act. Therefore, the application in all its legal right deserves to be admitted.
1.5 In terms of first proviso to sub-section (2) of section 98 of the GST Act, an application for Advance Ruling made under sub-section (1) of section 97 shall not be admitted by the Authority where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions of the GST Act. We have duly considered the submission made by the applicant. We find that the fact of the case of M/s Srico Projects Pvt. Ltd. vs. Telangana State Authority for Advance Ruling, on which the applicant has placed his reliance, is different from the case of the applicant. In the above-referred case, the application for advance ruling was filed on 11.05.2019 and notice was issued by the DGGI on 15.12.2021 i.e., much after the filing of application for advance ruling. The Hon‟ble Court thus held that „the same cannot be a bar under the first proviso to sub-section (2) of section 98 of the CGST Act‟. In the instant case, the DGGI had initiated inquiry in the month of December, 2020 while the applicant has filed the application in the month of May, 2024. However, the applicant has submitted that no show cause notice or demand order was issued by DGGI and no specific question with respect to any matter were issued by DGGI. The Hon‟ble Telangana High Court, in para 12 of the aforesaid order, has observed that „inquiry or investigation would not come with the ambit of the word „proceedings‟. On due consideration of the fact that no specific question or show cause notice has been issued by the DGGI, we are of the opinion that the instant application is not hit by the first proviso to section 98(2).
1.6 The aforesaid questions on which the advance ruling is sought for are found to be covered under clause (b) and (c) of sub-section (2) of section 97 of the GST Act.
1.7 The applicant states that the questions raised in the application have neither been decided by nor are pending before any authority under any provision of the GST Act.
1.8 The application is, therefore, admitted.
2. Submission of the Applicant
The submission of the applicant is enumerated as under:
2.1 The applicant has entered into a contract with the Governor of the State of West Bengal represented by the District Controller of Food & Supplies (hereinafter referred to as the State Government) for conversion of wheat provided by the State Government and owned by the State Government, at all times, into atta/ fortified atta, for distribution by the State Government through Public Distribution System (for brevity, PDS), as entrusted under the Eleventh Schedule of the Constitution of India.
2.2 The applicant has been selected for empanelment for crushing of wheat meal atta and fortify it by premixing of micro nutrients containing (i) Vitamin A-500 μg RE- 750 μg RE, (ii) Vitamin B12- 0.75 μg- 1.25 μg, (iii) Iron: Ferrous(II) Citrate:28mg-42.5mg or Sodium Iron(III) EDTA: 14 mg-21.5 mg, (iv) Folic Acid- 75μg- 125μg per kg in 1 Kg poly pouch/packet(1 kg wheat ≅ 950gm fortified atta)(having thickness of poly pouch not less than 50 microns).
2.3 Under the contract it shall obtain stock of wheat from the State Government. The ownership of wheat remains with the State Government and the applicant is required to convert the wheat into atta by way of crushing and mixing other ingredients as mentioned above.
2.4 As per the contract, the State Government and/or Director shall have the right to reduce and enhance the allocation of wheat of the existing mills any time depending upon inclusion of new mills in the scheme and exclusion of existing mills or changes in demand/requirement or any other reasons as deemed fit by the State Government and/or Director.
2.5 The contract specifies that the out-turn ratio of atta will be minimum of 95% per quintal of wheat allowing refraction of 1% for cleaning and 4% for debranning to the maximum.
2.6 As per the contract, the applicant will retain 1 kg refraction and 4 kg bran for conversion of each100 kg wheat. Further, as per the contract, the applicant will retain 2 gunny bags in which 100 kgs of wheat is supplied to him. The applicant states that it will incur additional packaging and marketing expenses to make the bran and refraction saleable in the market.
2.7 The contract stipulates that it shall pack the crushed stock of whole wheat atta after fortification into the poly pouches of 1 kilogram each in properly labelled poly-packs having thickness of 50 micros and or above and it will deliver the stock to the M.R. Distributors as nominated by the State Government for distribution to the consumers, immediately after the process of crushing.
2.8 The applicant does not gain ownership of either wheat or atta in the entire process of crushing it. This is substantiated by Clause 10(4) of the contract which states that the Applicant Firm shall under no circumstances sell the stock of atta in the open market. The atta is distributed only through PDS.
2.9 According to the applicant, there is no „supply‟ within the meaning of Section 7 of the Act, from the State Government to the Applicant Firm, during the process of providing it wheat.
2.10 The applicant will only be involved in the processing/ crushing of wheat into atta which involves mixing some ingredients as stated in para 2.3 above, which are incidental to the process of conversion of wheat into atta.
2.11 The applicant incurs expenses on purchase of the ingredients and packaging material and during the process of conversion of wheat into atta, by duly mixing the ingredients mentioned earlier, two types of wastes are generated, namely bran and refraction.
2.12 The bran and refraction generated will subsequently be retained by the applicant and sold in the open market at the prevailing market rates which is generally around Rs 20/- per kg for bran and Re 1/- per kg for refraction. This fact was further confirmed by the State Government of West Bengal, Department of Food and Supplies vide memo no. 569(3) – FS/Sectt/Food/4P-02/2016/2021 dated 18-02-2022.
2.13 The applicant will charge crushing charges from the State Government valued at Rs 179.48 per quintal. This rate was last notified by the Government of West Bengal, Food and Supplies Department vide memo no. 2583(3) – FS/Sectt/Food/4P-02/2016 dated 07-092018.
The following table reflects the bifurcation of this amount:
| Particulars | Amount (in Rs.) |
| Crushing Charges | 90.78 |
| Fortification Charges | 10.00 |
| Packing Charges | 50.00 |
| Transportation & Handling Charges | 28.70 |
| Total | 179.48 |
2.14 The applicant will receive wheat from the State Government in gunny bags and the State Government will leave it with the applicant for retention as well as non-monetary consideration.
2.15 The applicant will receive Rs 136.48 per quintal from the State Government after deduction of Rs 43/- for the 2 gunny bags, which is non-monetary consideration.
2.16 The applicant is engaged in the provision of services to the State Government by way of an activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution.
2.17 Notification No. 2/2018- Central Tax (Rate) dated 25th January, 2018 prescribes Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent. of the value of the said composite supply provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution, as a supply of services which is exempt from GST.
2.18 The Applicant submits that the relevant extract of Article 243G of the Constitution of India is reiterated as follows:
Article 243G of Indian Constitution: POWERS, AUTHORITY AND RESPONSIBILITIES OF PANCHAYATS:
Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow the Panchayats with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Panchayats at the appropriate level, subject to such conditions as may be specified therein, with respect to-
a. the preparation of plans for economic development and social justice;
b. the implementation of schemes for economic development and social justice as may be entrusted to them including those in relation to the matters listed in the Eleventh Schedule.
2.19 Entry 28 of the Eleventh Schedule of the Constitution of India lists: Public distribution system.
2.20 Circular No. 153/09/2021-GST dated the 17th June, 2021 on the subject GST on milling of wheat into flour or paddy into rice for distribution by State Governments under PDS, states that In case the supply of service by way of milling of wheat into flour or of paddy into rice, is not eligible for exemption under Sl. No. 3 A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 for the reason that value of goods supply in such a composite supply exceeds 25%, then the applicable GST rate would be 5% if such composite supply is provided to a registered person, being a job work service (entry No. 26 of notification No. 11/2017- Central Tax (Rate) dated 28.06.2017). Combined reading of the definition of job-work [section 2(68), 2(94), 22, 24, 25 and section 51] makes it clear that a person registered only for the purpose of deduction of tax under section 51 of the CGST Act is also a registered person for the purposes of the said entry No. 26, and thus said supply to such person is also entitled for 5% rate.
2.21 The provisions regarding value of supply are contained in Section 15 of the Act. Subsection (1) of Section 15 states that the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. According to the applicant, price is not the sole consideration for the supply in the given case.
2.22 The applicant reiterates that as per the contract the amount of consideration is as follows:
| Particulars | Amount (in Rs.) |
| Crushing Charges | 90.78 |
| Fortification Charges | 10.00 |
| Packing Charges | 50.00 |
| Transportation & Handling Charges | 28.70 |
| Total | 179.48 |
2.23 According to the applicant, in addition to the above, the cost of gunny bags is reduced from the amount of Rs 179.48/- as the State Government considers the retention of gunny bags by the applicant as non-monetary consideration. Therefore, the cash consideration paid by the State Government is Rs 179.48/- reduced by Rs 43/-, which is Rs 136.48/- per quintal. Further, as bran and refraction are to be included in the value of supply, the valuation shall be done as follows:
- Since price is not the sole consideration for supply, the provision of Rule 27 would apply which govern the provisions of value of supply of goods or services where the consideration is not wholly in money.
- Since the crushing service supplied by the applicant is customized its open market value is not available at the time of supply; the provisions of Rule 27(b) will be applicable which reads as follows:
“if the open market value is not available under clause (a), be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply;”
- The cash consideration is Rs 136.48/- per quintal. The non-monetary considerations include gunny bags, bran and refraction. The value of these non-monetary considerations is known at the time of supply as the net realizable value is ascertainable.
- Value of 2 gunny bags should be included in value of supply on the basis of consideration as defined by the Food and Supplies Department of Government of West Bengal in their Department vide memo no. 2583(3) – FS/Sectt/Food/4P-02/2016.
- Value of supply shall include the cash consideration received and net realizable value (i.e., sale value reduced by further processing costs) of non-monetary consideration which include gunny bags, bran and refraction.
- The component of goods in the said composite supply is packing material and vitamins. The value of supply of such packing material and vitamins as per the cost sheet provided by the State Government is Rs 50/- and Rs 10/- per quintal respectively. The value of the packing material and vitamins are calculated as per the cost sheet provided by the State Government and not as per actuals. Owing to the continuous nature of the contract, the actual value of the packing material and vitamins are not determinable at the time when GST is levied. Hence, consideration of the actual cost of packing material and vitamins would render the application of the aforesaid notification impossible.
2.24 The applicant thus contends that that the value of supply comes at Rs 260.48/-wherein the consideration for component of goods is received as packing charges and fortification charges received which amounts to Rs 60/-. Hence, the ratio comes to 60/260.48 x 100 = 23.03%. Since the component of goods in the composite supply does not exceed 25% of the value of supply, therefore the supply shall be exempted from GST.
2.25 The Applicant also submits that the Department of Food & Supplies of the Government of West Bengal, in its memo no. 569(3)-FS/ Sectt./Food/4P-02/2016/2021 (Annexure 4) dated 18.02.2022 explained that as the maximum value of involvement of goods in the composite supply is less than 25% of the total value of the said composite supply, it qualifies for exemption as per Entry 3A of Notification No. 12/2017-CT (Rate) dated 28.06.2017 read with State Notification No. 1136-FT dated 28.06.2017.
2.26 The West Bengal Appellate Authority for Advance Ruling in the case of M/s Maa Laxmi Enterprise on 31.05.2022 has observed as follows:
The supply value of milling of wheat in the instant case cannot be dependent on actual receipts by the miller in future from third parties in disposal of the retained goods. It is clear from Memo No. 2979(3)-FS/Sect./Food/4P-02/2016 dated 08.12.2020 read with Memo No. 569(3)-FS/Sect./Food/4P-02/2016/2021 dated 18.02.2022 that the total supply price is Rs.260.48 for milling services to produce 95 kg fortified atta from 100 kg wheat. The value of goods in the composite supply is not more than Rs.60/- being cost of elements for fortification and packing materials. So the percentage of value of goods in the composite supply is established to be lesser than 25% of the total supply value.
2.27 The applicant, in course of personal hearing, has submitted that he has recently been served with a Show Cause Notice bearing no-02/AE/AC/SKRFM/CGST/ASN-I/24-25 dated 03-08-2024, by the Ld. Assistant Commissioner, Asansole-I, Bolpur Division, on the issue of applicability of GST on the flour mills for crushing of wheat into fortified atta. In the instant case, the show cause notice on the subject matter has been issued much after the filing of the instant advance ruling application; accordingly, it is not restricted by the provision of Section 98(2) of the CGST Act, 2017.
3. Submission of the Revenue
The Assistant Commissioner, CGST & CX vide a written submission dated 28.08.2024 has stated as follows:
3.1 The Food & Supplies Department of West Bengal empanels the Flour Mills for supply of wheat and conversion thereof into Atta; that the millers after the issuance of allotment order, used to lift allotted wheat from the go-down of FCI; that for each one quintal of wheat, a Miller got two bags of 50 kg wheat; that, out of the 100 kg (1Quintal) of wheat received, a Miller was required to return only the 95 Kg of Fortified Atta and allowed to retain 5 kg wheat as 1% for Refraction and 4% for debranning.
3.2 The flour mills were crushing or grinding the wheat as allocated/ supplied by FSD, Govt. of West Bengal and were adding Minerals & Vitamins to the grinded/ crushed atta during the process of fortification of such Atta. Thereafter such fortified Atta were packed in the packing materials (pouches of 475, 950 grams and 50 kgs of jute/ HDPE bag) as per requirement and as prescribed by FSD, Govt of West Bengal. The packing materials and fortification materials (vitamins, minerals etc) are treated as supply of goods along with/ in addition to supply of services of crushing or grinding of wheat by the flour mills. The supply of services of crushing/ grinding of wheat as well as supply of goods, such as, packing materials, fortification materials is considered as “ composite supply” under the provisions of CGST Act, 2017, wherein supply of service of crushing wheat is the principal supply and supply of goods (packing materials and fortification materials) are ancillary to the principal supply.
3.3 Memo No. 2979 (3)-FS/Sectt/Food/4P-02/2016 dated 08.12.2020 issued by FSD, Govt. of West Bengal laid out the estimated consideration for the conversion of wheat into fortified atta as follows:
| Flour Mills to be paid for crushing of 100 kg of wheat | Estimated Cost (in Rs.) | |
| A | Crushing Charges | 90.78 |
| B | Fortification Cost | 10.00 |
| C | Packing Charges | 50.00 |
| D | Transportation & Handling Charges | 28.70 |
| E | Consideration from sake of Bran (4* Rs. 20/Kg) (Non- cash) | 80 |
| F | Consideration from sale of Refractors (1* Rs. 1/Kg) ( Non-cash) | 1 |
| G | Total(A+B+C+D+E+F) | 260.48 |
| H | Less: Non-cash Considerations | |
| I | Less: Cost of 2 Gunny Bags | -43 |
| J | Less: Receipt from sale of Bran and Refractor | -81 |
| K | Net Total (Cash Consideration) | 136.48 |
Further, an explanation dated 18.02.2022 was issued by FSD, Govt. of West Bengal which reiterated the follows-
Monetary consideration = Rs. 136.48 per quintal
Non-monetary consideration = Rs. 124 per quintal [Rs. 81(for 5kgs of wheat which was converted into bran after debranning and refraction and sold in open market) + Rs. 43 (two gunny bags)]
Therefore, the total consideration for the purpose of calculation of taxable value comes out to be Rs. 260.48 for crushing 100 kg of wheat.
3.4 Sl. No. 3A of Notification No.12/2017- Central Tax (Rate) dated 28.06.2017, as amended, exempts the composite supply of goods and service in which the value of supply of goods constitutes not more than 25% of the value of the said composite supply provided to the Central Government, State Government or Union Territory or local authority or a Government authority or a Government entity by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution or in relation of any function entrusted to a Municipality under Article 243W of the Constitution.
The said entry reads as follows:-
| (1) | (2) | (3) | (4) | (5) |
| 3A | Chapter 99 |
Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent of the value of the said composite supply
provided to the Central Government, State |
Nil | Nil |
3.5 During the course of investigation, the value of goods supplied i.e. goods/ materials used for fortification, packing material etc. that are procured by the flour mills from the open market, were examined. Upon scrutiny of evidences gathered in various cases (where substantial documents have been submitted and as per statement given the taxpayer) , it has been ascertained that the value of goods in composite supply (i.e. fortification material and packing material) has been found to be in the range of Rs. 81 to Rs. 123 (approx.) per quintal of wheat. The break-up of value of said goods supplied in such composite supply is brought out as under:-
a. Cost of pre-mixes used in fortification of Atta: Rs. 5 per 95 Kgs of Atta
b. Cost of packing materials supplied with fortified Atta in 950 gms of pouches: Rs. 76 to Rs. 85 per 95 Kgs of Atta
c. Cost of packing materials supplied with fortified Atta in 475 gms of pouches: Rs. 110 to Rs. 118 per 95 Kgs of Atta
d. Cost of HDPE bags for further packing of pouches at (b) and (c) above: Rs. 14 to Rs. 16 for 02 bags.
So the estimated cost of goods i.e.(packaging+ fortification) as per DGGI investigation arrives at Rs. 81 to Rs.123 which is 31% to 47% of total value of composite supply. (Details in Annexure A)
3.6 Therefore, the flour mills/ millers were required to pay GST @5% in respect of such composite supply to FSD, Govt of West Bengal from the date of registration obtained by jurisdictional office(s) of FSD and GST @18% is payable prior to date of registration/ GSTIN of jurisdictional FSD, namely, District Controller, Food & Supplies.
3.7 The rate was last notified by Govt of West Bengal, FDS vide memo dated 08.12.2020 (copy enclosed marked as Annexure B) which is as follows-
| Flour Mills to be paid for crushing of 100 kg of wheat | Estimated Cost (in Rs.) | |
| A | Crushing Charges | 90.78 |
| B | Fortification Cost | 10.00 |
| C | Packing Charges | 50.00 |
| D | Transportation & Handling Charges | 28.70 |
| E | Consideration from sake of Bran (4* Rs. 20/Kg) (Non- cash) | 80 |
| F | Consideration from sale of Refractors (1* Rs. 1/Kg) ( Non-cash) | 1 |
| G | Total(A+B+C+D+E+F) | 260.48 |
| H | Less: Non-cash Considerations | |
| I | Less: Cost of 2 Gunny Bags | -43 |
| J | Less: Receipt from sale of Bran and Refractor | -81 |
| K | Net Total (Cash Consideration) | 136.48 |
3.8 Value of packaging materials and fortification materials have been arrived on the basis of open market value.
3.9 The flour mills were crushing or grinding the wheat as allocated/ supplied by FSD, Govt. of West Bengal and were adding Minerals & Vitamins to the grinded/ crushed Atta during the process of fortification of such Atta. Thereafter such fortified Atta were packed in the packing materials (pouches of 475, 950 grams and 50 kgs of jute/ HDPE bag) as per requirement and as prescribed by FSD, Govt. of West Bengal. The packing materials and fortification materials (vitamins, minerals etc.) are treated as supply of goods alongwith/ in addition to supply of services of crushing or grinding of wheat by the flour mills. The supply of services of crushing/ grinding of wheat as well as supply of goods, such as, packing materials, fortification materials is considered as “composite supply” under the provisions of CGST Act, 2017, wherein supply of service of crushing wheat is the principal supply and supply of goods (packing materials and fortification materials) are ancillary to the principal supply.
3.10 A comparative study of Memo dated 08.12.2020 issued by the Food & Supplies Department, Government of West Bengal and the position emerging as per DGGI‟s investigation is given in the table below:
| Estimated cost of goods i.e. packaging material (in Rs.) (as per Memo dated 08.12.20 by WB Govt) | % of goods in composite supply | Estimated cost of goods i.e. packaging + fortification (in Rs.) (as per DGGI) | % of goods in composite supply |
| Rs. 50 | 19.20% | Rs. 81 to Rs. 123 | 31% to 47% |
Therefore, from the evidence gathered during the investigation, it is clear that the value of goods/ materials used for fortification, packing material etc. in respect of supply of such composite supply by flour mills/ millers to FSD, Govt. of West Bengal is more than 25% of value of “Composite Supply” i.e. Rs. 260.48.
3.11 The DGGI, Delhi had done detailed investigation on two aspects i.e.
i. Issue of taxability and the value on which tax is to be paid and % of tax
ii. Determination of value of goods (as percentage of composite supply)
Already many SCNs have been issued all over West Bengal including this applicant (SCN No. 02/AE/AC/SKRFM//CGST/ASN-I/24-25 dt 03.08.2024).
3.12 As per Section 98(2) of the Act, the Advance Ruling authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provision of the Act. As the issue regarding taxability of milling service was examined by the GST council in 43rd meeting held on 28.05.21 and clear cut guideline issued vide Circular No. 153/09/2021-GST dated 17.06.2021 thus no question of admitting any application in this regard arises. It is to be mentioned that DGGI, Delhi had initiated investigation in the year 2022 on this issue which is a specialized wing of CGST department. So any findings by the DGGI is accepted by the department.
3.13 As many taxpayers were involved in the instant issue, so the issue was elaborately discussed in GST Council meeting and Circular clarifying all aspects was issued. So there is no question of admitting any application regarding advance ruling arises. “Proceedings” here indicates deliberation/ in depth study of the issue. The case referred by the applicant is not relevant to the instant case/ issue.
3.14 Detailed clarification on the main issue is laid down in the Circular dated 17.06.2021 i.e.
i. whether Entry No. 3A would apply to composite supply of milling of wheat and fortification thereof by miller or not.
ii. For no taxability, goods supplied in such composite supply does not exceed 25% of the value of composite supply.
3.15 In the instant case, “inquiry and investigation” is part and parallel of the proceedings and the case referred is not similar to present case. Investigation/ inquiry is carried out to reach to a correct decision in any disputed issue and is considered as a part of proceedings. After issuance of Circular dated 17.06.2021 it appears that no question remained unattended on the present issue. So to admit any application further for advance ruling need not be entertained to restrict parallel proceeding on the same cause of action and to avoid ambiguity in the decision of the authority.
4. Observations & Findings of the Authority
4.1 We have gone through the records of the issue as well as submissions made by the authorized representative of the applicant in course of personal hearing. We have also considered the submission made by the revenue.
4.2 At the outset, we proceed to discuss on the submission made by the revenue. The revenue has contended that DGGI, Delhi had initiated investigation in the year 2022 on this issue and therefore the instant application cannot be admitted in terms of sub-section (2) of section 98 of the GST Act on the following ground:
i. “Inquiry and investigation” is part and parallel of the proceedings which is carried out to reach to a correct decision in any disputed issue and is considered as a part of proceedings;
ii. “Proceedings” here indicates deliberation/ in depth study of the issue;
iii. As the issue regarding taxability of milling service was examined by the GST council in 43rd meeting held on 28.05.21 and clear cut guideline issued vide Circular No. 153/09/2021-GST dated 17.06.2021, thus no question of admitting any application in this regard arises.
4.3 In regard to the submission of the revenue that „inquiry and investigation‟ is part and parallel of the proceedings, we would like to reiterate the observation of the Hon‟ble High Court of Telangana in the case of Srico Projects Pvt Ltd [2022] 142 taxmann.com 5 (Telangana) where the Hon‟ble High Court has held as follows:
Though the word “proceedings” has neither been defined in Chapter XVII nor in the definition clause i.e.,in Section 2 of the CGST Act, if the said word is understood in the context in which it is being applied, namely, any proceedings pending or decided in the case of an applicant under the provisions of the CGST Act, it would mean proceedings where the question raised in the application for advance ruling has already been decided or is pending decision. Therefore, inquiry or investigation would not come within the ambit of the word “proceedings”
The Hon‟ble High Court of Allahabad in G.K. Trading Company vs Union of India [2021] 126 taxmann.com 211 (Allahabad) has observed as follows:
“The words “subject-matter”, “proceedings” and “inquiry” have not been defined either under the State G.S.T. Act or the Union Territory G.S.T. Act or the C.G.S.T. Act. Therefore, these words have to be interpreted in the context of the aforesaid Acts. The word “inquiry” in section 70 has a special connotation and a specific purpose to summon any person whose attendance may be considered necessary by the proper officer either to give evidence or to produce a document or any other thing. It cannot be intermixed with some statutory steps which may precede or may ensue upon the making of the inquiry or conclusion of inquiry. The process of inquiry under section 70 is specific and unified by the very purpose for which provisions of Chapter XIV of the Act confers power upon the proper officer to hold inquiry. The word “inquiry” in section70 is not synonymous with the word “proceedings”, in section 6(2)(b) of the U.P.G.S.T. Act/C.G.S.T. Act.”
Further, the Hon‟ble High Court of Rajasthan in the case of Rais Khan vs Addl. Commissioner, Enforcement Wing-II, Rajasthan [2024] 160 taxmann.com 546 (Rajasthan) has observed as follows:
“In G.K. Trading Co. (supra), the Allahabad High Court has held that issuance of summons is not initiation of proceedings referable to under Section 6(2)(b) of the CGST Act. Similar is the view of Madras High Court in Kuppan Gounder P.G. Natarajan (supra)”, wherein, Court has also held that in issuance of summons for conducting an inquiry and to obtain a statement from the appellant cannot be construed to be bar under Section 6(2)(b) of the CGST Act.”
4.3 In view of the aforesaid observations made by the Hon‟ble High Courts, we are of the view that it would not be correct if we hold that the question raised in the application is already pending or decided in any proceedings in the case of the applicant under any of the provisions of the GST Act. We are therefore unable to accept the contention of the revenue that the instant application shall not to be entertained on the ground that DGGI has initiated an enquiry against the applicant. Further, the applicant has submitted that the show cause notice has been issued by the DGGI on 03.08.2024 i.e., after filing the instant application seeking an advance ruling. So, from this point of view also, it cannot be said that the question raised in the application is found to be pending prior to the date of application.
4.4 The officer from the revenue has also submitted that upon scrutiny of evidences gathered in various cases (where substantial documents have been submitted and as per statement given the taxpayer). It has been ascertained that the value of goods in composite supply (i.e. fortification material and packing material) has been found to be in the range of Rs. 81 to Rs. 123 (approx.) per quintal of wheat. However, no such material documents have been produced before us. In this context, we like to make it clear that we are dealing with the issue based on the records which have been made available before us. We also like to refer sub-section (1) of section 104 of the GST Act which empowers the authority to declare an advance ruling to be void ab initio if such authority finds that the ruling has been obtained by the applicant or the appellant by fraud or suppression of material facts or misrepresentation of facts.
4.5 In light of the aforesaid observation, we now proceed to deal with the case. The issue involved in the instant case, as we find, is to determine whether the instant supply shall qualify as an exempt supply vide entry no. 3A of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 (as amended vide Notification No. 2/2018- Central Tax (Rate) dated 25.01.2018) or the same shall be taxable @ 5% as clarified in para 3.2 of the Circular No. 153/09/2021-GST dated 17.06.2021 issued by the CBIC.
4.6 The issue, therefore, is required to be analyzed considering the following aspects:
(a) whether the supply made by the applicant can be regarded as composite supply of goods and services;
(b) if the supply qualifies as composite supply, whether the same is made by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution;
(c) if the answers of (a) and (b) are found to be affirmative, whether the value of supply of goods constitutes not more than 25 percent of the value of the said composite supply.
4.7 The applicant has been selected for empanelment for crushing of wheat into wholemeal atta and fortify it by premixing of micro-nutrients containing Iron, Folic acid, Citrate, EDTA and Vitamins to a specific percentage. The agreement further requires the applicant to pack the crushed stock of wholemeal atta after fortification into properly labelled poly-packs having thickness of 50 microns or above. It, therefore, appears that the activities undertaken by them for milling of wheat into wheat flour, along with fortification and supplied upon packing of the same qualify the definition of „composite supply‟ under clause (30) of section 2 of the GST Act where the supply of services by way of milling is the principal supply.
4.8 Now we take the issue to decide whether this composite supply is made in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution.
4.9 The agreement between the applicant and the State Government for supply of fortified Wholemeal Atta/Atta is found to be executed in terms of G.O. No. 2834-F.S. dated 6th September, 2017. The said Notification provides guidelines for the procedure of empanelment of flour mills/ attachakki to convert wheat into fortified atta/wholemeal atta in pursuance of clauses 36 and 37 of the West Bengal Public Distribution System (Maintenance & Control) Order, 2013 and clauses 33 and 34 of the West Bengal Urban Public Distribution System (Maintenance & Control) Order, 2013. In this context, we refer to Para 3.1 of the Circular No. 153/09/2021-GST dated 17.06.2021 where it is stated that „Public Distribution specifically figures at entry 28 of the 11th Schedule to the constitution, which lists the activities that may be entrusted to a Panchayat under Article 243G of the Constitution.‟ Hence, the instant composite supply made by the applicant is found to be in relation to any function entrusted to a Panchayat under article 243G of the Constitution.
4.10 The issue now left with us is to ascertain whether the value of supply of goods in this case exceeds 25 percent of the total value of the supply or not. The applicant states that it will charge crushing charges from the State Government valued at Rs 179.48 per quintal.
This rate was last notified by the Government of West Bengal, Food and Supplies Department vide memo no. 2583(3) – FS/Sectt/Food/4P-02/2016 dated 07.09.2018. The applicant further states it will receive wheat from the State Government in gunny bags and the State Government will leave it with them for retention as well as non-monetary consideration and so the cost of gunny bags valued at Rs.43/- is reduced from the amount of Rs 179.48/- as the State Government considers the retention of gunny bags by the applicant as non-monetary consideration. Therefore, the cash consideration paid by the State Government is Rs 179.48/- reduced by Rs 43/-, which comes at Rs 136.48/- per quintal. Further, the contract entered into with the State Government stipulates that the applicant will retain 1kg refraction and 4kgs bran for conversion of 100 kgs of wheat. As per the contract these bran and refraction are retained by the applicant and it is sold in the open market at the prevailing market rates which is generally around Rs 20/- per kg for bran and Re 1/- per kg for refraction. This rate was also confirmed in the memo issued by State Government of West Bengal, Department of Food and Supplies vide memo no. 569(3) – FS/Sectt/Food/4P02/2016/2021 dated 18.02.2022.
4.11 The applicant has contended that the process of fortification does not amount to supply of goods by the applicant rather it is a process carried out by the applicant for provision of its services. According to the applicant, nutrients added in the atta as fortification process cannot be considered as a separate/ distinct supply of goods in addition to the service of milling of wheat into flour as it is an integral part of the process of such conversion.
4.12 The aforesaid submission of the applicant as referred to in the preceding paragraphs has been considered. We find from the agreement made between the applicant and the State Government that the applicant has been selected for empanelment for crushing of wheat into whole meal atta and fortify it by pre-mixing micro-nutrients and to pack it in 1Kg poly pouch/packet and to deliver the same to the nominated M.R. Distributors. We have already expressed our view that such activities undertaken by the applicant for milling of wheat into wheat flour, along with fortification and supplied upon packing of the same qualify the definition of „composite supply‟ under clause (30) of section 2 of the GST Act where the supply of services by way of milling is the principal supply. The State Government agrees to pay the applicant a total amount of Rs.179.48 for crushing of 100 kgs of wheat which includes fortification cost of Rs.10/- and packing charges of Rs.50/-. In para 3.1 of Circular No. 153/09/2021-GST dated 17.06.2021, it has been clarified that „…entry No. 3A would apply to composite supply of milling of wheat and fortification thereof by miller, or of paddy into rice, provided that value of goods supplied in such composite supply (goods used for fortification, packing material etc) does not exceed 25% of the value of composite supply.‟
4.13 Thus, in the instant case, the applicant receives Rs.10/- and Rs. 50/- i.e., Rs. 60/- in total against fortification cost and packing charges respectively for crushing of 100 kgs of wheat which involves supply of goods. We have to determine whether such value exceeds 25% of the total value of supply or not. According to the applicant, total value of supply would be Rs 260.48/- which includes both cash and non-cash consideration. In this context, we find that in a similar kind of activity, the Appellate Authority for Advance Ruling (AAAR, for short), Andhra Pradesh in the matter of Sri Kanakadurga Rice and Flour Mill reported in [2020] 121 taxmann.com 121 (AA – GST – AP) held that „it is clear that the value of byproducts so retained by the appellant yielded during CMR milling, which were allowed to be retained by the appellant to meet the CMR activity cost shall obviously be included as part of value of supply and also to be termed as a bona fide form of consideration‟
4.15 We are also of the same view that in the instant case, value of supply shall be the consideration in money and shall also include all the components towards non-cash consideration, as discussed. We also like to reproduce here relevant portion of the memo no. 569(3)-FS/Sectt./Food/4P-02/2016/2021 dated 18th February 2022 issued by the Department of Food & Supplies, Government of West Bengal:-
“The State Government is providing 100 Kgs of Wheat to the empanelled Flour mills and it is taking back 95 Kgs of fortified Atta. 5 Kgs of by-products generated are bifurcated into Bran and Refractor in the Ratio 4:1 vide Notification No. 2834-FS dated 06.09.2017. This is also mentioned in the bi-partite agreement between the DCF&S/DR and the flour millers. These bi-products are valued as per market price @ Rs.20/kg of Bran and Re 1/kg of Refractor. So, consideration from sale of 4kg Bran and 1kg refractor comes to Rs.81 only. 100 Kg wheat is supplied to flour millers in 2 gunny bags. The flour millers retained those 2 gunny bags, which are valued at Rs.43 only. Thus the total non-cash consideration for by-products and gunny bags allowed to flower millers is Rs.124 only for each 100 kg wheat.”
4.16 The applicant has submitted that since price is not the sole consideration for the instant supply, the provision of Rule 27 would apply which govern the provisions of value of supply of goods or services where the consideration is not wholly in money. The applicant has further submitted that since the crushing services supplied by the applicant is customized, its open market value is not available at the time of supply and therefore the provisions of Rule 27(b) will be applicable for the instant case. Furthermore, the applicant has submitted that „the non-monetary considerations include gunny bags, bran and refraction. The value of these non-monetary considerations is known at the time of supply as the net realizable value is ascertainable‟. Having said that, the applicant has finally accepted the total value of supply to be Rs.260.48 wherein the value of supply of goods as a proportion to the value of the composite supply is 23.03% [i.e., 60/260.48 x 100].
4.17 The contention of the applicant that the provisions of Rule 27(b) will be applicable for the instant case for the purpose of determination of value of supply has duly been considered. Rule 27 of the Central Goods and Services Tax Rules, 2017 and West Bengal Goods and Services Tax Rules, 2017 (collectively referred to as, the GST Rules) prescribes the manner of determination of value of supply where the consideration is not wholly in money. In terms of clause (b) of the said rule, the value of supply shall be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply. We like to reiterate that Department of Food & Supplies, Government of West Bengal vide memo no. 569(3)-FS/Sectt./Food/4P-02/2016/2021 dated 18th February 2022 has explained that „These bi-products are valued as per market price @ Rs.20/kg of Bran and Re 1/kg of Refractor. So, consideration from sale of 4kg Bran and 1kg refractor comes to Rs.81 only. 100 Kg wheat is supplied to flour millers in 2 gunny bags. The flour millers retained those 2 gunny bags, which are valued at Rs.43 only. Thus, we find that the value of supply involved in this case is = Crushing Charges: Rs. 90.78 + Fortification Cost: Rs. 10.00 + Packing Charges: Rs. 50.00 + Transportation & Handling Charges: Rs. 28.70 + Consideration from sale of Bran (4 x Rs. 20/Kg): Rs. 80.00 + Consideration from sale of Refractors (1 x Rs. 1/Kg): Rs. 1.00 = Rs. 260.48. The total non-cash consideration for bi-products and gunny bags allowed to flower millers is = Consideration from sale of Bran (4 x Rs. 20/Kg): Rs. 80.00 + Consideration from sale of Refractors (1 x Rs. 1/Kg): Rs. 1.00 + Cost of 2 Gunny Bag: Rs. 43.00 = Rs.124.00 only for each 100 kg wheat. So, in the instant case, the amount of Rs.124.00 may be considered as equivalent to the consideration not in money for the purpose of determination of value of supply under clause (b) of rule 27 of the GST Rules and such amount is admittedly known to the applicant at the time of supply. We therefore find the total value of supply to be Rs.260.48 out of which Rs.136.48 is the cash consideration and Rs.124.00 is the non-cash consideration, as it has been explained in the aforesaid memo. We find that the value of goods involved in the instant supply stands at = Fortification Cost: Rs. 10.00 + Packing Charges: Rs. 50.00 = Rs.60.00 against total value of supply of Rs. 260.48, thereby the value of goods involved in the instant composite supply stands at = 60/260.48 x 100 = 23.03% of the total value of supply i.e., it does not exceed 25% of the value of the composite supply.
4.18 In this case, we find that the supply of services provided by the applicant company to the State Government is by nature a composite supply of services by way of milling of food grains into flour (atta) to the Government i.e. Food & Supplies Department, Govt. of West Bengal for distribution of such flour under Public Distribution System (PDS) which is by way of an activity in relation to a function entrusted to a Panchayat under article 243G covered by entry in sl. no. 28 of the Eleventh Schedule appended to article 243G of the Constitution of India and where, as already discussed, the value of goods involved in the instant composite supply does not exceed 25% of the value of the composite supply .
4.19 In this context, the order of the West Bengal Appellate Authority for Advance Ruling in the case of M/s Shiv Flour Mill, [Appeal Case No. 02/WBAAAR/APPEAL/2022] may be referred to wherein the Appellate Authority has observed as follows:
“The WBAAR failed to appreciate that the valuation of the composite supply is the agreed upon price between the flour millers and the Food & Supplies Department. This agreed upon price includes the notional value of Rs.124/- of two gunny bags and 5 kg by-products (1 kg refractor and 5 kg bran) which are retained by the miller, irrespective of actual disposal price of those gunny bags and by-products in future. The supply value of milling of wheat in the instant case cannot be dependent on actual receipts by the miller in future from third parties in disposal of the retained goods. It is clear from Memo No. 2979(3)-FS/Sect./Food/4P-02/2016 dated 08.12.2020 read with Memo No. 569(3)-FS/Sect./Food/4P-02/2016/2021 dated 18.02.2022 that the total supply price is Rs.260.48 for milling services to produce 95 kg fortified atta from 100 kg wheat. The value of goods in the composite supply is not more than Rs.60/- being cost of elements for fortification and packing materials. So the percentage of value of goods in the composite supply is established to be lesser than 25% of the total supply value.”
4.20 We, therefore, hold that the instant supply of services by way of milling of food grains into flour (atta) to Food & Supplies Department, Govt. of West Bengal for distribution of such flour under Public Distribution System is eligible for exemption under serial no. 3A of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended, since the supply satisfies all the conditions specified in the said entry.
In view of the above discussions, we rule as under:
RULING
Question no. 1: What is the value of supply of services provided by the applicant company to the State Government?
Answer: The value of supply involved in this case relating to supply of services provided by the applicant company to the State Government is Rs. 260.48 which comprises of the consideration in money as well as non-cash consideration, as discussed.
Question no. 2: What is the rate of tax applicable on the value of supply? What components are to be included in calculation of the % of value of goods in the total value of composite supply for the purpose of Notification No. 2/2018- Central Tax (Rate)?
Answer: In this case, the supply of services provided by the applicant company to the State Government is by nature a composite supply of services by way of milling of food grains into flour (atta) to Food & Supplies Department, Govt. of West Bengal for distribution of such flour under Public Distribution System and such is eligible for exemption under entry serial no. 3A of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended, since the value of goods involved in such composite supply does not exceed 25% of the value of supply.
