The Applicant intends to supply to the State Government the service of crushing food grains.
The Government send to the Applicant the whole, unpolished food grain for processing. The Applicant will return the grain after crushing. The processed food grain will be used for distribution through the Public Distribution System (PDS). The Applicant seeks a ruling whether the above activity is exempt from GST under SI No.3 / 3A of Notification No. 12/2017.
The AAR, West Bengal , ruled that,”The Applicant’s eligibility under SI No. 3 or 3A of the Exemption Notification should be examined from three aspects:
(1) 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.
(2) whether the recipient is government, local authority, governmental authority or a government entity.
(3) whether the supply is being made in relation to any function entrusted to a Panchayat or a Municipality.
The Applicant intends to crush the food grains belonging to the recipient and deliver the crushed grains to the recipient after packing. If the terms of the agreement with the recipient is such that it binds both the supplier and the recipient that neither can divert the food grains to any use other than distribution through PDS, the Applicant’s supply can be related to distribution through PDS, which is covered under Entry No. 28 of the Eleventh Schedule of the Constitution.
It will be an activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution and it’s supply to the State Government should be exempt under SI No. 3A of the Exemption Notification, provided the proportion of the packing materials in the composite supply in value terms does not exceed 25%.