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

In Re : Shri Shalesh Kumar Singh - 2018 (13) G. S. T. L. 373 (A. A. R. - GST) 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.