Tobacco leaf classification: sun-cured leaves and minor handling remain tobacco leaves and attract concessional GST treatment.

Sun-cured tobacco leaves procured from farmers, and leaves subjected only to grading, bundling or butting, retain their character as tobacco leaves rather than becoming unmanufactured tobacco under Heading 2401. The classification was determined by the ordinary meaning of "tobacco leaves," the HSN notes recognising cured leaves within the tariff structure, and the view that these handling steps are incidental and do not create a new commodity. Circular No. 332/2/2017-TRU was read consistently with that position, so such goods remain eligible for the concessional GST rate under Entry No. 162 of Schedule I.

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Issues: Whether sun-cured tobacco leaves procured from farmers and supplied as such, or after grading, bundling or butting, retain their character as tobacco leaves under Entry No. 162 of Schedule I to Notification No. 1/2017-Central Tax (Rate), or whether such goods become classifiable as unmanufactured tobacco under Heading 2401.

Analysis: The classification turned on whether curing, grading, bundling and butting altered the essential character of the goods. The expression "tobacco leaves" in the rate notification was not restricted to fresh or green leaves, and the HSN notes under Heading 2401 recognised cured tobacco leaves within the tariff structure. The clarification in Circular No. 332/2/2017-TRU did not exclude cured leaves, and the processes of grading, bundling and butting were found to be incidental handling operations not resulting in a new commodity. The ruling relied upon by the Revenue was distinguished on facts, while the advance rulings supporting the assessee's stand were treated as persuasive only.

Conclusion: Sun-cured tobacco leaves, and tobacco leaves subjected only to grading, bundling or butting, continue to be classifiable as tobacco leaves and are chargeable at the concessional GST rate under Entry No. 162 of Schedule I.

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