ORDER

This is an appeal filed by M/s. Sri Kanakadurga Rice and Flour Mill, Ravivalasa Village, Gantyada Mandal, Vizianagaram District (hereinafter referred to as ‘Appellant’) against the tax orders passed by the Assistant Commissioner (ST), M.G. Road East Circle, Vizianagaram Division (hereinafter referred to as ‘Assessing Authority’/for short ‘A.A.’) for the tax periods from July, 2017 to June, 2018 under CGST/APGST Act, 2017 in GSTIN : 37APFPK3066G1ZW vide Orders-in-Order No. 3, dated 10-1-2019, disputing the levy of tax of ₹ 10,04,326/-.

2. The case is posted for hearing details are as under :

Sl. No.	Date of notice issued	Posted for hearing date	Status of hearing
1.	1-4-2019	26-4-2019	Not Attended
2.	1-6-2019	2-7-2019	Not Attended
3.	11-7-2019	21-8-2019	Not Attended
4.	3-9-2019	15-10-2019	Not Attended
5.	13-2-2020 (final)	16-3-2020	Attended

3. Sri D. Balaji, Chartered Accountant and authorized representative of the firm (hereinafter referred to as ‘A.R.’) has appeared on earlier occasion and finally on 16-3-2020 for arguing the case. Finally, the appeal was heard by the Appellate Authority.

Statement of facts :-

4. The appellant-M/s. Sri Kanaka Durga Rice and Flour Mill, Ravivalasa is an assessee on the rolls of the Assistant Commissioner (ST), M.G. Road East Circle, Vizianagaram Division, and doing the business of Paddy, Rice and by-products.

5. The assessing authority recorded in his order that on scrutiny of appellant returns and after obtaining certain information from Civil Supplies Department, he has opined that dealer need to be assessed under Section 74 of CGST/APGST Act, 2017, and passed orders accordingly after issuing a show cause notice. The AA further recorded that the appellant being a rice miller has received certain quantity of paddy from the civil supplies corporation and in turn milled the paddy so received after such milling the appellant supplies fixed quantity of rice to the Civil Supplies Department irrespective of yielding.

6. In relation to such milling job work service, the appellant receives certain amount i.e. ₹ 15/- per quintal as CMR charges and also retains the residuary products of broken rice, bran, husk and these by-products are supposedly retained by the miller since Civil Supplies Department allowed to do so in lieu of additional monetary consideration. The AA worked out the market value of these by-products and estimated the average yielding after which he has determined the tax liability under CGST/APGST Act, 2017, duly considering the retained by-products value also as part of consideration with reference to value of supply. The arrived tax liability of AO is as shown below;

Consideration received/receivable towards Custom Milling of Paddy :

S. No.	Description	Already assessed Quantity in quintals	Actual Quantity in quintals	Value in Rs.	Tax @ 5% SGST-2.5% CGST-2.5%
1.	CMR Charges @ ₹ 15/- per Quintal	5431.43	54314.3	814715	40736
2.	Broken sale value @ ₹ 1100/- per Quintal	163	1630	1793000	69650
3.	Bran sale value @ ₹ 1700/- per Quintal	435	4350	7395000	369750
4.	Husk sale value @ ₹ 225/- per Quintal	1195	11950	2688750	134438
5.	TOTAL TAX DUE ON SERVICES (2017-18)			12691465	634574

7. In addition to the above levy, the AA also levied on estimated sale of rice bran, which was yielded as by-product and retained by him, non-claimed by the Civil Supplies Department.

Tax on Sale of Rice Bran :

S. No.	Description	Already assessed Quantity in quintals	Actual Quantity in quintals	Value in Rs.	Tax @ 5% SGST-2.5% CGST-2.5%
1.	Paddy Milled in QTLs	5431.43	54314.3	0	0
2.	Bran Yielded @ 8% (in QTLs)	435	4350	7395000	369750
3.	Total GST due on Goods (2017-18)			7395000	369750

8. Thus, the AA has finally determined the tax liability as shown below;

S. No.	Tax rate	Turnover	Place of supply	Act	Tax/Cess
1	2.5%	20086500	AP	SGST	502163
2	2.5%	20086500	AP	CGST	502163
			Total		1004326

9. Thus, the assessing authority has determined underdeclared tax of ₹ 1004326/- under CGST & APGST Acts, 2017, and passed orders dated 10-1-2019.

10. Aggrieved by the above orders passed by the assessing authority, the appellant has preferred the present appeal and disputed the levy of tax of ₹ 39,788/-.

Grounds of appeal :-

11. The grounds of appeal filed by appellant in the appeal are extracted hereunder :

(1)     The assessment order No. 3, dated 10-1-2019 passed by the Assistant Commissioner (ST), M.G. Road, East Circle, Vizianagaram District is contrary to the law and the facts of the case is so far as it is against the Appellant.

(2)     At the outset, the assessment order having been given without invoking any specific provision of the act is contrary to the legal position and for this ground alone the assessment order request to be set-aside.

(3)     Without prejudice to the above, the assessing officer’s action is illegal and arbitrary and is against the spirit and letter of the GST Act for several reasons including requirement of pre-payment of tax for which no provision is there under GST Law, no basis for the estimate made by Assessing office etc.,

(4)     If the department considers the value of other by-products as a part of service charges, then the department should take it up with the Government for raising an invoice for the total deemed value and the Government/Corporation should pay the necessary GST on services, but the department cannot levy un-intended, uncollected and un-charged tax. The dealer is only an agent to collect the GST and remit the same to the Government.

(5)     The deal ought not to have been subjected to a tax which was not leviable or collectable and there is no provision for deemed invoices in the GST law.

(6)     Without prejudice to the above, it ought to have been held that the procedure followed is in accordance with the law and fact, inasmuch as the dealer is having two types of the customers Viz., on set of customers for service charges against the custom milling for the corporation and another set of customers who purchase broken rice, bran and husk, which are commodities applicable rates and remitted to the department. Thus the dealer discharged his duty in collecting and remitting to the department. Thus the dealer discharged his duty in collecting and remitting the taxes properly.

(7)     Without prejudice to the above, the logic of the Learned Assessing officer is self-contradictory inasmuch as he did not consider the eligibility of input tax credit even according to his own logic, while levying tax on bran as a commodity.

(8)     The transaction of custom milling is between the Assessee and a Government Corporation which by no stretch of imagination can be considered as related parties and as such there is no need to invoke any provisions relating to the valuation of the consideration received.

(9)     Without prejudice to the above, the Government in its wisdom has formulated the scheme of custom milling by giving a nominal value to the service fully knowing that the by-Products will be compensating for the various costs incurred by the miller and any deemed value on a Government Corporation should be taken up at the Government level without subjecting small and helpless businessmen to extra-ordinary hardship.

(10)   Without prejudice to the above, the learning Assessing officer failed to invoke any specific provision of the APSGST or CGST Act or rules to substantiate the surmises/Logic/estimate and therefore, the assessment order should be treated as not in accordance with law.

(11)   That the levy of tax on CMR charges again time of supply of service as service is yet to complete as per agreement.

12. For these and any other grounds to be urged at the time of hearing your appellant prays for the deletion of the above mentioned additions.

13. The appellant craves leave to add, amend, alter or delete any of the grounds.

Discussion :

14. Perused the grounds of appeal vis-a-vis the impugned orders passed by the assessing authority i.e. Assistant Commissioner (ST), M.G. Road East Circle, Vizianagaram Division.

15. At the time of hearing, the A.R. has appeared and reiterated the contentions set-forth in the grounds of appeal. The appellant basically attempted to point out that the AA has not invoked any specific provisions of Act, hence orders are not in tune with the legal position. The appellant further demanded that if the department considers the value of other by-products as a part of service charges, then the department should take it up with the Government for raising an invoice for the total deemed value and the Government/Corporation should pay the necessary GST on services, but the department cannot levy un-intended, un-collected and uncharged tax. The dealer is only an agent to collect the GST and remit the same to the Government.

16. Advancing this explanation, the appellant strongly professed that the value of supply supposedly adopted by AA is totally irrelevant to the facts of the issue, as such estimated value of by-products shall not be considered as consideration and not part of value of supply.

17. The appellant also alleged that the AA also missed to analyze both sides of the aspects and not allowed eligbile input tax in contradiction to his own interpretation. The appellant further averred that the transaction of custom milling is between the assessee and a Government Corporation which by no stretch of imagination can be considered as related parties and as such there is no need to invoke any provisions relating to the valuation of the consideration received.

18. The appellant has further admitted that Government to facilitate the custom milling as reasonable has allowed the by-products to be retained by the millers in compensation to various other cost to be incurred by the millers. Therefore, any levy of tax on those compensatory products value shall be taken up with the Government, but miller shall not be burdened with taxation.

Issues for adjudication :

(1)     Whether the levy of tax on estimated by-products value, which are retained by the millers as part of custom milling activity, treating these compensatory products value as part of value of supply, can be held as to be in tune with the provisions of CGST/APGST Act, 2017 or not?

(2)     Whether the levy of tax on estimated sale value of rice bran, can be upheld as de jure or not?

Analysis :

19. Perused the grounds of appeal along with the assessment orders passed by the assessing authority, and after thorough verification of records, the following findings are recorded;

20. Basically, there is no dispute or doubt regarding retaining of by-products like bran, broken rice, husk etc. during custom milling activity by the appellant. Moreover, the appellant himself admitted that in addition to the amount of ₹ 15/- received by them as CMR charges, Government also compensated them by allowing to retain the by-products of broken rice, bran, husk to meet the various cost of milling activity, because the amount of ₹ 15/- per quintal will not be sufficient to meet such cost under any circumstances. This fact itself point towards a conclusion that the value of retaining goods by the miller shall nevertheless be considered as part of the value of supply with reference to the CMR job work service effected by the appellant like millers.

21. The appellant’s point of objection that the AA has not invoked any specific provisions, is also against the findings recorded, because the AA has clearly recorded that he has relied on Section 15 of CGST/APGST Act, 2017 and also invoked Section 74 of CGST/APGST Act, 2017, for assessing the dealer, hence this particular contention of the appellant is rejected as not sustainable.

Analysis of value of supply :

“ ‘Customs milling Rice’ is an arrangement where the Government (through its Civil Supplies Corporation) gets the Paddy milled into Rice. Thus, it is an agreement between Civil Supplies Corporation and Private Rice Mill owners to mill and convert the paddy into rice and the terms of a typical agreement consist of the following terms.

(1)     The paddy shall be milled into Rice.

(2)     That a set % (normally 65%) of paddy shall be accounted for and returned to Government into Rice. In case the actual rice quantity falls short of the stipulated quantity the rice miller shall procure at his own cost and make good the shortfall.

(3)     The residues of 35% in the form of broken rice, husk and bran shall belong the rice miller only and there is no requirement to return the same to Government.

(4)     The rice millers will be paid an agreed amount per quintal (normally ₹ 15) to the rice miller.

          Implications of GST on the above transaction :

(5)     In the above transaction rice miller is rendering the service of converting the paddy into rice which is a ‘service’. Thus rice miller is ‘supplier of the service’ and government or civil supplies corporation are the ‘recipient of the service’.

(6)     There is no specific exemption provided to the above said service, hence the same is taxable. As per the tariff under GST, the prescribed rate for the above referred service is 5%.

(7)     Under GST Act, GST is leviable on the consideration for supply. Consideration is defined as “consideration” in relation to the supply of goods or services or both includes.

(a)        Any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government.

(b)        The monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or service or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government :

(8)     From the above definition, the key characteristics of consideration are as under

(a)        Consideration includes all the amounts received by the supplier in response to or in relation to or for inducement of the supply

(b)        Consideration could be in money or otherwise (i.e., Which is not a money or has a value.)

(c)        Consideration mean what is received by supplier,

(d)       Consideration need not be paid by recipient alone, the same can be paid by others/third party as well.

(9)     Therefore from the above definition of ‘consideration’ in the present Case is not only that portion that is received in cash i.e., 15/- per quintal but also that what is received by the rice miller in the form kind i.e., the residues left in the course of milling the rice Viz., broken rice, bran and Husk.

(10)  Determination of transaction value : As per section 15 of CGST/SGST Acts, “The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply”.

(11)  In case of ‘Customs Milling of Rice’ price (Money that is received) is not the sole consideration as the consideration involves something in the form of other than cash hence the provision of section 15 cannot be applied to the above case and the valuation shall be based on the rules provided in CGST/SGST Rules.

(12)  As per Rule 27 of CGST/SGST Rules : where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall

(a)        Be the open value of such supply :

(b)        if the open market value is not available under clause (a), be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply;

(c)        if the value of supply is not determinable under clause (a) or clause (b), be the value of supply of goods or service or both of like kind and quantity

(d)       if the value is not determinable under clause (a) or clause (b) or clause (c), be the sum total of consideration in money and such further amount in money that is equivalent to consideration not in money as determination by the application of rule 30 or rule 31 in that order.

(13)  As per Rule 27, value of supply shall be determined as per the provisions contained there in the sequence provided in the said rule. As per the said rule 27(1)(b) value shall be “the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply”

(14)  Thus value in case of CMR is equal to

(a)        Money that is received (15/- per quintal)

(b)        Plus Money equivalent of the residue that are left to the rice Miller Viz., broken rice, bran and husk

(c)        Minus money equivalent of the shortfall in the rice that the rice miller is obliged to purchase in the open market and make good

(15)  The sum total of the above shall be the consideration for the customs Milling and the same is taxable at the rate of 5%

          Taxability or otherwise of Broken rice and Husk

(16)  As per the tariff under GST, the commodities Rice, Broken rice and Husk are exempt and bran is taxable One. Now the issue to consideration is Whether the broken rice, husk, which are exempt commodities will form part of the valuation as described Above?

(17)  To resolve the above it is pertinent to distinguish the ‘Supply’ and ‘Consideration’ supply is what is provided by the supplier and consideration is what is provided by the supplier and consideration is what he get in return. In case of cash transactions, usually, supply will be either goods or services whereas consideration will be in the form of cash. However in case of non-cash transactions both supply and consideration could be goods or services. Such a cases are normally termed as ‘Exchange’ or ‘barter’. In such a case what is supply and what is consideration depends on the perspective as to ‘Whose point of reference’ we are deciding.

(a)        To illustrate, if a farmer is giving ‘Milk’ to a dairy house and in return he collect some ‘Ghee’. In this transaction

(a)     From the view point of dairy ‘Ghee’ is supplied and ‘Milk’ is consideration

(b)     From the view point of farmer ‘Milk’ is supplied and ‘Ghee’ is the consideration.

(18)  The taxable under GST Act is prescribed and is to be determined based on supply but not on consideration.

(a)        To continue the above illustration, Milk is exempt and ghee is taxable under GST.

(b)        Thus the above transaction is an exempt one from the stand point of farmer as he is supplying milk which is exempt.

(c)        The same transaction is a taxable one from the stand point of the dairy house they are supplying ‘ghee’ which is taxable commodity.

(19)  The consideration that the dairy is getting i.e., ‘Milk’ being exempt is not relevant and will not render the transaction as exempt as milk is only the consideration. In other words, instead of getting the amount in cash, the dairy is getting the same in the form of milk. It is the value of the milk that matters but not its taxability.

(20)  Applying the above analogy to the instant case, rice miller is supplying the service of ‘Milling the rice’. What he gets as consideration could be cash or non-cash in the form of broken-Rice bran, and husk. Their value will have to be considered.

(21)  Hence the fact that broken – Rice and husk are exempt will not in any way alter the taxability of supply of the service ‘Customs Milling’.

Manner of accounting and invoicing

(22)  The Manner of accounting and invoice required will be different from the stand points of Rice Miller and the civil supplies corporation.

Compliances by Civil Supplies Corporation :

(23)  To start with the civil supplies corporation is the owner of the paddy. The corporation is sending the paddy to the rice miller for the job work of customs milling. As per the provisions of sec 143, corporation shall raise a ‘Deliver challan’ for the quantities of paddy supplied.

(24)  Upon milling the rice, there emerges (a) Rice, (b) Broken Rice, (3) Bran and (4) Husk. All these are the property of Civil Supplies Corporation. Out of them the rice is being returned to the corporation, hence rice miller will raise another delivery challan for delivering the rice to the corporation. The other three commodities which are the property of the corporation are given away to the rice Miller. Out of the above broken rice and Husk are exempt commodities. To these extents the corporation shall raise a ‘Bill of supply’ Now bran is a taxable commodity, hence the corporation shall raise a ‘Tax invoice’ Levying tax @ 5%. This tax amount can be availed by the rice Miller as ITC.

Compliances by Rice Miller :

(25)  The rice miller is rendering the service of customs milling which is taxable service. Hence upon completion of the said service the rice miller shall raise a tax invoice as per the provisions of sec. 31. The valuation for the supply shall be determined as per the discussion above and the rate of tax is 5%.

(26)  In case the rice miller is unable to get the prescribed yield as the CMR agreement, then rice miller will replenish the shortfall by the rice he procures form the open market. In such a case, rice miller will procure rice on a bill of supply and the property in the goods shall pass on to the corporate. Hence to this extent rice Millers shall raise a bill of supply.

(27)  The rice miller may sell the goods, broken rice, bran etc., in the open Market later. At that time, he shall raise ‘Bill of supply’ for broken rice and ‘Tax invoice’ for bran as the case may be. He may also use bran for its internal fuel consumption, in which case no documents are required.”

22. In view of the above analysis, it is clear that the value of by-products so retained by the appellant yielded during CMR milling, which were allowed to be retained by the appellant to meet the CMR activity cost shall obviously be included as part of value of supply and also to be termed as a bona fide form of consideration, hence the levy of tax on the resultant value of these products treating as value of supply need to be upheld as legitimate and tax so levied and impugned orders passed by the assessing authority is confirmed and the appeal on this aspect stands dismissed.

23. Regarding levy of tax on estimated sale value of rice bran, the appellant has not put-forth any arguments and also not pressed for any relief through hearings. However, the levy on this aspect has also been examined by exploring the provisions of Act. It is to be observed in this connection that bran is not exempted under CGST/APGST Act, 2017, resultantly the levy of tax on the sale value of such bran is to be upheld as sustainable and the tax so levied and impugned orders passed by the assessing authority is confirmed and the appeal to this extent is dismissed.

Conclusion :

24. In view of the above facts and circumstances, the levy of tax by AA need not be interfered with and to be upheld as legitimate, and the appeal is dismissed by confirming the tax, so levied by the assessing authority.

25. In the result, the levy of tax by the assessing authority is confirmed, and the appeal stands dismissed.