GST on Services of Crushing of Food Grains by Flour Mills

This article discusses whether flour mills should pay GST on services provided to the government for crushing whole, unpolished food grains. The author argues that since the government retains ownership of the grain, and the crushing service is the primary supply, with packing being ancillary, it constitutes a composite supply. If the processed grain is for Public Distribution System (PDS) use, and the value of packing materials doesn't exceed 25% of the total supply, it may be exempt from GST.

Recently it is a matter of contention between the GST Intelligence and The Flour Mills whether “Crushing of whole, unpolished Grain” service provided to Governments shall be liable to GST as a supply of services or not. In this regard, the following are the legal submissions of the author on the basis of the various rulings and facts -

Facts -

1. The Owner of wheat (State Govt.) will send to the Flour Mills the whole, unpolished food grain for processing.

2. The Flour Mill will return the grain after crushing.

3. The processed grain may be used for various purposes i.e. for commercial sale or for distribution through the Public Distribution System (PDS).

4. The State Govt. will retain ownership of the grain.

5. The Flour Mills deliver the crushed food grains packed in the manner as the recipient (State Govt.) requires.

6. The packing material is supplied by the Flour Mills.

7. Vitamin (Fortification) is also added to the Crushed Flour.

8. The Flour Mills is therefore making 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.

9. They are supplied in conjunction with each other in the ordinary course of business as food grain cannot be transported without proper packing. It is, therefore, 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

10. The terms of the agreement with the recipient is such that it binds both the supplier and the recipient in a way 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 its supply to the State Government should be exempt under Sl No. 3A of the Exemption Notification, provided the proportion of the packing materials in the composite supply in value terms does not exceed 25%.

11. The packaging also very clearly states “For PDS..” Hence furthermore, the supplier and the recipient cannot divert the food grains to any use other than distribution through PDS. 

To read more in details, find the enclosed attachment