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CBIC-190354/36/2021-TRU Section-CBEC
Government of India
Ministry of Finance
Department of Revenue
****
North Block, New Delhi,
Dated the 17th June, 2021
Circular No. 153/09/2021 - GST: GST on milling of wheat into flour or paddy into rice for distribution by State Governments under PDS
To,
The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/ Commissioner of Central Tax (All) /
The Principal Director Generals/ Director Generals (All) Madam/Sir,
Sub: GST on milling of wheat into flour or paddy into rice for distribution by State Governments under PDS –reg.
Certain representations have been received seeking clarification whether composite supply of service by way of milling of wheat into wheat flour, along with fortification, 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) dated 28.06.2017, and also as regards the rate of GST on such milling, if it does not fall in said entry No. 3A. The issue has been examined by GST Council in its 43rd meeting held on 28th May, 2021.
2. Entry at Sl. No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 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”.
3. As per the recommendation of the GST Council the issue is clarified as below.
3.1 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.
Hence, said entry No. 3A would apply to 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 case-to-case basis.
3.2 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 Sl. No. 3 A of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 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 (entry No. 26 of notification No. 11/2017- Central Tax (Rate) dated 28.06.2017).
Combined reading of the definition of job-work [section 2(68), 2(94), 22, 24, 25 and section 51] 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.
4. Difficulty if any, in the implementation of this circular may be brought to the notice of the Board.
Yours Faithfully,
Shashikant Mehta
Technical Officer (TRU)
Email: shashikant.mehta@gov.in
📚 Frequently Asked Questions (FAQs): Circular No. 153/09/2021 - GST
Q1. What is Circular No. 153/09/2021-GST about?
Answer:
Circular No. 153/09/2021-GST clarifies the GST treatment of milling of wheat into fortified flour or paddy into rice for distribution under the Public Distribution System (PDS).
It explains when such composite supplies qualify for GST exemption and when they are taxable at 5%.
Q2. Is milling of wheat into flour for PDS exempt from GST?
Answer:
Yes, provided the composite supply satisfies the conditions of Entry No. 3A of Notification No. 12/2017-Central Tax (Rate), particularly that the value of goods supplied does not exceed 25% of the total value of the composite supply.
Q3. Why is the Public Distribution System covered under the exemption?
Answer:
Public Distribution is listed in Entry 28 of the Eleventh Schedule to the Constitution as a function that may be entrusted to Panchayats under Article 243G, making eligible activities capable of qualifying for the exemption under Entry No. 3A.
Q4. What is included in the value of goods?
Answer:
The value of goods includes materials supplied as part of the composite contract, such as fortification inputs, packing materials, and similar goods.
Whether the value exceeds 25% must be determined based on the facts of each individual contract.
Q5. What happens if the value of goods exceeds 25%?
Answer:
The exemption under Entry No. 3A becomes unavailable.
However, if the activity qualifies as a job work service supplied to a registered person, GST is payable at 5% under Entry No. 26 of Notification No. 11/2017-Central Tax (Rate).
Q6. Does the 5% GST rate apply to Government departments registered only for TDS?
Answer:
Yes.
The circular clarifies that a Government department registered only for TDS purposes under Section 51 of the CGST Act is also treated as a registered person for the purpose of applying the 5% GST rate on eligible job work services.
Q7. Does this circular introduce a new GST exemption?
Answer:
No.
It only clarifies the applicability of the existing exemption under Entry No. 3A and explains the GST rate applicable where the exemption conditions are not fulfilled.
Q8. Is milling of paddy into rice also covered?
Answer:
Yes.
The circular specifically covers both milling of wheat into flour (including fortification) and milling of paddy into rice for distribution through the Public Distribution System.
Q9. Why is this clarification important for millers?
Answer:
It provides certainty regarding GST liability, helping flour mills and rice mills correctly determine whether their contracts qualify for exemption or are taxable at the concessional 5% rate.
Q10. Is the 25% condition checked for every contract?
Answer:
Yes.
The circular specifically states that whether the value of goods exceeds 25% is a question of fact and must be examined on a case-by-case basis.
Download PDF: Circular No. 153/09/2021 - GST
More Information: https://taxinformation.cbic.gov.in/
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