Question

A gristmill in a village is engaged in the work of grinding Wheat, Rice, Cereals etc. Wheat, Rice, Cereals is provided by the customer. Gristmill grinds the grain into flour. The charges for the grinding consists of the following --Consideration in money at specific rate based on the weight of the grains. E.g., wheat is grinded @ Rs. 2 per kg. --retention of some %age of grain weight as consideration. E.g., every 100 Kg of grain, the gristmill is to provide 98 kg of flour. Flour retained by the gristmill is sold lateron. Whether Gristmill is liable for GST ? If Yes, on what amount GST needs to paid ? Whether any GST is payable at the time of Sale of Flour (which was earlier retained as a potion of consideration for grinding) ?

Answer

Facts of the Case: Mill gets 100kg wheat, grinds it to flour, retains and sells 2kg in open market and returns 98kg. For this mill gets consideration in money of Rs. 2 per kg (i.e Rs. 200).

Law applicable: As per section 15(1) transaction value shall be accepted as valuation of supply if parties are not related/distinct and price is the sole consideration.
Here, price is not the sole consideration since 2kg flour is paid with Rs. 200.
As per 15(4) if price is not the sole consideration then value is arrived at by Rule27 of valuation rules.
As per Rule 27 :
"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 market 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;......"

Conclusion:
(i) Since mill does grinding in course of business and for a consideration therefore GST is payable on this supply

(ii) The value of 2kg flour shall be the price at which the mill sells it in open market (say Rs.5 per kg)
So, total value as per section 15 to levy GST is Rs. (200 + 5*2kg) = Rs. 210

(iii) When mill sells 2kg flour in open market then it is a supply for consideration and in normal course of business therefore GST will be applicable normally (Reply dt.09/03/2019)