TaxTMI 
TaxTMI 
2026 (7) TMI 630
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....erred to as the 'CGST Act, 2017' and the 'SGST Act, 2017') are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act, 2017 would also mean reference to the corresponding similar provisions in the SGST Act, 2017. 1. This appeal has been filed by Ms. Iman Das, Deputy Commissioner, State Tax, Bowbazar Charge, Govt. of West Bengal against the Ruling passed by the West Bengal Advance Ruling Authority (hereinafter referred to as WBAAR) vide Advance Ruling Order No. 28/WBAAR/2025-26 dated 13.02.2026 in respect of the application for Advance Ruling filed by M/s Om Jai Balajee Construction Private Limited. 2. The Respondent, M/s Om Jai Balajee Construction Private Limited (applicant before the WBAAR) submitted before the WBAAR that they were presently engaged in the business of construction of buildings in and around Kolkata. The Respondent proposes to diversify into the business of trading in tobacco leaves. For this purpose, the Respondent intends to procure tobacco leaves directly from cultivators/farmers and....
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.... manual operations such as grading, bundling and butting may be undertaken. According to the Respondent, these activities do not alter the essential character of the tobacco leaves. v. The Respondent contended that prior to the introduction of GST, tobacco leaves were not subjected to VAT or Central Excise duty and that even threshing and re-drying of tobacco leaves had been held to be an exempt intermediate process relating to agriculture. vi. Referring to Notification No. 9/2025-Central Tax (Rate) dated 17.09.2025, the Respondent submitted that "tobacco leaves" falling under Heading 2401 attract GST at the rate of 5%, whereas "unmanufactured tobacco; tobacco refuse (other than tobacco leaves)" falling under the same heading attract GST at the rate of 28%. vii. The Respondent also relied upon Notification No. 4/2017-Central Tax (Rate) dated 28.06.2017 and submitted that procurement of tobacco leaves from agriculturists attracts GST under reverse charge mechanism at the rate of 5%, while subsequent supplies are taxable at the same rate under forward charge. viii. Reliance was placed on Circular No. 332/2/2017-TRU dated 27.12.2017, wherein it was clarified that, for the ....
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....cal or chemical transformation of the leaves. Submission of the Revenue before the WBAAR 4. The Revenue, in their submissions made before the WBAAR, inter alia, highlighted the following issues: i. The Revenue relied upon the judgment of the Hon'ble Gujarat High Court in the case of Patel Products v. Union of India. ii. It was submitted that the Hon'ble High Court had observed that activities such as drying, cleaning, sieving, sizing and cutting of tobacco leaves amounted to "production" under the provisions of Section 3(p) of COPTA, 2003. iii. According to the Revenue, the product involved in the said case was held liable to tax as a tobacco product attracting higher rates namely, GST at 28%, Compensation Cess at 160%, Excise Duty at 0.5%, and National Calamity Contingency Duty at 25%. iv. The Revenue contended that the ratio of the aforesaid judgment would be applicable to the present case, as the activities involved in relation to tobacco leaves include drying, cleaning, sizing and cutting of tobacco leaves. v. On the above basis, the Revenue expressed the view that the tobacco leaves in question should not be treated as mere to....
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....The Authority observed that the GST rate notifications specifically distinguish "tobacco leaves" from "unmanufactured tobacco; tobacco refuse (other than tobacco leaves)" although both fall under Heading 2401. xi. Upon examining the relevant entries of the Customs Tariff Act, 1975, the Authority observed that a distinction is maintained between tobacco not stemmed or stripped and tobacco partly or wholly stemmed or stripped. xii. The Authority took the view that tobacco which is not stemmed or stripped retains the essential character of tobacco leaves and that the tariff itself recognises cured tobacco as tobacco leaves. xiii. The Authority observed that curing does not alter the essential character of tobacco leaves and merely renders them commercially fit for further use. xiv. Reliance was placed upon the clarification contained in FAQ No. 332/2/2017-TRU dated 27.12.2017, wherein tobacco leaves were stated to include leaves of tobacco as such, broken tobacco leaves and tobacco leaf stems. xv. The Authority held that sun-cured tobacco leaves do not lose their character as tobacco leaves merely because moisture and sap are removed throug....
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....-TRU dated 27.12.2017, wherein it was clarified that, for the purpose of GST, the concessional rate applicable to "tobacco leaves" covers only: a. leaves of tobacco as such; b. broken tobacco leaves; and c. tobacco leaf stems. vi. The Appellant contended that the expression "leaves of tobacco as such" refers to leaves obtained from the tobacco plant without undergoing any processing. vii. It was argued that tobacco leaves which have undergone curing, including sun-drying or air-drying processes, would not fall within the category of "tobacco leaves" as contemplated in the aforesaid clarification. viii. The Appellant further contended that the three categories referred to in the CBEC Circular cover only those tobacco leaves which have not undergone processing such as curing or fermentation. ix. According to the Appellant, since the goods proposed to be supplied by the Respondent admittedly undergo curing by sun-drying or air-drying processes, the same cannot be treated as "tobacco leaves". x. The Appellant submitted that cured or dried tobacco leaves are appropriately classifiable as "Unmanufactured Tobacco (oth....
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....uch as fresh, green, cured or uncured and, therefore, all forms of tobacco leaves retaining their character as leaves would continue to be covered by the said entry. vii. It was further submitted that the Appellant's interpretation seeks to read additional conditions into the notification which are not expressly provided therein. viii. The Respondent submitted that the HSN Explanatory Notes to Heading 2401 specifically include cured tobacco and tobacco leaves in various forms within the scope of unmanufactured tobacco and, therefore, curing by itself does not result in loss of the character of tobacco leaves. ix. It was contended that the clarification issued under Circular No. 332/2/2017-TRU cannot override or restrict the scope of the statutory notification and that a circular cannot create a tax liability contrary to the notification. x. The Respondent submitted that the GST rate notifications prescribe the applicable rates with reference to the nature of the goods and do not make any distinction based upon the identity of the supplier or recipient, except for determining the person liable to pay tax under the reverse charge mechanism. ....
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.... Personal Hearing 8. The personal hearing of the instant appeal was held on 15.06.2026. 9. During the course of the hearing, the authorised representative of the Respondent, while reiterating the written submissions already filed before the Appellate Authority, also produced samples of the tobacco leaves proposed to be traded by them. The samples were presented in support of the Respondent's contention that the tobacco leaves retain their essential character as leaves notwithstanding the processes of curing, grading, bundling and butting undertaken thereon. 10. The Deputy Commissioner, State Tax, Bowbazar Charge, Government of West Bengal, appearing on behalf of the Appellant, reiterated the submissions and contentions advanced in the Grounds of Appeal. Further, in response to certain queries raised by the Members of the WBAAAR during the course of the hearing, the departmental representative undertook to furnish judicial precedents in support of the Appellant's contention that cured tobacco leaves are classifiable as "Unmanufactured Tobacco" and are liable to tax at the rate applicable thereto. Discussions and Findings 11. We find that the broad submissions of the R....
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.... consistently hold that curing, grading, bundling and butting do not result in loss of the essential character of tobacco leaves. vi. The Respondent has also contended that Circular No. 332/2/2017-TRU dated 27.12.2017 does not support the interpretation canvassed by the Appellant and, on the contrary, clarifies that tobacco leaves continue to remain tobacco leaves so long as they do not lose their basic character as leaves. vii. On the basis of the aforesaid submissions, the Respondent has prayed for dismissal of the appeal and for affirmation of the ruling pronounced by the WBAAR. 12. The Respondent approached the Advance Ruling Authority seeking an advance ruling in respect of the questions which have already been reproduced hereinabove, and need not repeated. 13. The principal observations and findings recorded by the WBAAR, which form the basis of the present appeal, may be succinctly summarised as under: i. The WBAAR, after considering the submissions of the applicant and the Revenue, examined the nature of the processes undertaken on tobacco leaves, namely curing, grading, butting, bundling, stemming/stripping and threshing, and the impact of ....
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....ing, the Appellant has preferred its appeal, primarily on the following grounds: i. The Appellant has assailed the impugned ruling primarily on the ground that the WBAAR erred in holding that the tobacco leaves proposed to be supplied by the Respondent are classifiable as "tobacco leaves" attracting GST at the rate of 5% under Entry No. 162 of Schedule I to Notification No. 1/2017-Central Tax (Rate), as amended. According to the Appellant, Heading 2401 of the Customs Tariff covers "Unmanufactured Tobacco; Tobacco Refuse", though both fall under Heading 2401, the GST rate notification distinguishes „tobacco leaves' from „unmanufactured tobacco; tobacco refuse other than tobacco leaves'. ii. The Appellant has placed considerable reliance on Circular No. 332/2/2017-TRU dated 27.12.2017 and has contended that the expression "tobacco leaves" is confined only to tobacco leaves as such, broken tobacco leaves and tobacco leaf stems. It has been argued that the phrase "leaves of tobacco as such" appearing in the said circular should be interpreted to mean tobacco leaves obtained from the tobacco plant without undergoing any processing. iii. It has furt....
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....d ruling be modified by holding that cured tobacco leaves proposed to be supplied by the Respondent are classifiable as "Unmanufactured Tobacco" under Heading 2401 and are liable to tax at the rate applicable thereto, and not at the concessional rate prescribed for "tobacco leaves". 15. We find that the submission of the Respondent before this Authority basically rests on the following points: i. The Respondent, while supporting the impugned ruling, submitted that the tobacco leaves proposed to be traded by them are procured from farmers after curing and are thereafter supplied either as such or after operations such as grading, bundling and butting, without any process being undertaken that alters their essential character as tobacco leaves. It was contended that curing is an indispensable agricultural process undertaken by cultivators to render freshly harvested tobacco leaves marketable and fit for storage and transportation and that green tobacco leaves are not ordinarily traded in commercial parlance. ii. The Respondent further submitted that neither the GST rate notifications nor the tariff entries make any distinction between fresh, cured or dried tobacc....
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....he principal issue that arises for determination in the present appeal is whether sun-cured tobacco leaves procured from farmers and subsequently supplied as such or after operations such as grading, bundling and butting continue to retain their character as "tobacco leaves" covered under Entry No. 162 of Schedule I to Notification No. 1/2017-Central Tax (Rate), as amended, or whether, by reason of the curing process and the aforesaid activities, they become classifiable as "Unmanufactured Tobacco (other than tobacco leaves)" under Heading 2401, attracting the rate of tax applicable thereto. 18. We find that the Respondent has consistently represented that the goods proposed to be supplied are tobacco leaves procured from farmers after curing and that no process is undertaken by the Respondent which changes the essential character of the leaves. The activities referred to in the application, namely storage, stocking, grading, bundling and butting, are stated to be undertaken only for preservation, segregation, handling, packing and transportation of the leaves. On the materials placed before us, including the samples produced during hearing, nothing has been shown to conclude th....
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....tation. The circular does not expressly state that cured tobacco leaves are excluded from the scope of "tobacco leaves". A circular cannot be read in a manner which adds a limitation not found in the rate notification itself. In the facts of the present case, the expression „as such' is more appropriately understood to refer to leaves retaining their character as leaves, and not as a condition that the leaves must remain in the freshly plucked green condition. 23. We further find that grading of tobacco leaves according to size, colour, shade, length or texture is only a process of segregation based on physical characteristics. Bundling is a process undertaken for ease of handling, packing, storage and transportation. Butting involves removal of the rough edge or butt portion of the leaf to avoid damage to other leaves during packing and transport. None of these activities, on the facts placed before us, results in a change in the essential character of the product from tobacco leaves to another commodity. 24. The WBAAR has rightly distinguished the aforesaid activities from stemming, stripping or threshing. In stemming or stripping, the midrib of the tobacco leaf is re....
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....ining their essential character as leaves, their subsequent use by the buyer cannot, by itself, alter their classification at the stage of supply by the Respondent. 29. At the same time, we consider it necessary to clarify that our conclusion is based on the facts and representations placed on record in the present proceedings. The classification affirmed herein proceeds on the factual premise that the goods consist of tobacco leaves subjected only to curing, grading, bundling and butting, and that such goods retain their essential character as tobacco leaves. The burden of establishing eligibility to a particular classification entry rest upon the person claiming such classification. This order shall not be construed as laying down a general proposition that every commodity described in trade or invoices as "tobacco leaves" would automatically qualify for classification under the entry relating to tobacco leaves. 30. Classification under GST law has to be determined on the basis of the actual nature, characteristics and degree of processing of the goods, and not merely on the nomenclature adopted in invoices, e-way bills or other commercial documents. Where there exists reas....