Tobacco pre-mixed with lime classified as manufactured tobacco product under HSN 24039910, attracts 28% GST plus 160% Compensation Cess

The AAR, Rajasthan ruled that tobacco pre-mixed with lime constitutes manufactured tobacco product for chewing, classifiable under HSN 24039910. The authority determined that mixing lime paste with raw cut tobacco, evaporating water content, and adding aroma, menthol and moisturizer creates a distinct product through manufacturing processes. Relying on SC precedent in State of Madras v Bell mark Tobacco Company, the AAR held these cumulative processes amount to manufacturing. The product attracts GST at 28% and Compensation Cess at 160%.

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Issues Involved:

1. Classification of the product 'Tobacco pre-mixed with lime'.
2. Applicable rate of GST and Compensation Cess on the product.

Detailed Analysis:

1. Classification of the Product 'Tobacco pre-mixed with lime':

The primary issue in this case is the classification of the product 'Tobacco pre-mixed with lime' under the GST regime. The applicant, M/s. Dindayal Colloids Private Limited, intends to manufacture and supply this product, which involves mixing raw cut tobacco with lime paste, drying it, and adding aroma, menthol, and moisturizing agents. The applicant argues that the product should be classified under Heading 2401 as 'Unmanufactured Tobacco' without lime tube, as the lime is mixed directly with the tobacco rather than being provided as a separate tube.

The applicant supports their classification by comparing their product to traditional unmanufactured tobacco used by villagers and farmers, where lime is mixed directly with tobacco leaves. They also cite previous advance rulings (Gyankeer Products Pvt. Ltd. and Samanvay Packmark Pvt. Ltd.) which classified similar products under CTH 24012090 as unmanufactured tobacco.

However, the Authority for Advance Ruling (AAR) disagrees with the applicant's classification. The AAR finds that the process of mixing lime and other ingredients with tobacco leaves results in a new product with distinct characteristics, thus constituting 'manufacture' under GST law. The AAR relies on the definition of 'manufacture' as any process that results in a new product with a distinct name, character, and use. The AAR references the Supreme Court's decision in State of Madras Vs Bell mark Tobacco Company, which held that cumulative processes on tobacco amount to manufacturing.

Based on this analysis, the AAR concludes that the product is a 'manufactured tobacco product for chewing' and should be classified under CTH 2403 99 10, which covers 'Chewing Tobacco'.

2. Applicable Rate of GST and Compensation Cess:

Having classified the product as 'Chewing Tobacco' under CTH 2403 99 10, the AAR determines the applicable GST and Compensation Cess rates. According to Schedule IV of Notification No. 1/2017-Central Tax (Rate), the GST rate for 'Other manufactured tobacco and manufactured tobacco substitutes' is 28% (14% CGST + 14% SGST). Additionally, Notification No. 1/2017-Compensation Cess (Rate) specifies a Compensation Cess rate of 160% for 'Chewing Tobacco without Lime Tube'.

The AAR's ruling is that the product 'Tobacco pre-mixed with lime' is subject to a GST rate of 28% and a Compensation Cess of 160%, classifiable under HSN 2403 99 10. This ruling is valid under Section 103 of the GST Act until declared void under Section 104 (1).

In conclusion, the AAR has determined that the applicant's product is a manufactured tobacco product, specifically 'Chewing Tobacco', and is subject to the respective GST and Compensation Cess rates as outlined above.

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