GST Exemption for PDS Flour Milling: West Bengal AAR Clarifies 25% Goods Threshold Under Serial No. 3A
Background and Context
The West Bengal Authority for Advance Ruling (AAR) has issued a significant ruling in the matter of In re Darjeeling Flour Mills Private Limited (GST AAR West Bengal), vide Order No. 17/WBAAR/2026-27 dated 01/10/2026, addressing whether the composite supply of wheat milling and fortification services rendered to the State Government for Public Distribution System (PDS) purposes qualifies for GST exemption.
The applicant, Darjeeling Flour Mills Private Limited — a private limited company registered under GST and incorporated under the Companies Act, 2013 — operates from 1, Champasari Main Road, Champasari Mallaguri, Darjeeling, West Bengal, 734003. The company provides job work services involving the crushing and processing of food grains owned and supplied by the Food & Supplies Department, Government of West Bengal, for onward distribution through the PDS.
Nature of the Business Arrangement
The applicant entered into an agreement dated 27.09.2018 with the District Controller of Food and Supplies, Kalimpong, Government of West Bengal, and a corresponding agreement with the District Controller of Food and Supplies, Darjeeling. These agreements have been periodically renewed, with the most recent renewal occurring in February 2025.
Under the arrangement:
- The Food & Supplies Department supplies whole, unpolished wheat to the applicant
- The applicant mills, fortifies (adding specified micronutrients), and packs the resulting flour
- Packing material is procured and supplied by the applicant itself
- The fortified flour is returned to the Department for distribution through the PDS network
The Milling Process
For every 100 kilograms of wheat processed:
- Approximately 95 kilograms of fortified flour (atta) is produced
- 4 kilograms of bran and 1 kilogram of refractor are generated as by-products
- The applicant is contractually entitled to retain the by-products and two gunny bags
Fortification involves premixing micro-nutrients — 60 grams of Iron, 1.5 grams of Folic Acid, and 3.3 microns of Vitamin A — per metric ton of milled atta. The flour is packed in poly pouches of 1 kilogram with a minimum thickness of 40 microns.
Consideration Structure
The total agreed consideration for milling 100 kilograms of wheat into 95 kilograms of fortified atta, as specified in Memo No. 2979(3)-(FS)/Sectt/Food/4P-02/2016 dated 08.12.2020 issued by the Food & Supplies Department, Government of West Bengal, is as follows:
| Component | Amount (Rs.) |
|---|---|
| A. Crushing Charges | 90.78 |
| B. Fortification Costs | 10.00 |
| C. Packing Charges | 50.00 |
| D. Transportation & Handling Charges | 28.70 |
| E. Consideration from sale of 4 Kg. of Bran @ Rs.20/Kg (Non-Cash) | 80.00 |
| F. Consideration from sale of 1 Kg. of Refractors @ Re.1/kg (Non-Cash) | 1.00 |
| G. Total (A+B+C+D+E+F) | 260.48 |
| Less: Cost of 2 Gunny Bags | -43.00 |
| Less: Receipt from Sale of Bran and Refractor | -81.00 |
| Net Total (Cash Consideration) | 136.48 |
The total transaction value — incorporating both cash and non-cash components — is accordingly Rs. 260.48, with net cash consideration of Rs. 136.48.
Legal Questions Before the Authority
The applicant sought an advance ruling under sub-section (1) of Section 97 of the Central Goods and Services Tax Act, 2017 (CGST Act) and the West Bengal Goods and Services Tax Act, 2017 (WBGST Act) on the following questions:
- Whether the composite supply of milling food grains into flour for the Foods & Supplies Department, Government of West Bengal, for distribution through the PDS is eligible for exemption under Serial No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017?
- If the supply does not qualify under the said entry, what is the applicable GST rate?
Applicable Exemption Notification
Serial No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended by Notification No. 2/2018-Central Tax (Rate) dated 25.01.2018, reads as follows: