Appellate authority confirms "Kavi cut tobacco" classified as "Manufactured Tobacco" under CTH 2403 9910

The appellate authority affirmed the lower authority's decision that the product "Kavi cut tobacco" is classified as "Manufactured Tobacco" under CTH 2403 9910, subject to a Compensation Cess rate of 160%. The processes conducted by the appellant were considered manufacturing, resulting in a product with unique characteristics suitable for chewing. The appeal was consequently resolved in accordance with this determination.

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Issues Involved:
1. Classification of the product "Kavi cut tobacco" as either "Unmanufactured Tobacco" under CTH 2401 or "Manufactured Tobacco" under CTH 2403.
2. Determination of the applicable rate of Compensation Cess.
3. Consideration of whether the process undertaken by the appellant amounts to manufacturing.

Detailed Analysis:

1. Classification of the Product:
The core issue is whether the product "Kavi cut tobacco" should be classified as "Unmanufactured Tobacco" under CTH 2401 or "Manufactured Tobacco" under CTH 2403.

- Appellant's Argument: The appellant argued that their product is "Unmanufactured Tobacco" and should be classified under CTH 2401. They relied on the CBEC circular F. No. 81/5/87-CX.3, dated 23-6-1987, and the decision of CESTAT in the case of Ravindra & Company. They claimed that the process of liquoring with jaggery water and cutting into pieces does not change the essential character of the tobacco.

- Lower Authority's Ruling: The lower authority classified the product as "Manufactured Tobacco" under CTH 2403, specifically as "Chewing Tobacco." They based their decision on the process described by the appellant, which includes liquoring, cutting, and packing, and concluded that these processes amount to manufacturing.

- Appellate Authority's Decision: The appellate authority upheld the lower authority's ruling. They noted that the product undergoes significant processing, including grading, drying, dipping in jaggery water, semi-drying, mincing, and adding natural/agricultural preservatives, which results in a product with a distinct name, character, and use. Therefore, the product is classified as "Manufactured Tobacco" under CTH 2403.

2. Applicable Rate of Compensation Cess:
- Lower Authority's Ruling: The lower authority determined that the applicable rate of Compensation Cess for the product classified under CTH 2403 9910 is 160%, as provided under Sl. No. 26 of Notification No. 01/2017-Compensation cess dated 28.06.2017.

- Appellate Authority's Decision: The appellate authority did not find any reason to interfere with the lower authority's determination of the applicable rate of Compensation Cess.

3. Whether the Process Amounts to Manufacturing:
- Appellant's Argument: The appellant contended that the process they undertake does not amount to manufacturing. They argued that the product remains in its original nature and does not undergo any change in its essential character.

- Lower Authority's Ruling: The lower authority concluded that the process undertaken by the appellant amounts to manufacturing. They referenced the ICAR-CTRI standards and the Customs Tariff/HSN explanatory notes, which indicate that the product is not merely cured tobacco but undergoes further processing that qualifies it as manufactured tobacco.

- Appellate Authority's Decision: The appellate authority agreed with the lower authority's conclusion. They emphasized that the product undergoes a series of processes that result in a new product with distinct characteristics suitable for chewing. This aligns with the definition of "manufacture" under Section 2(72) of the CGST Act, 2016, which includes any process that results in the emergence of a new product with a distinct name, character, and use.

Conclusion:
The appellate authority upheld the lower authority's ruling that the product "Kavi cut tobacco" is classified as "Manufactured Tobacco" under CTH 2403 9910, with an applicable Compensation Cess rate of 160%. The processes undertaken by the appellant were deemed to constitute manufacturing, resulting in a product with a distinct character and use. The appeal was disposed of accordingly.

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