Tobacco leaves kept only for storage, grading or butt removal retain leaf character and attract the concessional GST rate.

Whether cured tobacco leaves subjected only to storage, grading by physical parameters, or removal of butts retain their identity as "tobacco leaves" for GST classification: applying tariff nomenclature and the essential character test, cured leaves that are not stemmed, stripped, cut or otherwise altered retain the fundamental leaf character and therefore fall under tariff item 240110 and the concessional Entry No. 162 of Schedule I. Operative effect: such supplies qualify as "tobacco leaves" and attract 2.5% CGST + 2.5% SGST.

---

---

Issues: Whether cured tobacco leaves purchased from farmers and (i) stored/stocked and sold as such, (ii) graded by physical parameters, or (iii) subjected only to removal of butts, qualify as "tobacco leaves" under the GST tariff and attract tax at 2.5% CGST + 2.5% SGST (total 5%).

Analysis: The Authority examined the GST tariff entries (Entry No. 162 of Schedule I of Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017, as amended) together with the corresponding Customs Tariff Act, 1975 headings (2401 and subheadings 240110/240120) and the TRU clarification (F. No. 332/2/2017-TRU). It analysed the commercial and technical stages of tobacco handling after harvest-curing (sun/air/flue/fire), grading, butting and bundling-and noted that curing is a drying process that renders leaves marketable without altering their fundamental character (nicotine/sugar profile). The Authority distinguished processes (stripping/stemming/threshing/cutting) that remove the midrib or break lamina and thereby alter the essential character of the leaf. Precedent advance rulings from other State AARs and the TRU reply were considered; the Gujarat High Court decision cited by Revenue was found factually distinguishable because it dealt with cut/packed/crushed tobacco and classification issues different from uncutted cured leaves. The tariff structure itself separates "tobacco leaves" (Schedule I concessional entry) from other unmanufactured tobacco (Schedule III) and the Customs Tariff subheadings recognise "not stemmed or stripped" as retaining leaf character. Applying the essential character test and tariff nomenclature, the Authority concluded that mere stocking, grading, or removal of butts does not change cured leaves into a different commodity.

Conclusion: Tobacco leaves which are cured (including sun curing), and which are only stored/stocked, graded by physical parameters, or have butts removed for packing/transport, retain the character of "tobacco leaves" and fall under Tariff item 240110 and Entry No. 162 of Schedule I of Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017, as amended. Such supplies are taxable at 2.5% CGST + 2.5% SGST.

---