CBIC vide circular No. 153/09/2021-GST dated the 17th June 2021 clarified the provisions related to GST on milling of wheat into flour or paddy into rice for distribution by Govt.
Entry No. 3A of exemption notification exempts “composite supply of goods and services in which the value of supply of goods constitutes not more than 25 percent 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 or in relation to any function entrusted to a Municipality”.
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. Hence, said entry No. 3A would apply to the 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. It is a matter of fact as to whether the value of goods in such composite supply is up to 25% and requires ascertainment on a case-to-case basis.
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 entry. No. 3A of exemption notification 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 as per entry No. 26 of the exemption notification. A combined reading of the definition of job-work 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.
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