TMI Blog2023 (7) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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? - HELD THAT:- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the GST Rules and such amount is admittedly known to the applicant at the time of supply. It is found that the total value of supply to be Rs. 260.48 out of which Rs. 136.48 is the cash consideration and Rs. 124 is the non-cash consideration, as it has been explained in the aforesaid memo. The value of goods involved in the instant supply stands at Rs. 60/- against total value of supply of Rs. 260.48, thereby the value of goods involved in the instant composite supply stands at 23.03% of the total value of supply i.e., it does not exceed 25% of the value of the composite supply. 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. - SARTHAK SAXENA, AND JOYJIT BANIK, MEMBER Applicant s Representative Heard : Mr. Manish Raj Dhandharia, FCA Preamble A person within the ambit of Section 100 (1) of the Central Goods and Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he question raised in the application has neither been decided by nor is pending before any authority under any provision of the GST Act. 1.6 The applicant, vide written submission furnished on 02.05.2023, states that the Directorate General of GST Intelligence ( DGGI ) initiated an inquiry into the business of the applicant in the month of December, 2020. Summon was issued and the applicant duly honoured the summon. But no show cause notice or demand order was issued by the DGGI till date. Moreover, no specific question with respect to any matter was raised by the DGGI. On being aggrieved by the action initiated by the DGGI, the applicant had filed a writ petition before the Hon ble Calcutta High Court vide W.P.A. 11423 of 2022. But the said writ petition was not contested by the applicant and the same has been dismissed by the Hon ble Court vide order dated 22.11.2022. The case status of the writ petition as appearing in the Calcutta High Court portal, is now showing as disposed . Therefore, it can be construed without any doubt that no proceeding is pending in this matter and the instant application is liable to be admitted in terms of the provision of Section 98(2) of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 April, 2023. 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). 1.9 The application is, therefore, admitted. 2. Submission of the Applicant The submission of the applicant is that: 2.1 It 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 2.8 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 07.09.2018. The following table reflects the bifurcation of this amount: Particulars Amounts (in Rs.) Crushing Charges 90.78 Fortification Charges 10.00 Packing Charges 50.00 Transportation Handling Charges 28.70 Total 179.48 2.9 The applicant will receive wheat from the State Government in gunny bags and the State Government will leave it with him for retention as well as non-monetary consideration. 2.10 The applicant will receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. 2.15 In the given case price is not the sole consideration for the supply and as per the contract the amount of consideration is already furnished in the Table in aforesaid para 2.8. 2.16 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. 2.17 Bran and refraction are generated during the process of milling of wheat into flour. These scrap or wastes generated in the course of milling are further processed to make them saleable in the market. The contract entered into with the State Government stipulates that the applicant will retain 1kg refraction and 4kgs bran for conversion of each 100 kgs 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sts) of non-monetary consideration which include gunny bags, bran and refraction. 2.24 As per Circular No. 153/09/2021- GST dated the 17th June, 2021, if exemption is not available to the flour millers, owing to conversion of wheat into flour not being eligible for exemption by virtue of Notification No. 12/2017 Central Tax (Rate), the rate of tax applicable shall be 5%. 2.25 In order to determine whether exemption is available or not, the following calculation is required to be done: Component of Goods in Value of Supply ________________________________________ x 100 Value of Supply 2.26 The Applicant also submits that the value of supply as considered in Question No. 1 above, is (cash consideration + net realizable value of gunny bags, bran and refraction). The component of goods is packaging material and vitamins required for fortification process 2.27 The State Government, according to the contract, pays Rs 50/- towards packing charges and Rs 10/- towards fortification charges. The Applicant also submits that if the result of the aforementioned calculation is less than 25%, exemption will be available as per Notification No. 12/2017. However, if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the said composite supply is packing material only. The value of supply of such packing material is Rs. 50/- per quintal. Such value of the packing material is 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 is not determinable at the time when GST is levied. Hence, consideration of the actual cost of packing material would render the application of the aforesaid notification impossible. 2.30.3 The value of supply of goods as a proportion to the value of the composite supply is 19.20% [i.e., 50/260.48 x 100]. Since the value of supply of goods does not exceed 25% of the value of the composite supply, the services provided by the Applicant to the State Government is exempt from GST. 2.30.4 Fortification charges are collected from the State Government towards fortification process. The said process of fortification does not amount to supply of goods by the Applicant to the State Government, rather it is a process carried out by the Applicant for provision of its services. Hence, the nutrients mixed with the atta are in the nature of consumables. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral 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. 4.3 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. 4.4 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration 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. 4.8 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 fortif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 4.11 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 bi-products and gunny bags allowed to flower millers is Rs. 124 only for each 100 kg wheat . So, in the instant case, the amount of Rs. 124 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 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 Rs. 60/- against total value of supply of Rs. 260.48, thereby the value of goods involved in the instant composite supply stands at 23.03% of the total value of supply i.e., it does not exceed 25% of the value of the composite supply. 4.14 In this context, the order of the West Bengal Appellate A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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