In view of the above, the taxability of Custom milling of Rice 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 will be strictly governed by circular No. 153/09/2021-GST dated 17.06.2021 issued by the Government of India, Ministry of Finance, Department of Revenue as under:
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 of Notification No.12/2017- Central Tax (Rate) dated 28-06-2017 would apply to composite supply of milling of paddy into rice, provided that the value of goods supplied in such composite supply does not exceed 25% of the value of composite supply. Whether the value of goods in such composite supply is up to 25% or not is a matter of fact and requires ascertainment on case-to-case basis.
In case the supply of service by way of milling of paddy into rice, is not eligible for exemption under SI.No. 3A 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.
Jurisdictional Tax authorities will verify the above on case to case basis.