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CBIC clarifies 5% GST on milling of grains into flour

  • Jun 24, 2021 | Avalara

  • CBIC circular clarifies 5% GST applicable on service of milling under Public Distribution System 
  • CBIC says the value of supply of goods should not exceed 25% of the value of composite supply of service. 
  • If the value exceeds 25% of the value of supply of goods, a tax of 5% is applicable.

After receiving several applications seeking clarification on whether or not the composite supply of service by way of milling of certain grains is taxable, the Central Board for Indirect Taxes and Customs (CBIC) has announced an exposition. 

As per the CBIC clarification, a GST at the rate of 5% is applicable on service offered by any person to a State Government for milling wheat into wheat flour and paddy into rice flour under the Public Distribution System. 

Several parties had sought clarification to know if the service was 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.

As per GST laws, “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% 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”.

In the 43rd GST Council Meet, the board recommended to the CBIC that “the entry in question, (3A) applies to the service of milling wheat or paddy, provided that the value of goods supplied in such composite supply including 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 a case-to-case basis.”

The CBIC also clarified that in case the supply of service by way of milling of wheat or paddy is not eligible for exemption under Sl. No. 3 A of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 because the value of goods supplies exceeded the composite supply by 25%, a GST of 5% will be applicable.


Avalara helps businesses of all sizes get GST return filing, e-way bill generation and e-invoicing right with cloud-based GST compliance solutions in India. Goods and Services Tax (GST) rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
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Avalara
Posted By Avalara
Avalara helps businesses of all sizes get tax compliance right. In partnership with leading ERP, accounting, ecommerce, and other financial management system providers, Avalara delivers cloud-based compliance solutions for various transaction taxes, including sales and use, VAT, GST, excise, communications, lodging, and other indirect tax types. Headquartered in Seattle, Avalara has offices across the U.S. and around the world in Canada, the U.K., Belgium, Brazil, and India.

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