2018 (5) TMI 529 - AAR - GST

Cured tobacco leaves classified as unmanufactured tobacco under HSN 2401, attracting 28% GST instead of 5%

In Re : Shri Shalesh Kumar Singh

AAR-Delhi ruled that dried tobacco leaves which have undergone curing after harvesting are classified as unmanufactured tobacco under HSN Code 2401, but ... Classification of goods and/ or services or both - Rate of GST - Dried Tobacco Leaves - Determination of the liability to pay tax on goods or services or both - appellant engaged in trading of Dried Tobacco Leaves - whether such 'Dried Tobacco Leaves' will be classified under Heading 2401 of HSN or the same may be classified in Heading 2403 of HSN or in any other Heading of HSN? - Held that: - It is observed that the heading 2401 of HSN covers Tobacco Leaves and Unmanufactured Tobacco. However, heading 2403 covers 'Manufactured Tobacco'. Hence, to determine the correct classification under HSN, it has to be first ascertained whether the goods proposed to be supplied are unmanufactured tobacco or the same can be considered as manufactured tobacco. It is observed that HSN notes for heading 2401 specifically mention that the said heading covers whole plants or leaves in the natural state and also cured or fermented leaves. Hence, even after the process of curing or fermenting of Tobacco Leaves, they remain covered under heading 24.01. As far as rate of GST under Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017 is concerned, it is observed that 'Tobacco Leaves' attract 2.5% (CGST) and 2.5% (SGST) or 5% (IGST) under S. No. 109 of Schedule-I of Notification No. 1/2017 -Central Tax (Rate) dated 28.06.2017. Whereas, 'unmanufactured tobacco (other than tobacco leaves)' attract 14% (CGST) and 14% (SGST) or 18% (IGST) under S. No. 13 of Schedule-IV of the said Notification - All the three categories which are covered as 'Tobacco Leaves' in S.NO. 109 of Schedule-1 of Notification No. 1/2017 - Central Tax (Rate) dated 28.06.2017 as per CBEC Circular F.No. 332/2/2017-TRU dated December 2017, covers only those Tobacco Leaves which have not undergone any processing like curing, fermentation etc. Since the goods proposed to be supplied by the applicant are admittedly undergone curing by Sun-dry/ Air-dry processes, the same cannot be called 'Tobacco Leaves' and would be covered as ‘unmanufactured tobacco (other than tobacco leaves)'. Circular No. 81/5/87 - CX-3 dated 23.06.1987 issued by the Ministry of Finance - Held that: - the same is regarding classification of unmanufactured tobacco merely broken by beating and then sieved and packed for consumption as chewing tobacco (Zarda) and it was clarified that the same should be classifiable as unmanufactured tobacco under heading 2401. Hence, the same is not applicable in the present case. Circular No. 143/12/2011-ST dated 26.05.2011 - Held that: - the same is regarding levy of Service Tax on certain processes in relation to agriculture and hence, the same is not applicable in the present case. N/N. 12/2017 Central Tax (Rate) dated 28.06.2017 - Held that: - the notification pertains to levy of GST on certain processes related to agriculture. Hence, the same is not applicable in the present case. Ruling:- 'Dried Tobacco Leaves' which have undergone the process of curing after harvesting of tobacco leaves are 'unmanufactured tobacco' covered in HSN Code 2401 - However, they are not covered under S. No. 109 of Schedule-1 of Notification No. 1/2017- Central Tax (Rate) dated 28.06.2017 @ 2.5% (CGST) + 2.5% (SGST) or 5% (IGST), but the same are covered under S. No. 13 of Schedule- IV of the said Notification as 'unmanufactured Tobacco (Other than Tobacco Leaves)' @ 14% (CGST) + 14% (SGST) or 28% (IGST). Issues Involved:1. Classification of 'Dried Tobacco Leaves' under HSN Code.2. Determination of GST liability on 'Dried Tobacco Leaves' after cleaning and removal of unwanted particles.Issue-wise Detailed Analysis:1. Classification of 'Dried Tobacco Leaves' under HSN Code:The primary question was whether 'Dried Tobacco Leaves' that have undergone cleaning and removal of unwanted particles should be classified under Heading 2401 (Tobacco Leaves) or another heading such as 2403 (Manufactured Tobacco) or any other heading.Discussion:- The applicant contended that 'Dried Tobacco Leaves' should be classified under Heading 2401 as 'Tobacco Leaves' since no essence or foreign particles were added, and they remained unfit for direct human consumption.- The Jurisdictional Officer (CGST) noted that tobacco leaves, even after undergoing curing processes, remain classified as 'unmanufactured tobacco' under Heading 2401.- The HSN notes for Heading 2401 indicate that it covers unmanufactured tobacco in the form of whole plants or leaves, whether cured or fermented. This was supported by references to various methods of curing, such as air curing, fire curing, flue curing, and sun curing, which are processes to remove natural sap and moisture from tobacco leaves.Conclusion:The 'Dried Tobacco Leaves' that have undergone curing processes (sun-dry or air-dry) are classified under Heading 2401 as 'unmanufactured tobacco'.2. Determination of GST liability on 'Dried Tobacco Leaves' after cleaning and removal of unwanted particles:The issue was whether the GST rate applicable to 'Dried Tobacco Leaves' after cleaning and removal of unwanted particles should be 5% under S. No. 109 of Schedule-I of Notification No. 1/2017 - Central Tax (Rate) dated 28.06.2017 or 28% under S. No. 13 of Schedule-IV of the said Notification.Discussion:- The applicant argued that GST should be 5% as per S. No. 109 of Schedule-I, which covers 'Tobacco Leaves'.- The CBEC Circular F.No. 332/2/2017-TRU clarified that the 5% GST rate applies to 'leaves of tobacco as such', 'broken tobacco leaves', and 'tobacco leaves stems'.- The Authority noted that 'Dried Tobacco Leaves' that have undergone curing processes do not fall under the category of 'leaves of tobacco as such' or 'broken tobacco leaves' as defined by the CBEC Circular.- The term 'leaves of tobacco as such' refers to leaves obtained by cropping, pulling, or priming without any processing like curing.- The term 'broken leaves' refers to leaves broken during handling before any processing like curing, and not during or after curing.- The term 'tobacco leaves stems' refers to leaves obtained by stalk cutting, which was not claimed by the applicant.Conclusion:Since the 'Dried Tobacco Leaves' have undergone curing, they are classified as 'unmanufactured tobacco (other than tobacco leaves)' and are subject to 28% GST under S. No. 13 of Schedule-IV of Notification No. 1/2017 - Central Tax (Rate) dated 28.06.2017.Ruling:The 'Dried Tobacco Leaves' which have undergone the process of curing after harvesting are classified as 'unmanufactured tobacco' under HSN Code 2401. However, they are not covered under S. No. 109 of Schedule-I of Notification No. 1/2017 - Central Tax (Rate) dated 28.06.2017 @ 5% GST. Instead, they fall under S. No. 13 of Schedule-IV of the said Notification as 'unmanufactured tobacco (other than tobacco leaves)' and are subject to 28% GST.