Manufacture test for tobacco processing: sprinkling jaggery water alone does not change classification or justify enhanced cess.

Mere processing of tobacco by sprinkling jaggery water, without adding flavours or other materials, did not amount to manufacture because it did not create a new product with a distinct name, character and use. The Court relied on the settled manufacture test, the HSN Explanatory Notes on unmanufactured tobacco, and the same principle reflected in section 2(72) of the CGST Act, 2017. The product therefore remained classifiable as unmanufactured tobacco, and the enhanced compensation cess demand, penalty and related levy order were unsustainable and were set aside.

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Issues: Whether the petitioner's tobacco product, processed only by sprinkling jaggery water and without addition of flavours or other materials, amounted to manufacture and was classifiable so as to attract the enhanced compensation cess demanded by the department.

Analysis: The Court applied the settled test of manufacture, namely whether processing results in emergence of a new product having a distinct name, character and use. It relied on the earlier Division Bench ruling on identical tobacco-processing facts, together with the HSN Explanatory Notes on unmanufactured tobacco, to hold that mere sprinkling of jaggery water and similar treatment do not transform raw tobacco into a different product. Section 2(72) of the Central Goods and Services Tax Act, 2017 was also referred to as reflecting the same principle.

Conclusion: The petitioner's activity did not amount to manufacture and its product continued to fall under unmanufactured tobacco classification. The demand, penalty and related levy order were unsustainable and were set aside, with the writ petition allowed in favour of the assessee.

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