Mixing scent with raw tobacco dust and packaging constitutes manufacturing, not processing under customs classification rules

The AAR-UP ruled that mixing scent with raw unmanufactured tobacco dust and subsequent packaging constitutes manufacturing, not mere processing. The Authority determined that the applicant's product does not qualify as unmanufactured tobacco under CTH 24012090, as the perfuming process exceeds natural fermentation. Following judicial precedent from Bell Mark Tobacco Company cases, the cumulative effect of processes transforms raw tobacco into a distinct manufactured product. The final product was classified as manufactured chewing tobacco under CTH 24039910, establishing that the applicant's activities amount to manufacturing rather than trading in unmanufactured tobacco.

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Issues Involved:
1. Whether mixing of scent (mixture of various perfumes and not jarda scent) in raw unmanufactured tobacco dust changes its character to manufactured tobacco.
2. Whether processing of unmanufactured tobacco dust by adding scent changes its character to manufactured tobacco.

Issue-wise
Detailed Analysis:

1. Mixing of Scent in Raw Unmanufactured Tobacco Dust:
The applicant, a proprietary concern, engages in mixing scent into raw/unmanufactured tobacco dust, procured from various traders. This mixture is then sent for packing and sold on both B2B and B2C bases. The applicant classifies this product under GST Tariff Sub Heading 24012090 as unmanufactured tobacco.

The applicant argues that this process does not make any irreversible change to the tobacco dust, thus it remains unmanufactured. They support their claim by citing various case laws, including Yogesh Associates v. Commissioner of Central Excise and others, where similar processes were not considered manufacturing.

The Authority for Advance Ruling (AAR) examined the statutory provisions and found that the process of mixing scent (mixture of various perfumes and not jarda scent) indeed changes the character of the unmanufactured tobacco dust to manufactured tobacco. The AAR referred to the Customs Tariff Act and the rules for interpretation, which apply to GST classification. The explanatory notes to HSN 2401 and 2403 were also considered, indicating that the applicant's product does not fit the classification of unmanufactured tobacco under CTH 24012090 but rather falls under CTH 24039910 as manufactured chewing tobacco.

2. Processing of Unmanufactured Tobacco Dust by Adding Scent:
The applicant's process involves two main activities: preparation of tobacco dust and mixing it with scent. The AAR analyzed whether this processing results in a new product with distinct characteristics, thereby constituting manufacturing under GST law.

The AAR referred to judicial interpretations, including the Madras High Court's ruling in Bell Mark Tobacco Company & Ors v. Government of Tamil Nadu, which established that cumulative processes like soaking in jaggery water, adding flavoring essences, and shredding tobacco amount to manufacturing. The Supreme Court also agreed with this view.

Under Section 2(72) of the CGST Act, manufacturing is defined as any process that results in a new product with a distinct name, character, and use. The AAR concluded that the applicant's process of mixing scent with tobacco dust results in a new, irreversible product distinct in character, thus qualifying as manufactured tobacco.

Ruling:
1. Mixing of Scent in Raw Unmanufactured Tobacco Dust:
- Answer: Affirmative. The process changes the character of unmanufactured tobacco to manufactured tobacco.

2. Processing of Unmanufactured Tobacco Dust by Adding Scent:
- Answer: Affirmative. The process results in manufactured tobacco.

This ruling is valid within the jurisdiction of the Authority for Advance Ruling, Uttar Pradesh, subject to provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.

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