WB AAR: Supply Value of Services Encompasses Both Non-cash and Cash Consideration

The West Bengal Authority for Advance Ruling (AAR) has stated that when providing services to the State Government, the value of supply must encompass both monetary and non-monetary considerations. Aryan Flour Mills Private Limited, a flour mill located in West Bengal, offers services to the State Government by processing wheat into fortified flour for distribution through the Public Distribution System (PDS).

The applicant, represented by Mr Manish Raj, asks for clarification concerning the value of their supply to the State Government, the applicable Goods and Services Tax (GST) rate, and the components to be included in calculating the percentage of goods’ value in the total value of a composite supply, as per Notification No. 2/2018- Central Tax (Rate).

The AAR recognized that the applicant’s services constituted a composite supply of goods and services, with wheat milling being the principal service. This agreement with the State Government involved milling, fortification, and packaging of the flour.

The applicant argued that only the cash value of goods should be considered in the supply.

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The composite supply is made for the operation entrusted to a Panchayat under Article 243G of the Constitution of India and specific exemptions applicable to supplies connected to such processes, determined by the authority.

However, the AAR disagreed, stating that the value of supply should encompass both cash and non-cash elements, such as gunny bags, bran, and refraction. These non-monetary components had known values at the time of the supply and were thus part of the overall value.

The WB AAR referred to a memo from the Department of Food & Supplies, Government of West Bengal, clarifying that the total supply value included the estimated value of gunny bags and by-products (bran and refraction) maintained by the miller, regardless of the actual disposal price of these goods in the future.

The AAR, consisting of Tanisha Dutta (CGST Member) and Joyjit Banik (SGST Member), concluded that the value of goods in the composite supply did not surpass 25% of the total supply value. Therefore, the services provided by the applicant to the State Government, including wheat milling, fortification, and distribution under the PDS, were eligible for exemption under entry serial no. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

This ruling underscores the importance of considering the overall supply value, including non-monetary components when determining the tax implications of a transaction.