West Bengal Authority for Advance Ruling, Goods and Services Tax: The Bench of Susmita Bhattacharya (Joint Commissioner, CGST & CX) and Parthasarathi Dey (Senior Joint Commissioner, SGST), held that no GST will be applicable on composite supply of crushing the food grains belonging to the State Government and delivery of the crushed grains will be exempted as provided the proportion of the packing materials in the composite supply in value terms does not exceed 25%.
The applicant intends to supply to the State Government the service of crushing food grains. The processed food grain will be used for distribution through the Public Distribution System.
Applicant sought a ruling whether the above-stated activity would be exempted under Sl No. 3 or 3A of Notification No 1212017 CT (Rate) dated 28-06-2017 (corresponding State Notification No. 1136 – FT dated 28-O6-2017), as amended (hereinafter collectively called the Exemption Notification).
Applicant was unregistered under the GST Act.
Observations & Findings
ln Circular No. 5112512018-GST dated 31-07-2018 the Central Government clarified that the service tax exemption under Sl No. 25(a) of Notification No. 2512012 dated 20-06-2012 has been substantially, although not in the same form, continued under GST vide Sl No. 3 and 34 of the Exemption Notification. Sl No. 25(a) of the ST notification under the Service Tax exempts “services provided to the Government, a local authority or a governmental authority by way of water supply, public health, sanitation, conservancy, solid waste management or slum improvement and up-gradation.”
“…under the GST the ambit has been broadened to include any such functions that are performed by a Panchayat or a Municipality under specific provisions of the Constitution. These functions are in the nature of public welfare service that the governments on their own, and sometimes through governmental authorities/entities, do provide to the citizens. When the activity is in relation to any such function, the supply to the governments or governmental authorities/entities or local authorities is exempt from paying GST.”
Hence, in view of the above, applicant’s eligibility under the above-stated SI No. 3 or 3A will have to be examined under three aspects:
- whether the supply being made is pure service or a composite supply, where supply of goods does not exceed more than 25% of the value of the supply
- whether the recipient is government, local authority, governmental authority or a government entity, and
- whether the supply is being made in relation to any function entrusted to a Panchayat or a Municipality, as clarified in the above paragraphs.
Bench observed that the applicant is making the supply of a bundle consisting of the service of crushing the grains and supply of materials required to pack the crushed grains, where the former is the predominant supply. They are supplied in conjunction with each other in the ordinary course of business as food grain cannot be transported without proper packing.
Therefore, the above activity is a composite supply of goods and services where service of crushing food grains is the principal supply and providing packing materials is ancillary to it.
Ruling
In view of the above discussion, it was held that if 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 1212017 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%.[Sakshi Jhajharia, In re., 2020 SCC OnLine WB AAR-GST 9, decided on 10-02-2020]