This circular provides clarification on the taxability of custom milling of paddy into rice, particularly when such milling is carried out by rice millers for entities such as Civil Supplies Corporations.

It clarifies that exemption under Sl. No. 55 of Notification No. 12/2017-Central Tax (Rate), which applies to intermediate production processes carried out as job work in relation to cultivation of plants, is not applicable to milling of paddy. Milling of paddy is carried out after harvesting, is not an activity normally undertaken by cultivators, and results in a change in the essential character of paddy into rice. Therefore, it cannot be treated as an intermediate production process relating to cultivation or as exempt agricultural activity.

Accordingly, milling of paddy into rice is treated as a supply of service under GST, being job work performed on goods belonging to another person. The circular further clarifies that although the activity is taxable, the applicable GST rate on such job work has been reduced to 5%, as per Notification No. 31/2017-Central Tax (Rate). This rate is to be applied only on the processing charges charged by the rice miller, and not on the total value of the rice.

The clarification ensures uniform interpretation of GST provisions and removes ambiguity regarding exemption and rate applicability for custom milling of paddy.