TaxTMI 
TaxTMI 
2026 (2) TMI 991
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....ns, 2018. 1.1 At the outset, we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression 'GST Act' would mean the CGST Act and the WBGST Act both. 1.2 The applicant is presently into construction business undertaking construction of buildings in and around Kolkata. The applicant intends to enter into tobacco business of purchase and sale of tobacco leaves as the construction business is not remunerative with too much competition and regular slump in the business. The applicant wishes to purchase tobacco leaves from farmers who grow them in their fields and sell the same as received from farmers to other dealers. Tobacco is one of the major commercial crops grown in Northern part of West B....
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....is duration, these farmers pluck leaves from the plants. These leaves which are green in colour are very tender, delicate and very high in moisture and cannot be sold in this form and cannot even be transported as they will be stuck to each other. Therefore, these farmers after plucking the leaves spread these leaves in their fields for drying with the sun rays. This drying activity undertaken by the farmers is called sun curing. 2.3 Once these leaves are cured and are capable of moving to market, the farmers either sell them to the dealers who collect them for further sale to the other big traders or take them in small quantities as available on any day to the tobacco market located in West Bengal State Agricultural Marketing Board areas and direct sale from their houses also. The farmers earn small amount to meet ends of the day or a week by selling the tobacco leaves they bought from their fields. 2.4 The applicant intends to purchase the tobacco either directly at the fields or from the marketplaces will not undertake any process other than piling up the leaves till they get orders from the ultimate users or from other traders. These traders sell the leaves purchased from....
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....302-30350/2017 dt.22.8.2017 holding that threshing and re-drying is an intermediate production process as job work in relation to agriculture and hence exempt from Service Tax. The Special Leave petitions filed by the department against the Final Order of the Hon'ble Tribunal were dismissed by the Hon'ble Apex Court on merits. 2.8 After the introduction of GST, Tobacco is brought under the taxability from the stage of tobacco leaves itself. The applicable tax rates of tobacco are covered under two heads under the tariff which are as under vide Notification No. 9/2025-Central Tax (Rate) dt 17.09.2025 both having the same HSN Code of 2401, as follows: SI.No Schedule HSN Product Description Rate of GST 1 Schedule-I: SI. No. 162 2401 Tobacco Leaves CGST 2.5% i.e., total GST % = 5% 2 Schedule-VII: SI. No. 2 2401 Unmanufactured Tobacco; tobacco refuse (other than tobacco leaves) CGST 14 % i.e., total GST = 28% 2.9 It is clear from the above that tobacco leaves attract 5% and only and other unmanufactured tobacco other than tobacco leaves attract GST of 28%. Notification No. 4/2017-Central Tax (Rate) dt. 28.06.2017 specifies that tobacco ....
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.... Hyderabad set aside the demands holding that the process of threshing and re-drying are not taxable as it is an intermediate production process carried out in relation to agriculture and thus, exempt from service tax. The appeals filed by the Revenue before the Hon'ble Supreme Court were dismissed by the Apex Court on merits. 2.14 After the introduction of GST, the commodity of tobacco is brought under the taxability from the stage of tobacco leaves itself. The applicable rates of GST on tobacco leaves and unmanufactured tobacco, after then tobacco leaves are covered under two heads under the Tariff in Notification No. 9/2025-Central Tax (Rate) dt. 17.09.2025 under the same HSN Code of 2401 as follows: Schedule HSN Product Description Rate of GST Schedule-I: SL No. 162 2401 Tobacco Leaves CGST 2.5% i.e., total GST % = 5% Schedule-VII SI. No. 2 2401 Unmanufactured Tobacco; tobacco refuse (other than tobacco leaves) CGST 14 % i.e., total GST = 28% 22.15 It is clear from the above the tobacco leaves attract 5% and only unmanufactured tobacco (other than tobacco leaves) attract GST 28%. Notification No. 4/2017-Central Tax (Rate) dt. 28.06.2017....
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....HSN 2401 'Unmanufactured Tobacco' is defined and the same is reproduced below. 2401- Unmanufactured tobacco; tobacco refuse: 2401.10- Tobacco, not stemmed/stripped 2401.20- Tobacco, partly or wholly stemmed/stripped 2401.30- Tobacco refuse This heading covers: (1) Unmanufactured tobacco in the form of whole plants or leaves in the natural state or as cured or fermented leaves, whole or stemmed/stripped, trimmed or untrimmed, broken or cut (including pieces cut to shape, but not tobacco ready for smoking) Tobacco leaves, blended, stemmed/stripped and cased (sauced or liquored) with a liquid of appropriate composition mainly in order to prevent mould and drying and also to preserve the flavour are also covered in this heading. 2.20 It is thus clear that leaves attract 5% of GST only. In common parlance, tobacco leaves mean only cured tobacco because it is impossible to undertake any commercial activity on green tobacco as plucked from the crop. From the stage of cured tobacco, the common understanding of the term 'tobacco leaves' stretches up to the stage of threshed and re-dried tobacco. The main characteristics of to....
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.... per the notification 4/2017-Central Tax (Rate), under 'Reverse charge' (b) What will be the applicable rate of tax if the applicant purchases tobacco leaves from other dealers who have purchased them from farmers, for the purpose of trading? - 5% (2.5% SGST + 2.5%CGST) as per Sl. No. 109 of schedule I Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017. (c) What will be the applicable rate of tax if the applicant segregates the tobacco into grades depending upon their size (width), colour /shade, length, texture of the leaf etc., and sells such graded tobacco leaf? - 5% (2.5% SGST + 2.5%CGST) as per Sl. No. 109 of schedule 1 Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017. (d) What will be the applicable rate of tax if the tobacco leaves are butted and sold to other dealers? - 5% (2.5% SGST + 2.5%CGST) as per Sl.No. 109 of schedule 1 Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017. (e) What is the applicable rate of tax if the applicant gets the tobacco leaves re-dried without getting them threshed? - 5% (2.5% SGST + 2.5%CGST) as per Sl.No. 109 of schedule 1 Notification No. 112....
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....tion as per the above discussions and rulings of the advance ruling authorities of three states, the tobacco leaves purchased from the farmers on payment of GST of 5% under reverse charge remain to be tobacco leaves only when they are sold by the traders to other traders or clients and therefore, attract GST of 5% only, the following further submissions are made explaining how the government organisations have treated the tobacco operations. • The main characteristics of tobacco leaf viz., Nicotine and Sugars will remain unaltered by the process of curing/ drying. • In the case of Sterling Foods vs. The State of Kamataka and Another reported in 1986 (63) STC 239, the Hon'ble Supreme Court held that processed or frozen shrimps, prawns and lobsters are commercially regarded the same commodity as raw shrimps, prawns and lobsters. When raw shrimps, prawns and lobsters are subjected to the process of cutting of heads and tails, peeling, deveining, cleaning and freezing, they do not cease to be shrimps, prawns and lobsters and become another distinct commodity. They are in common parlance known as shrimps, prawns and lobsters. • There are many other....
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.... 20. 0302 Fish, fresh or chiled, excluding fish fillets and other fish meat of heading 0304 21. 0304 Fish fillets and other fish meat (whether or not minced), fresh or chilled. Tea leaves Taxable tea leaves '36. 0902 Tea whether or not flavoured [other than unprocessed green leaves of tea]-2.5% Sch-I' Exempt tea leaves '61.0902 Unprocessed green leaves of tea' Nuts Taxable nuts: 28. 0802 Dried areca nuts, whether or not shelled or peeled 29.0802 Dried chestnuts (singhada), whether or not shelled or peeled ScheduleI-2.5% 62. 11090000 Wheat gluten, whether or not dried- Schedule I-2.5%(gluten means proteins contained in wheat) Exempt Nuts '49. 0802 Other nuts, other nuts, fresh such as almonds, haxelnuts or filberts (Coryius spp), walnuts, Chestnuts( Castanea spp), Pistachios, Macadamia nuts, Kola nuts (Cola spp), Areca nuts, fresh, whether or not shelled or peeled' Dates Taxable dates:- 16. 0804 Dates, figes, pineapples, avocados, guavas, mangoes and mangoes teens, dried- Schedule II-6% Exempt dates:- 51 0804 Dates, figes, pineapples, avocados, guavas, mangoes and mangoes teens, fresh 2.28 Government thus made its i....
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....s given submission by referring to a recent judgment passed by the Hon'ble Gujarat High Court in the case of Patel Products vs. Union of India. The SGST authority states that the Hon'ble Gujarat High Court has observed in the referred case that the process adopted by the petitioner, including drying, cleaning, sieving, sizing, and cutting of tobacco leaves amounted to 'production' under Section 3(p) of COPTA, 2003, which includes packing and repacking of tobacco products. Consequently, the petitioner's product would attract GST at 28%, Compensation Cess at 160%, Excise Duty at 0.5%, and National Calamity Contingency Duty at 25%. The authority is of the opinion that the ratio of the judgment will be applied in the present case as it involves drying, cleaning, sizing, and cutting of tobacco leaves. 4. Observations & Findings of the Authority 4.1 We have gone through the records of the issue as well as submissions made by the authorized representative of the applicant during personal hearing. We have also considered the view given by the Revenue. 4.2 As per the statement of facts furnished, the applicant is registered under the GST and is engaged in the business of constructi....
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....ines that tobacco leaves as dealt in by the applicant will be taxed @ 2.5% CGST + 2.5% SGST. Referring to the provisions of Notification no. 4/2017-Central Tax (Rate) Dated 28.06.2017, the applicant points out that tax is payable at the above rate under reverse charge when tobacco leaves are purchased from an agriculturist. The applicant has drawn our attention to the rulings given by the different Authorities for Advance Ruling in different states. He has referred to the rulings of Kerala AAR in case of Suresh. G. M/S Govind Traders and Andhra Pradesh AAR in case of M/S VST Industries Limited. In the first case, the Kerala AAR has given the ruling that sun cured tobacco leaves, called as 'kannipukayila' in Malayalam, is nothing but tobacco leaves and as such, it is taxable under Schedule I vide entry no. 162. In the later case the Andhra Pradesh AAR has held that tobacco leaves before being threshed will be considered as tobacco leaves and will come under entry no. 162 of Schedule I. 4.4 In order to understand the issue in our hand we have to discuss the stages that tobacco leaves undergo after being plucked from the plant. Harvesting of tobacco leaves begins when leav....
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....ristics to ensure quality and consistency for manufacturing and sale. Traditionally this is done by a person's visual and physical assessment of each leaf based on the criteria above. Sometimes cured tobacco leaves undergo the process of butting depending on the choice of the buyer. "Butting" of tobacco leaves refers to the manual or machine-assisted process of removing the tough, stem-like edge (or butt) of the tobacco leaf to leave only the pliable lamina or leaf blade. This is usually done for saving other leaves from damage and for convenience of packing. 4.7 Then starts the process of bundling. Bundling is a key step in tobacco leaf processing, where cured or fermented leaves are tied together for transport, storage, and aging. The process varies depending on the type of tobacco and the final product, such as cigars, cigarettes, or pipe tobacco. The specific techniques and bundling sizes are refined to ensure that the leaves maintain their quality and flavour throughout later processing stages. However, in fire-curing and air-curing process bundling is done before such processes. In bundling process 15 to 30 leaves are stacked neatly with their tips facing the same directio....
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.... bundling and butting (if required) of the leaves. It is those cured and bundled leaves that are sold as tobacco leaves in the market. 4.10 The Revenue has expressed the view that the ratio of the judgment of the Gujarat High Court in the case of Patel Products vs. Union of India can be applied to the present case. The Revenue is of the opinion that the applicant's case involves drying, cleaning, sizing, and cutting of tobacco leaves and as such it is to be considered as manufactured tobacco and should be taxed accordingly. In our view the ratio of the referred case is not applicable to the case in our hand. The factual matrix is not the same. The issue placed before the Hon'ble Gujarat High Court as mentioned in the judgment was 'classification as to whether non-fermented non-liquored crushed tobacco leaves packed in small retail pouches as "chewing tobacco" should be classified under Customs Tariff heading No. 2401 "unmanufactured tobacco; Tobacco refuse" or Customs Tariff No. 24039910 "chewing tobacco" attracting different rates of duty under the provisions of GST Act, 2017'. The factual matrix of the referred case is that the petitioner receives dried cut tobacco leave....
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....BACCO REFUSE 2401 10 - Tobacco, not stemmed or stripped : 2401 10 10 --- Flue cured virginia tobacco 2401 10 20 --- Sun cured country (natu) tobacco 2401 10 30 --- Sun cured virginia tobacco 2401 10 40 --- Burley tobacco 2401 10 50 --- Tobacco for manufacture of biris, not stemmed 2401 10 60 --- Tobacco for manufacture of chewing tobacco 2401 10 70 --- Tobacco for manufacture of cigar and cheroot 2401 10 80 --- Tobacco for manufacture of hookah tobacco 2401 10 90 --- Other 2401 20 - Tobacco, partly or wholly stemmed or stripped : 2401 20 10 --- Flue cured virginia tobacco 2401 20 20 --- Sun cured country (natu) tobacco 2401 20 30 --- Sun cured virginia tobacco 2401 20 40 --- Burley tobacco 2401 20 50 --- Tobacco for manufacture of biris 2401 20 60 --- Tobacco for manufacture of chewing tobacco 2401 20 70 --- Tobacco for manufacture of cigar and cheroot 2401 20 80 --- Tobacco for manufacture of hookah tobacco 2401 20 90 --- Other 2401 30 00 - Tobacco refuse 2402 Cigars, cheroots, c....
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.... 60 --- Tobacco extracts and essence 2403 99 70 --- Cut-tobacco 2403 99 90 --- Other 2404 11 00 -- Containing tobacco or reconstituted tobacco 2404 19 00 -- Other 4.12 It is evident from Entry no. 162 of Schedule I supra that tobacco leaves is taxed @ 2.5% CGST + 2.5% SGST. It is also clear from Entry no. 15 of Schedule III that 'tobacco leaves' has been distinguished from unmanufactured tobacco and tobacco refuse for the purpose of taxation though the customs tariff heading is identical i.e. 2401. On the other hand, tobacco is included in Chapter 24 of Section IV of the Customs Tariff Act, 1975. The supplementary note (1) to this chapter reads: For the purposes of this Chapter: (1) tobacco means any form of tobacco, whether cured or uncured and whether manufactured or not, and includes the leaf, stalks and stems of the tobacco plant, but does not include any part of a tobacco plant while still attached to the earth. From the above definitions, it is clear that the Customs Tariff Act does not prescribe a specific entry for "tobacco leaf", which is defined as such. Instead, the supplementary note makes it clear tha....
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....f tobacco as such or broken tobacco leaves or tobacco leaves stems. From the above reply it appears that tobacco leaves as such, broken tobacco leaves and tobacco leaves stems all are included in Entry no. 162 of schedule I supra. We have already discussed in preceding paragraphs that tobacco leaves do not lose their character of leaves as such even after undergoing the process of curing. In curing process the leaves basically lose their moisture content and become dry. It is a drying process that degrades starches and other organic compounds in the leaves, changes the colour of leaves and develops its characteristic flavor and aroma. But the cured leaf is still fundamentally the same material only made to be commercially fit for manufacture of tobacco for consumption in further processing. The entire process is usually done by the agriculturist before sending tobacco leaves to market for sale. 4.14 In our considered view, sun cured tobacco leaves do not lose the character of tobacco leaves as such. These leaves are kept exposed to full sunlight and the natural sap and moisture of the leaves are removed. In case of grading of tobacco leaves the characteristic features of the ....