GST on Milling Services supplied to State Government for PDS Supply under Circular No. 153/09/2021-GST which exempts the supply of composite supply by way of custom milling to Government for PDS supply, if the value of goods in such supply is less than 25% of the consideration.
A lot has been debated on supply of service by way of custom milling to Government. The question was on availability of exemption under Sl. No. 3A of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017, as amended from time to time of the exemption notification. Besides, as an alternative at best GST could be charged @5% treating the same as job work to the registered person against demand for 18% GST via Circular No. 19/19/2017-GST, F. No. 354/263/2017-TRU dated 20.11.2017 The question does arose if the person having TDS registration can be considered as registered person for this purpose.
Problems faced by the taxpayer includes
- Whether exemption under Sl. No. 3 A of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 would be available or not
- Whether it would be considered as a job work if supplied to a person registered only for the purpose of deduction of tax.
In the 43rd GST Council Meeting, a lot was discussed on this matter clarifying various aspects of the issue faced by the taxpayer. Circular No. 153/09/2021-GST , was issued clarifying that the supply of service by way of milling of wheat/paddy into flour (fortified with minerals etc. by millers or otherwise)/rice to Government/ local authority etc. for distribution of such flour or rice under PDS is exempt from GST if the value of goods in such composite supply does not exceed 25%. Otherwise, such services would attract GST at the rate of 5% if supplied to any person registered in GST, including a person registered for payment of TDS.
These clarification enables that the exemption under Sl. No. 3A of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 would be available to the food grain crushing services for PDS supply.
The whole case has been analyzed for making an opinion on the clarification so issued. The matter has been discussed below by taking the process of custom milling of paddy.
In the execution of job work of custom milling of paddy into rice:
- Applicant has to collect / procure paddy from Primary Co-operative Societies/paddy storage centers and thereafter transport it to the applicant’s milling site for which transportation charges are paid to the millers.
- After milling of Rice from the said procured paddy, applicant has to deliver rice @67% (approx.) of total quantity of paddy, whereby the applicant retains other bye/waste products i.e. Rice Broken rice Bran Husk.
- Thereafter, the applicant delivers such milled rice from their milling site to the various delivery centers of Food Corporation of India for which too transportation charges are received.
- Besides, this in consideration of this custom milling job work of paddy, the applicant receives milling charges and incentive as decided by the State Government.
- In the aforesaid process initially gunny bags are provided to the applicant along with the paddy and thereafter consequent to milling, on delivery of such milled rice in gunny bags, some gunny bags gets retained with the applicant. For such balance gunny bags which gets retained by the applicant, Government withholds some amount from the applicant while settling the bills relating to custom milling of In case the balance gunny bags are returned back, Government refunds the withheld amount partially if such gunny bags are taken again by the applicant for another job work of custom milling and otherwise refunds the full withheld amount relating to such gunny bags.
- In some cases, if applicant provides their own gunny bags at the time of taking delivery of paddy (applicant does not execute job of packing of paddy in gunny bags), charges for usages of gunny bags (supply of tangible goods) is given to the millers.
There being a single contract for all above supplies of goods & services and as the said contract comprises of two or more supplies (i.e. transportation, supply of packing material & incentives) and one of which is principal supply i.e. custom milling of paddy, it shall treated as composite supply as per section 2(30) of COST Act 2017.
In the whole process of this composite supply, the goods aspect comes into existence only when the millers provide their own gunny bags for packaging purpose.
1. Transportation of paddy from primary co-operative societies/paddy storage center to the place of miller (applicant’s place)
2. Custom milling charges of paddy
3. Transportation of rice from the place of miller (Applicant’s place to the delivery center of F.C.I).
4. Usage charges of gunny bags.
5. Sales consideration received via selling off by products (i.e. Rice Broken rice Bran Husk).
If the total value of goods (gunny bags) used in the supply of this service exceeds 25% of the total consideration, then the whole service would be taxed @ 5%, otherwise these service is exempt from OST.
As in general course of custom milling, the value of own gunny bags used naturally does not exceed 25% of the consideration.
Therefore service provided by way of milling paddy to rice for distribution under PDS is exempt from GST, if the above conditions are fulfilled.
As the government has provided clarification regarding Sl. No. 3A of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 including the custom milling services for the same, GST on such custom milling would be exempt from 1st July 2017.
GST for F.Y 2017-2018, 2018-2019 ,2019-2020 and 2020-2021 has been paid @ 5% of the consideration on milling charges received.
As per the Government contracts are made inclusive of all such taxes and duties, millers who were entitled for the whole amount of contract, had paid GST @ 5% for 4 consecutive years.
Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017
Circular No. 19/19/2017-GST, F. No. 354/263/2017-TRU dated 20.11.2017
Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017)
Circular No. 153/09/2021-GST