GST Exemption on Rice Milling By-Products: What Taxpayers Must Know
The GST exemption on rice milling by-products has been a debated issue for rice millers and agricultural businesses. A recent High Court ruling brought much-needed clarity — and relief — to the industry.
In this article, we simplify the legal position, government stance, and what this means for taxpayers.
Why Was There Confusion on GST Applicability?
- Rice milling generates valuable by-products like broken rice, husk, and bran.
- Some GST authorities earlier tried to levy tax on these by-products, treating them as part of consideration.
- The dispute mainly arose around “conversion charges” — whether these include the value of by-products or not.
What the High Court Ruled
- The High Court ruled that conversion charges paid by rice millers do not include the value of by-products.
- Therefore, no GST is payable on the value of broken rice, husk, or bran generated during milling.
- The court observed that by-products belong naturally to the miller, unless otherwise agreed.
- Citing Notification No. 2/2017-Central Tax (Rate), broken rice and bran fall under GST-exempt categories.
Quick Table: Rice Milling GST Position
| Particulars | GST Applicability |
|---|---|
| Conversion Charges | Taxable at 5% / 18% based on SAC code |
| Sale of Broken Rice, Husk, Bran | Exempt as per Notification No. 2/2017 |
| By-Product Value in Conversion Charges | Not includible, ruled non-taxable |
Practical Insights for Taxpayers
- Keep separate accounting for conversion charges and sale of by-products.
- Issue clear invoices for milling services — do not bundle value of by-products.
- Retain service agreements that specify ownership of by-products post-milling.