2018 (5) TMI 529 – AUTHORITY FOR ADVANCE RULING – DELHI – 2018 (13) G. S. T. L. 373 (A. A. R. – GST) – Classification of goods and/ or services or both – Rate of GST – Dried Tobacco Leaves – Determination of the liability to pay tax on goods or services or both – appellant engaged in trading of Dried Tobacco Leaves – whether such 'Dried Tobacco Leaves' will be classified under Heading 2401 of HSN or the same may be classified in Heading 2403 of HSN or in any other Heading of HSN? – Held that: – It is observed that the heading 2401 of HSN covers Tobacco Leaves and Unmanufactured Tobacco. However, heading 2403 covers 'Manufactured Tobacco'. Hence, to determine the correct classification under HSN, it has to be first ascertained whether the goods proposed to be supplied are unmanufactured tobacco or the same can be considered as manufactured tobacco. It is observed that HSN notes for heading 2401 specifically mention that the said heading covers whole plants or leaves in the natural stat
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dly undergone curing by Sun-dry/ Air-dry processes, the same cannot be called 'Tobacco Leaves' and would be covered as ‘unmanufactured tobacco (other than tobacco leaves)'.
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Circular No. 81/5/87 – CX-3 dated 23.06.1987 issued by the Ministry of Finance – Held that: – the same is regarding classification of unmanufactured tobacco merely broken by beating and then sieved and packed for consumption as chewing tobacco (Zarda) and it was clarified that the same should be classifiable as unmanufactured tobacco under heading 2401. Hence, the same is not applicable in the present case.
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Circular No. 143/12/2011-ST dated 26.05.2011 – Held that: – the same is regarding levy of Service Tax on certain processes in relation to agriculture and hence, the same is not applicable in the present case.
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N/N. 12/2017 Central Tax (Rate) dated 28.06.2017 – Held that: – the notification pertains to levy of GST on certain processes related to agriculture. Hence, the same is not applicable in th
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ed Tobacco Leaves' which would be purchased from registered dealer who in return purchases such Tobacco Leaves from Agriculturist / Farmers. Such registered dealer after purchasing it from Agriculturist / Farmers will sell the same to Applicant as it is without any further change in its form. 2. Applicant after cleaning and removal of unwanted particles (Bhusa, Dust etc.) will further sell such 'Dried Tobacco Leaves' in wholesale market. During the above explained activity of cleaning and removal of unwanted particles (Bhusa, Dust etc), no essence or foreign particle will be added to the 'Dried Tobacco Leaves'. Such dried tobacco leaves will be sold in wholesale market without any branding on it. It is also clarified that such 'Dried Tobacco Leaves' are not fit for direct human consumption in any way. A flow chart of the entire agricultural activity on tobacco is also given as follows: Details of Question on which Advance Ruling is requested: 3. Classi
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st etc.) has been done without any addition of foreign particles, would be levied @ 5% or 28% under Chapter No. 24 Tariff Item 2401 under Notification No. 01/2017 – Central Tax (Rate) dated 28.06.2017. Views of The Applicant: 5. Product to be traded by the applicant is 'Dried Tobacco Leaves' as such and no processing/ modification shall be done by the applicant so the same shall be classifiable under 'Tobacco Leaves' and GST @ 5% shall be levied on such 'Dried Tobacco Leaves' as per the interpretation of Law and common parlance by the applicant under Chapter No. 24 Tariff Item 2401. 6. Further, as per the FAQ's released by CBEC F.No. 332/2/2017- TRU, it is further – clarified in S. No. 42 that "For GST Rate of 5%, tobacco leaves means, leaves of tobacco as such or broken tobacco leaves or tobacco leaves stem." 7. As per the above explanation, dried tobacco leaves shall be covered under 'Tobacco Leaves' as per HSN Code List Chapter No. 24 Ta
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mixture too concentrated for comfortable consumption by human beings and fails to meet test of marketability of product as 'chewing tobacco' – classification under Sub-heading 2401.10 of Central Excise Tariff appropriate. In view of this it was submitted that the Commissioner's Order was incorrect and should be set aside. 10. Board vide its Circular No. 37/90-CX.3, dated 17.07.1990, in case of flavours/scents added in preparation of scented snuff held the view that Snuff Tobacco even after addition Of "Perfumes, Scents and Menthol" remain Tobacco. Therefore, the explanatory notes of HSN bringing in the leaf treated with tobacco Solution Quimam herein and thereafter with flavouring perfumes agents cannot transform Raw leaf tobacco unmanufactured to manufactured tobacco. The addition of these volatile flavours will not amount to unmanufactured tobacco to manufactured tobacco following the settled posion that process of treatment Raw leaf of tobacco by effecting var
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Unmanufactured tobacco; tobacco refuse (other than tobacco leaves) 13. Chapter 24 of HSN: Tobacco and manufactured tobacco substitutes General Tobacco is obtained from various cultivated varieties of the genus Nicotiana of the Solanaceae family. The size and shape of the leaves differ from one variety to another. The harvesting method and curing process depend on the variety (type) of tobacco. The plant may be cut whole, at average maturity (stalk cutting), or the leaves may be picked separately, according to their state of maturity (priming). Thus, tobacco may be cured either as whole plants (on the stalk) or as separate leaves. The various methods, of curing are sun curing (in the open air), air curing (in closed sheds with free circulation of air), flue curing (in hot air flues), or fire curing (with open fires). Before packing for shipment, the dried leaves are treated in order to ensure their preservation. This may be done by controlled natural fermentation (Java, Sumatra, Havana
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ermented 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) Tobacco refuse, e.g., waste resulting from the manipulation of tobacco leaves, or from the manufacture ot tobacco products (stalks, stems, midribs, trimmings, dust etc). 15. HSN Notes for heading 24.03: 24.03 – Other manufactured tobacco and manufactured tobacco substitutes; "homogenised" or "reconstituted" tobacco; tobacco extracts and essences. – Smoking tobacco, whether or not containing tobacco substitutes in any proportion: 2403.11 -Water pipe tobacco specified in Subheading Note 1 to this Chapter 2403.19 -Other – Other: 2403.91 – "Homogenised"
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pressure or prepared by boiling waste tobacco in water. They are used mainly for the manufacture of insecticides and parasiticides Discussion: 16. The proposed activity of the applicant is to purchase 'Dried Tobacco Leaves' and after cleaning and removal of unwanted particles, to supply the same in the wholesale market without addition of any essence or foreign particle and without any branding. Such 'Dried Tobacco Leaves' are not fit for direct human consumption. 17. The goods to be supplied by the applicant are explained to be 'Dried Tobacco Leaves' which have been harvested and then undergone the process of curing by the process Of Sun-dry or Air-dry, removal of dust particles, straw/bhusa and other unwanted particles. 18. The issue for decision is whether such 'Dried Tobacco Leaves' will be classified under Heading 2401 of HSN or the same may be classified in Heading 2403 of HSN or in any other Heading of HSN. Further, if the same are classified und
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"stalk cutting" and if the tobacco is harvested by removing the individual leaves off the stalk as they ripened, it is called "cropping", "pulling" or "priming". The recently harvested tobacco that has not yet entered the curing phase is called "Raw Tobacco . 21. Curing of tobacco: It is necessary to cure tobacco after harvesting and before it can be consumed. Tobacco is cured to remove all of the natural sap from the leaves so that it can be further processed and/ or manufactured. The four primary methods of curing are as follows: (i) Air curing: One of four main methods of curing, which involves removing all of the natural sap and moisture from tobacco leaves. Air-curing is a natural drying process in which harvested tobacco leaves are hung to dry in an air-curing barn. The barn is a wooden structure that can be either closed completely or ventilated, depending on weather conditions. The barn is closed to conserve moisture in dry condition
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natural sap and moisture from tobacco leaves. This method of curing uses only artificial heat, such as that provided by oil or petroleum. Flue-curing barns are outfitted with pipes that supply the heat and fans that circulate the heat for even distribution. (iv) Sun-curing: One of four main methods of curing, which involves removing all of the natural sap and moisture from tobacco leaves. This method of curing involves exposing tobacco leaves to full sunlight, thereby drying the leaves completely. 22. Tobacco curing is also known as colour curing, because leaves are cured with the intention of changing their colour and reducing their chlorophyll content. Curing tobacco has always been a process necessary to prepare the leaf for consumption because, in its raw, freshly picked state, the green tobacco leaf is too wet to ignite and be smoked. 23. Fermentation: Some tobaccos are subjected to a second stage of curing knows as fermenting or sweating. There are primarily two types of ferment
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sumed product. Non-aged or low quality tobacco is often artificially flavoured with these otherwise naturally occurring compounds. The aging process continues for a period of months 25. After tobacco is cured, it is moved from the curing barn into a storage area for processing. If whole plants were cut, the leaves are removed from the tobacco stalks in a process called stripping. For both cut and pulled tobacco, the leaves are then sorted into different grades. The tobacco is then packed for transportation. 26. Whole leaf: This term refers to a tobacco leaf in its entirely, including both the blade and Stem of the leaf. In contrast, the terms blade, lamina, and web refer only to the blade Of the leaf and do not include the stem. 27. Broken leaf and scrap: Broken leaf is unprocessed tobacco in which some Of the leaf has been lost because of excessive handling. Broken leaf is different from scrap, which is leaf that is broken into small pieces during the processing or manufacturing stage
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dered as manufactured tobacco. It is observed that HSN notes for heading 2401 specifically mention that the said heading covers whole plants or leaves in the natural state and also cured or fermented leaves. Hence, even after the process of curing or fermenting of Tobacco Leaves, they remain covered under heading 24.01. 32. As far as rate of GST under Notification No. 1/2017 – Central Tax (Rate) dated 28.06.2017 is concerned, it is observed that 'Tobacco Leaves' attract 2.5% (CGST) and 2.5% (SGST) or 5% (IGST) under S. No. 109 of Schedule-I of Notification No. 1/2017 -Central Tax (Rate) dated 28.06.2017. Whereas, 'unmanufactured tobacco (other than tobacco leaves)' attract 14% (CGST) and 14% (SGST) or 18% (IGST) under S. No. 13 of Schedule-IV of the said Notification. It has been clarified by the CBEC vide Circular F.No. 332/2/2017-TRU dated December 2017 that the said rate of 5% is applicable only on the following three categories of goods. (i) Leaves of Tobacco as suc
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s obtain by stalk cuttings i.e. When entire plant is harvested along with the stalk, stem and the leaves. It is not the claim of the applicant that goods proposed to be supplied by them are covered in this category. 37. All the above mentioned three categories which are covered as 'Tobacco Leaves' in S.NO. 109 of Schedule-1 of Notification No. 1/2017 – Central Tax (Rate) dated 28.06.2017 as per CBEC Circular F.No. 332/2/2017-TRU dated December 2017, covers only those Tobacco Leaves which have not undergone any processing like curing, fermentation etc. Since the goods proposed to be supplied by the applicant are admittedly undergone curing by Sun-dry/ Air-dry processes, the same cannot be called 'Tobacco Leaves' and would be covered as unmanufactured tobacco (other than tobacco leaves)'. 38. Regarding Circular No. 81/5/87 – CX-3 dated 23.06.1987 issued by the Ministry of Finance, .the same is regarding classification of unmanufactured tobacco merely broken by beating
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processes in relation to agriculture and hence, the same is not applicable in the present case. 41. Further, the applicant has mentioned Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 which pertains to levy of GST on certain processes related to agriculture. Hence, the same is not applicable in the present case. Ruling 42. It is held that the 'Dried Tobacco Leaves' which have undergone the process of curing after harvesting of tobacco leaves are 'unmanufactured tobacco' covered in HSN Code 2401. However, they are not covered under S. No. 109 of Schedule-1 of Notification No. 1/2017- Central Tax (Rate) dated 28.06.2017 @ 2.5% (CGST) + 2.5% (SGST) or 5% (IGST), but the same are covered under S. No. 13 of Schedule- IV of the said Notification as 'unmanufactured Tobacco (Other than Tobacco Leaves)' @ 14% (CGST) + 14% (SGST) or 28% (IGST). – Case laws – Decisions – Judgements – Orders – Tax Management India – taxmanagementindia – taxmanagement – taxm
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