Kandi Rave tobacco waste classified as unmanufactured tobacco refuse attracts 28% GST despite crushing and clay mixing

The AAR, Gujarat classified "Kandi Rave" (tobacco waste) under CTH 24013000 as unmanufactured tobacco refuse. Despite the applicant crushing tobacco refuse and mixing it with natural clay water, the product remained unmanufactured tobacco per HSN notes and CGST Act section 2(72) definition, as no new product emerged. Since the goods are supplied in 30-35 kg bags without brand names or labels, GST rate of 28% applies (14% CGST + 14% SGST) under notification No. 1/2017-CT(Rate), Schedule IV.

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Issues Involved:
1. Classification of the product 'Kandi Rave'.
2. Applicability of GST compensation cess on the product.

Summary:

Issue 1: Classification of the Product 'Kandi Rave'
The applicant, engaged in the wholesale/retail trading of unprocessed tobacco, sought a ruling on the classification of 'Kandi Rave', a tobacco waste mixed with natural clay and water. The applicant contended that this process does not amount to manufacture under Section 2(72) of the CGST Act, 2017, as no new product with a distinct name, character, and use emerges. The product remains unmanufactured tobacco, not used in pan masala or paan, and is different from chewing tobacco. The Authority for Advance Ruling (AAR) examined the HSN notes for tariff item 2401 and concluded that despite the mixing process, 'Kandi Rave' remains unmanufactured tobacco. Therefore, the product is classifiable under CTH 2401 as 'unmanufactured tobacco; tobacco refuse' and specifically under tariff item 24013000.

Issue 2: Applicability of GST Compensation Cess
The applicant argued that no compensation cess should be applicable to 'Kandi Rave' as it is sold without a lime tube and is not branded. Upon review, the AAR noted that the applicant did not initially disclose whether a brand name was used. However, additional submissions confirmed that the product is sold in 30-35 kg bags without any brand name or labeling. Consequently, the AAR ruled that the applicant is liable to pay GST at 28% (14% CGST and 14% SGST) as per notification No. 1/2017-CT(Rate), Sr. No. 13, Schedule IV, provided the goods are cleared without a brand name.

Ruling:
The supply of 'Kandi Rave' is classifiable under 24013000. The applicant is liable to pay GST at 28% (14% CGST and 14% SGST) according to notification No. 1/2017-CT(Rate), Sr. No. 13 of Schedule IV, subject to the condition that the goods are cleared without a brand name.

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