AAAR rules mixing scent with raw tobacco dust doesn't constitute manufacture under GST classification

The AAAR, Uttar Pradesh reversed the lower authority's ruling on tobacco classification. The appellant mixed scent (various perfumes, not Jarda Scent) with raw unmanufactured tobacco dust and sold it B2B and B2C. The original authority classified this as manufactured tobacco under Ch-2403 GST Tariff. The AAAR held that mere mixing of flavors without fermentation does not irreversibly change raw tobacco's nature to manufactured tobacco. The product was reclassified under Ch-2401 GST Tariff, subject to explanatory notes, as the process doesn't constitute manufacture.

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Issues Involved:
1. Classification of the Appellant's product under GST Tariff.
2. Determination of whether the process adopted by the Appellant amounts to manufacturing.

Summary:

1. Classification of the Appellant's product under GST Tariff:

The Appellant, a proprietorship concern engaged in the manufacturing of unbranded unmanufactured tobacco, sought an advance ruling on whether the mixing of scent in raw unmanufactured tobacco dust changes its classification to manufactured tobacco. The Authority for Advance Ruling (AAR) initially ruled that the addition of scent changes the characteristics of unmanufactured tobacco to manufactured tobacco, citing the decision in State of Madras Vs Bell mark Tobacco Company.

The Appellant contested this ruling, arguing that the process of mixing scent does not result in any irreversible change and that the product remains unmanufactured tobacco, classifiable under Chapter 2401 of the GST Tariff. The Appellant relied on several decisions, including Yogesh Associates Vs CCE Surat II and Suresh Enterprises Vs Commissioner of Central Excise Pune, which supported their stance that the product remains unmanufactured tobacco.

Upon review, the Appellate Authority found that the Appellant's product, which involves mixing perfume with raw tobacco dust, does not undergo fermentation or liquoring and thus does not meet the criteria for classification under Chapter 2403. The Authority concluded that the product should be classified under Chapter 2401, as the process adopted does not constitute manufacturing as defined under Section 2(72) of the CGST Act, 2017.

2. Determination of whether the process adopted by the Appellant amounts to manufacturing:

The Appellate Authority examined the process adopted by the Appellant, which includes screening, drying, winnowing, crushing, and sieving raw tobacco to produce tobacco dust, followed by mixing with perfume. The Authority noted that this process does not result in the emergence of a new product with a distinct name, character, and use, as required under the definition of 'manufacture' in Section 2(72) of the CGST Act, 2017.

The Authority referenced case law, including CCE, Pune Vs M/s Jai Kisan Tobacco Co., which held that raw tobacco crushed into flakes and packed without adding any ingredients does not constitute manufactured chewing tobacco. The Authority also found that the AAR's reliance on the State of Madras Vs Bell mark Tobacco Company was misplaced, as the processes in that case involved high fermentation and liquoring, which were not present in the Appellant's process.

The Appellate Authority concluded that the process adopted by the Appellant does not amount to manufacturing and that the product remains unmanufactured tobacco, appropriately classified under Chapter 2401 of the GST Tariff.

RULING:

The Appellate Authority modified the impugned ruling, classifying the Appellant's product under Chapter 2401 of the GST Tariff, subject to the process adopted by the Appellant as provided under the Explanatory Note to Chapter 2401.

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