GST on milling of wheat into flour or paddy into rice for distribution by State Governments under PDS –reg.
Circular No. 153/09/2021-GST, 17th June, 2021
Clarification were sought on whether composite supply of service by way of milling of wheat into wheat flour, alongwith fortification, or of paddy into rice 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) issued by CBIC dated 28.06.2017.
Entry No. 3A of Notification No. 12/2017-Central Tax (Rate) exempts
"composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent 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"
Circular also clarifies in para 3.1 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. Composite supply of milling of wheat and fortification thereof by miller or of paddy into rice is done for Public Distribution system, hence would be covered under entry No. 3A and therefore exempt provided that value of goods supplied in such composite supply does not exceed 25% of the value of composite supply and is only provided to authority prescribed in entry 3A.
The supply will be taxable @ 5% if the value of goods supplied in such supply exceeds 25% of the total value of the composite supply or is provided to a registered person, being a job work service.