2020 (10) TMI 814 - AAAR - GST

Classification of goods - Chewing tobacco with the brand name Kavi cut tobacco - classifiable under CTH 2403 9910 or not - applicable rate of Compensation Cess - Sl. No. 26 of the Notification No. 01/2017-Compensation cess dated 28.06.2017 ct 160% - challenge to AAR decision. Chewing tobacco can be both unmanufactured and Manufactured . The question is whether the product of the appellant is unmanufactured or manufactured ? - HELD THAT - The Lower Authority relying on the standards given by ICAR-CTRI, in para 6.3 of their ruling has established that the process undertaken by the appellant is not equivalent to that of curing/bulking done at farm which may be classified as unmanufactured Tobacco for chewing but is similar to the process undertaken in manufacture of Chewing tobacco as acknowledged by the ICAR-CTRI in as much as the raw tobacco is processed by smoking, stored and given jaggery water / salt water treatment. Customs Tariff which gives the classification for determination of rates of goods as per Notification No. 01/2017-C.T.(Rate) do not define what is Manufactured tobacco and Unmanufactured tobacco and hence we need to look into the interpretations of judiciary. Any process on the raw material resulting in emergence of a new product with a distinct name, character and use is defined as manufacture under GST. The appellant has stated to have purchased Raw dried tobacco leaves from wholesale dealers/farmers and then undertakes the process of grading, drying, dipping in jaggery water, stalking, semi-drying, mincing, subjecting to natural/agricultural preservatives, weighing and packing for supply. Thus, the raw material which is Raw dried tobacco leaves undergoes the above process and the end product Chewing Tobacco with distinct character and use emerges. This is established by the test reports furnished by the appellants before the lower authority. Thus, it is evident that the raw material undergoes a set of processes and emerges as a distinct product which makes it marketable/consumable for the chewing needs. Therefore, the product supplied by the appellant is Manufactured Tobacco product for Chewing . Once it is held that the product is Manufactured Chewing tobacco , the classification of the product is under CTH 2403 9910 which specifies Chewing Tobacco under the head 2403-Other Manufactured tobacco and manufactured tobacco substitutes as held by the lower authority and there appears to be no need for our intervention with the order of the Lower Authority.

Summary

Issues Involved:
1. Classification of the product "Kavi cut tobacco" as either "Unmanufactured Tobacco" under CTH 2401 or "Manufactured Tobacco" under CTH 2403.
2. Determination of the applicable rate of Compensation Cess.
3. Consideration of whether the process undertaken by the appellant amounts to manufacturing.

Detailed Analysis:

1. Classification of the Product:
The core issue is whether the product "Kavi cut tobacco" should be classified as "Unmanufactured Tobacco" under CTH 2401 or "Manufactured Tobacco" under CTH 2403.

- Appellant's Argument: The appellant argued that their product is "Unmanufactured Tobacco" and should be classified under CTH 2401. They relied on the CBEC circular F. No. 81/5/87-CX.3, dated 23-6-1987, and the decision of CESTAT in the case of Ravindra & Company. They claimed that the process of liquoring with jaggery water and cutting into pieces does not change the essential character of the tobacco.

- Lower Authority's Ruling: The lower authority classified the product as "Manufactured Tobacco" under CTH 2403, specifically as "Chewing Tobacco." They based their decision on the process described by the appellant, which includes liquoring, cutting, and packing, and concluded that these processes amount to manufacturing.

- Appellate Authority's Decision: The appellate authority upheld the lower authority's ruling. They noted that the product undergoes significant processing, including grading, drying, dipping in jaggery water, semi-drying, mincing, and adding natural/agricultural preservatives, which results in a product with a distinct name, character, and use. Therefore, the product is classified as "Manufactured Tobacco" under CTH 2403.

2. Applicable Rate of Compensation Cess:
- Lower Authority's Ruling: The lower authority determined that the applicable rate of Compensation Cess for the product classified under CTH 2403 9910 is 160%, as provided under Sl. No. 26 of Notification No. 01/2017-Compensation cess dated 28.06.2017.

- Appellate Authority's Decision: The appellate authority did not find any reason to interfere with the lower authority's determination of the applicable rate of Compensation Cess.

3. Whether the Process Amounts to Manufacturing:
- Appellant's Argument: The appellant contended that the process they undertake does not amount to manufacturing. They argued that the product remains in its original nature and does not undergo any change in its essential character.

- Lower Authority's Ruling: The lower authority concluded that the process undertaken by the appellant amounts to manufacturing. They referenced the ICAR-CTRI standards and the Customs Tariff/HSN explanatory notes, which indicate that the product is not merely cured tobacco but undergoes further processing that qualifies it as manufactured tobacco.

- Appellate Authority's Decision: The appellate authority agreed with the lower authority's conclusion. They emphasized that the product undergoes a series of processes that result in a new product with distinct characteristics suitable for chewing. This aligns with the definition of "manufacture" under Section 2(72) of the CGST Act, 2016, which includes any process that results in the emergence of a new product with a distinct name, character, and use.

Conclusion:
The appellate authority upheld the lower authority's ruling that the product "Kavi cut tobacco" is classified as "Manufactured Tobacco" under CTH 2403 9910, with an applicable Compensation Cess rate of 160%. The processes undertaken by the appellant were deemed to constitute manufacturing, resulting in a product with a distinct character and use. The appeal was disposed of accordingly.