GST on milling of wheat into flour or paddy into rice for distribution by State Governments under PDS
CBIC vide Circular No. 153/09/2021- GST has issued a clarification regarding whether composite supply of service by way of milling of wheat into wheat flour, along with fortification, by any person to a State Government for distribution of such wheat 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, and also as regards the rate of GST on such milling, if it does not fall in the said entry no. 3A. The clarification is as below:
- Entry at Sr. Mo. 3A of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 exempts “composite supply of goods and services 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 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.
- It is clarified 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 said entry no. 3A would apply to composite supply of milling of wheat and fortification thereof by the miller, or of paddy into rice, provided that the value of goods supplied in such composite supply (goods used for fortification, packing materials etc.) does not exceed 25% of the value of composite supply. It is a matter of fact as to whether the value of goods in such composite supply is up to 25% and required ascertainment on case-to-case basis.
- In case the supply of service by way of milling of wheat into flour or paddy into rice, is not eligible for exemption under Sr. No. 3A of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 for the reason that the value of goods supplied 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).
- A 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 purposes 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 the said supply to such person is also entitled for 5% rate.
