In Re: Pragathi Enterprises
GST
2018 (11) TMI 449 – AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH – 2018 (19) G. S. T. L. 327 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH – AAR
Dated:- 10-10-2018
AAR/AP/17(GST)/2018 in Application No. AAR/28/(GST)/2018
GST
SRI. J.V.M SARMA AND SRI. AMARESH KUMAR, MEMBER
Present for the Applicant: Sri. A. Siva Prasad (Authorized Representative)
Present for the Jurisdictional Officer: Remarks Received
Note: Under Section 100 of the APGST Act'2017, an appeal against this ruling lies before the appellate authority for advance ruling constituted under section 99 of APGST Act'2017, within a period of 30 days from the date of service of this order.
M/s. PRAGATHI ENTERPRISES, Jammulapalem Village, Tangutur, Prakasam-523274 (hereinafter also referred as an applicant), has filed an application in Form GST ARA-01, dated :07.09.2018, for seeking advance ruling on 'rate of tax under GST w.r.to classification of the commodit
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ch threshed and re dried tobacco leaves what is the applicable rate of tax?
1. The applicant is a trader in tobacco in all varieties and form of tobacco available. Guntur and Prakasam Districts are famous for tobacco leaf and various verities of Tobacco, mainly FCV as well as Natu tobacco (Non-FCV) are widely available in these regions.
2. The applicant is registered with The Tobacco Board as “Dealer in Tobacco” vide Regn No: TB/DEALER/2018/4753, but not registered under GST as his turnover is below the threshold limit. However he would like to register with GST authorities in anticipation of his growing business requirement as and when the turnover crosses the threshold limit.
3. It is submitted that,
a. Until the enactment of GST Act, the products of Tobacco leaves / Unmanufactured Tobacco were not under the tax net both under the VAT laws and under Central Excise laws. Even the service portion of threshing and redrying was held to be exempt under Service tax law.
After the intr
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ves and Unmanufactured Tobacco (other than tobacco leaves) are not defined in the tariff.
d. FCV Tobacco Leaves, Flue Cured Virginia Tobacco is widely available in the region of Guntur and Prakasam and these leaves are cultivated by the farmers. FCV Tobacco is regulated and is permitted to be purchased or sold only at the Tobacco Auction Platforms conducted by the Tobacco Board.
e. The tobacco leaves after cultivation will be plucked and separated from the plants. These leaves, as plucked from trees are green in color and are very tender, delicate and very high in moisture. In this stage they will get damaged and rotten within few days of time unless cured. The tobacco leaves are cured (technical name for drying) in various forms or styles viz., Sun curing, Air curing, Flue Curing etc. whereby the leaves are dried and the moisture levels are reduced.
f. The farmers cure the tobacco at their farm fields itself and after curing the tobacco leaves will be packed as bales and brought to
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(i) Grading: The applicant may get an order from the buyers to to grade the tobacco. In such a case, the applicant engages manual labour to segeragate or classify the tobacco leaves into various grades depending on their size (width), length, colouror shade and other physical parameters of the leaf. These activities will be performed manually by unskilled labour and who will open the bale and separate the tobacco leaves to physically grade the tobacco into different categories as stated above. The tobacco leaves so graded, will again be packed into bales and wrapped in Jute bags for onward supply to other tobacco dealers or manufacturers.
(ii) Butting: The tobacco leaf when plucked from the plant will have a rough edge on the side it attaches to the plant. These rough edges may damage other leavesor make packing difficult. Therefore the edge of the tobacco leaf, which is called butt of the leaf, is removed by manually chopping them off. This will not alter any other character of the
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threshing. These processes of grading, butting or redrying are undertaken at a specific requirement of the buyer and hardly 5% of the tobacco leaves is specified for these processes.
d) The applicant will normally sell the tobacco leaves to tobacco exporters or manufacturers. The tobacco leaves will be subject to a process called Threshing and Redrying at GLT plants. Threshing is a process of separating the stem or the Mid-rib of the leaves and the leaves portion without stem is called 'Lamina'. The threshing is undertaken on certain plant and machinery, normally referred to as Green Leaf Threshing Plants (GLTs). In GLTs, the lamina and stem are separated and the Lamina is redried to ensure uniform and homogenized moisture throughout the lot.
e) The Tobacco after threshing and redrying is also referred in the trade parlance as tobacco leaf only. The essential characteristic of the tobacco leaves remain unaltered and they are not commercially different product from the tobacco leaf. T
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ng) by the agriculturist/ farmers himself in various ways viz., Sun curing, Air curing, Flue Curing, Fire curing etc., whereby the leaves are dried and the moisture levels are reduced to make them fit for primary marketability by the farmer. It is pertinent to note here that the entire tobacco brought for the primary market is after curing by the farmers. It is needless to say that the green tender leaves as plucked from the plant will never be marketed anywhere in the world.
b) A Detailed chart of tobacco from farm to final product is furnished.
c) After procuring the tobacco leaves in the market, the leaves can either be traded as such or may be graded as per their colour, length and other parameters and then traded or used for further manufacturing of tobacco. Occasionally the tobacco may be butted and re-dried without threshing.
d) The tobacco is then threshed (separating the leaf from stem portion) and the moisture contents of the tobacco are made even through re-drying. This i
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ng, Air curing, Flue Curing etc.(any one method) whereby the leaves are dried and the moisture levels are reduced Air curing will be adopted for lighter / thin type of leaves.
Sun curing involves exposing the leaves under sun, in inverted positions. Sun cures enable more dryness than air curing
Flue curing involves transmitting heat through ducts and this will result in more uniform and consistent curing of the tobacco leaves.
All three of curing will be undertaken by farmers at the field level.
Cured tobacco Leaf
Bundled for Trading
Optional Process (Grading)
Optional Process (Butting)
The cured tobacco leaves with Iow-moisture due to curing will be first tradable commodity (Primary marketable product)
The cured tobacco leaves will be bundles into bales and brought to the auction platform in case of FCV (Flue Cured Virginia Tobacco) and to market in case of Non-FCV tobacco.
Grading involves manual separation of tobacco leaves into various classes depending upon color, length
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d to local manufactures of Cigarettes. Other kinds of tobacco may be sold for different purpose.
Cut-Rag
Cut rag (Chemically blended)
Cigarette
Pipe
This is machine made cutting of strands of tobacco (unmanufactured)
Chemically blended and flavoured tobacco.
Fiited into a cigarette tube.
Filled into a somke-Pipe,
Fermented Leaf
Cherrots
Cigars
Bidis
Fermented dried tobacco leaves for the manufacture of cherrots or cigars.
Rolled Fermented leaves into Cherrots.
Rolled Fermented leaves into Cigars, (tapered on one side)
Tobacco dust, wrapped along with other materials into Bidi Leaves
Tobacco Chew:
Guthka
Khaini
Snuff
Chewing Tobacco.
Chewing tobacco treated with lime and other chemicals
Chewing tobacco treated with flavours and Masalas.
Tobacco snuff made from dried tobacco leaves and dust for inhaling purpose.
6. Contentions of the applicant.
a) All of the tobacco crop that is produced shall have to be cured before it can be marketed commercially in the primar
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as to be adopted as held in the case of Oswal Agro Mills Ltd vs. CCE, [1993 (66) E.L.T. 37 (S.C.) = 1993 (4) TMI 73 – SUPREME COURT OF INDIA.
e) In the case of IdupulapatiSesha Rao, Karedu Vs State of AP (13 APSTJ 44), the Honourable Sales Tax Appellate Tribunal of AP, Hyderabad held that in the classification of commodities, the meaning of the article should be understood according to the common commercial understanding and not in their scientific and technical sense.
f) It is also a well settled law that and held in various celebrated cases like M/s. D.s. Bist & sons Nainital 1979 (004) SCC – 0741 = 1979 (9) TMI 168 – SUPREME COURT OF INDIA that “It should be remembered that almost every kind of agricultural produce has to undergo some kind of processing or treatment by the agriculturist himself in his farm or elsewhere. In order to bring them to a condition of non-perishability and to make them transportable and marketable, some minimal process is necessary to be applied to many v
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commodities like cotton, chillies etc. The threshed and re-dried FCV tobacco has no use as such, hence it can be considered as primary agricultural produce only.
h) It is a settled legal position that an entry in the tariff has to be read 'as it is' following the principle of literal Rule of interpretation and the 'word', 'term' or a 'phrase' shall not be read by affixing or suffixing another word to it. In the above entry, the term 'Tobacco Leaves' is mentioned without any qualifier attached to it viz., 'dried tobacco leaves', 'undried tobacco leaves', 'cured tobacco leaves' etc., In such cases, it cannot be read that tobacco leaves means only those leaves cut from the plants and tobacco leaves on which certain operations are conducted will not be 'tobacco leaves'. It is also clear that in the absence of the definition given to the term 'tobacco leaves', shall be under stood in its natural and commercial meaning.
i) There are many other agricultural commodities, whose principal util
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Live fish.
20. 0302 Fish, fresh or chilled, 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 flavored [other than unprocessed green leaves of tea]-2.5% Sch.l'
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 peeledSche 12.5%' '62. 1109 00 00 Wheat gluten, whether or not driedSch. I-2.5%' (gluten means proteins contained in wheat)
Exempt Nuts '49. 0802 Other nuts, Other nuts, fresh such as Almonds, Hazelnuts 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, figs, pineapples, avocados, guavas, mangoes and mangos teens,
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ch a case there will be not be any product that can be taxed at 5%. It means that the provision of Schedule I Item no 103 will go redundant without application which is definitely not the intention of the legislature.
k) The applicable rates of GST for goods were mentioned in Notification 1/2017 Central Rate. It is not mentioned as to who shall be supplier and who shall be recipient. While notification 4/2017 CGST (R) notifies the cases where the RCM (reverse charge Mechanism) shall be applied, it is silent as to the rate. Thus as long as the product remains the same, it does not matter whether the same is procured from an agriculturist or an unregistered dealer, or registered dealer. The application of RCM is only to prescribe as to who shall pay the tax and it had no bearing on the applicability of the rate of GST.
7. The applicant has sought for the following clarifications.
i. What is the rate of GST applicable on tobacco leaves procured at tobacco auction platforms or directly
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ield to the end product, with stage wise physical specimens of tobacco. In support of his argument he has furnished the letter issued by the ICAR – Central tobacco Research Institute – Rajahmundry, Andhra Pradesh.
The concerned jurisdictional authority Assistant Commissioner State Tax Ongole -2 have submitted that there are no proceedings passed or pending in this regard. .
Legal Position
1. The rates of GST in relation to tobacco are covered under the heads as under, (Notification no; 1/2017, Central Tax (Rate),
Schedule
HSN
Product Description
Rate of GST
Schedule -I : Sl No 109
2401
Tobacco Leaves
CGST 2.5% i.,e total GST % = 5%
Schedule – IV; Sl No; 13
2401
Unmanufactured Tobacco; tobacco refuse (other than tobacco leaves)
CGST 14 % ie., total GST = 28%
Schedule – IV; Sl. No; 14
2402
Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
CGST 14 % ie., total GST = 28%
Schedule – IV; No; 15
2403
Other manufactured tobacco and manufact
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kkah tobacco
2401 90
Other
2401 20
Tobacco partly or wholly stemmed or stripped.
2401 20
Flue Cured Virgina Tobacco
2401 20 20
Sun cured Country (Natu) Tobacco
2401 20 30
Sun cured Virgina Tobacco
2401 20 40
Burley Tobacco
2401 20 50
Tobacco for manufactures of Bidis, not stemmed
2401 20 60
Tobacco for manufactures of Chewing tobacco
2401 20 70
Tobacco for manufactures of cigar and cherrot
2401 20 80
Tobacco for manufactures of Hokkah tobacco
2401 20 90
Other
2402
Cigars, Cheroots, Cigarillos And Cigarettes, Of Tobacco Or Of Tobacco Substitutes
2403
Other manufactured tobacco and manufactured tobacco substitutes; “homogenized” or “reconstituted” tobacco; tobacco extracts and essences [including biris]
4. As per the Circular of Tax Research Unit, vide F. No. 332/2/2017, Government of India Ministry of Finance Department of Revenue Tax Research Unit, Dec 2017, question no. 42 “Tobacco leaves falling under heading 2401 attracts 5% GST on reverse charge basis
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:
“In tobacco matured and ripe tobacco leaves are harvested and subjected to the process of curing to remove moisture to a desired level (10% leaves as such are not used for making tobacco products (both smoke and non smoke) as it contains huge moisture (75% – 80%). The process of curing is done by the solar energy (sun curing), or air /shade or thermal energy (flue curing) depending upon the type of tobacco to be cured. As the curing process is done by the farmer at farmer's place. it is construed as an integral part of tobacco leaf production process”
As seen from the different stages of commodity i.e., from the leaves stage to the final product (manufactured tobacco), the green leaf plucked from the plant undergoes different types of curing to reduce the level of moisture to the maximum extent for sustainability and to continue as leaf for further processes. The tobacco leaf will be entitled as a commercial commodity only after drying (curing) and normally put to trade in form of
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a distinction from the commodity 'tobacco leaves' with other entries.
From the respective GST tariff entries in the light of HSN codes mentioned against them It is observed that the two entries Sl.No 109, of Schedule I 'tobacco leaves' and entry no 13 of IV schedule 'Unmanufactured Tobacco; tobacco refuse (other than tobacco leaves)' in the notification No 1/2017 (CGST Rate)Central Tax are only falling under the same HSN code 2401 ..
On detailed examination of the description of the commodity under the head 2401, 2401.10 : represents the commodities of 'Tobacco not stemmed or stripped,' and 2410.20 represents the commodity' Tobacco partly or wholly stemmed or stripped'. Further, the entries 2402, speaks about the finished product, and 2403 describes about the other products made out of tobacco.
Hence the other two are not relevant for the present case.
Therefore, a clear distinction shall be drawn between the 'tobacco leaves and the unmanufactured tobacco'.
As observed from the fa
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d at tobacco auction platforms or directly from farmers, which are cured and dried by farmers themselves is 5%.
ii. If the applicant purchases tobacco leaves form other dealers who have purchased them farmers, for the purpose of trading what will be the applicable rate of tax?
Ruling :
5% (2.5 % SGST + 2.5 % CGST) as per sr. No 109 of Schedule I Notification No. 1/2017 (CGST)Central tax) Rate. Dt 28.6.2017
iii. 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 what is the applicable rate of tax?
Ruling :
5% (2.5 % SGST + 2.5 % CGST) as per Sl. No 109 of Schedule I Notification No. 1/2017 (CGST)Central tax) Rate. Dt 28.6.2017
iv. If the tobacco leaves are butted and sold to other dealers what will be the applicable rate of tax?
Ruling :
5% (2.5 % SGST + 2.5 % CGST) as per Sl. No 109 of Schedule I Notification No. 1/2017 (CGST)Central tax) Rate. Dt 28.6.2017
v.
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