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2023 (6) TMI 486 - AAR - GSTClassification of goods - raw unmanufactured tobacco - Process amounting to manufacture or not - mixing of scent (mixture of various perfumes and not jarda scent) in raw unmanufactured tobacco dust by the Applicant after procuring the same from various traders, and its subsequent sale to customers on B to B and B to C basis, after ensuring packing from third party - change in character of unmanufactured tobacco to manufactured tobacco or not. HELD THAT - On reading of GST Tariff Sub Heading CTH 24012090, it is evident that the cutting process prescribed in this note is along with the remarks 'but not tobacco ready for smoking'. This explanation of HSN clearly brings out the classification in the Customs tariff at 240120, which covers tobacco products for further manufacture and not for consumption as such as in the case of the applicant. From the explanation given by ICAR-CTRI Central Tobacco Research Institute and Explanatory General notes to chapter 24, it is seen that only tobacco which is cured at farm level for before supply to market would fall under this classification as 'Unmanufactured tobacco'. The perfuming that the applicant claims is by mixing scent does not get covered under this. As seen in the Explanatory General notes to chapter 24, only natural fermentation is covered. Therefore, the product of the applicant does not fall under CTH 24012090.' 'Chewing tobacco' can be both 'unmanufactured' and 'Manufactured'. The question is whether the product of the applicant is 'unmanufactured' or 'manufactured'. The process undertaken by the applicant is not equivalent to that of winnowing crushing, and separating through seiving and the better part are used for chewing tobacco 'as 'unmanufactured tobacco for chewing' but is similar to the process undertaken in manufacture of 'Chewing tobacco' as acknowledge by the ICAR-CTRI in as much as the raw tobacco is processed by mixing of tobacco dust with scent(mixture of various perfumes and not jarda scent). 'Customs Tariff which gives the classification for determination of rates of goods as per notification No. 01/2017-C.T. (Rale) do not define what is 'Manufactured tobacco' and 'Unmanufactured tobacco' and hence we need to look into the interpretation of judiciary. Hon'ble High Court of Madras in the case of BELL MARK TOBACCO COMPANY, PUDUKOTTAH AND OTHERS VERSUS THE GOVERNMENT OF MADRAS 1960 (7) TMI 60 - MADRAS HIGH COURT , while answering the issues raised before them, observed (what is to be considered as 'unmanufactured chewing tobacco' and 'Manufactured chewing tobacco' when the same is not defined in the Act . Taking the cumulative effect of the various processes to which the assessee subjected the tobacco before he sold it, it is clear that what was eventually sold by the assessee was a manufactured product, manufactured from the tobacco that the assessee had purchased. Soaking in Jaggery water is not the only process to be considered. The addition of flavouring essences and shredding of the tobacco should establish that what the assessee sold was a product substantially different from what he had purchased. Once again, we have to point out that the fact that this assessee purchased the tobacco as chewing tobacco did not determine the question, whether the sale of the products manufactured by him from out of that tobacco falls within the scope of Section 5 (vii) or not. The Apex Court in the THE STATE OF MADRAS VERSUS BELL MARK TOBACCO CO. 1966 (10) TMI 106 - SUPREME COURT has completely agreed with the above view of the High Court that the cumulative effect of the various process to which tobacco was subjected before it was sold, amounted to a manufacturing process. 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 applicant 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.
Issues Involved:
1. Whether mixing of scent (mixture of various perfumes and not jarda scent) in raw unmanufactured tobacco dust changes its character to manufactured tobacco. 2. Whether processing of unmanufactured tobacco dust by adding scent changes its character to manufactured tobacco. Issue-wise Detailed Analysis: 1. Mixing of Scent in Raw Unmanufactured Tobacco Dust: The applicant, a proprietary concern, engages in mixing scent into raw/unmanufactured tobacco dust, procured from various traders. This mixture is then sent for packing and sold on both B2B and B2C bases. The applicant classifies this product under GST Tariff Sub Heading 24012090 as unmanufactured tobacco. The applicant argues that this process does not make any irreversible change to the tobacco dust, thus it remains unmanufactured. They support their claim by citing various case laws, including Yogesh Associates v. Commissioner of Central Excise and others, where similar processes were not considered manufacturing. The Authority for Advance Ruling (AAR) examined the statutory provisions and found that the process of mixing scent (mixture of various perfumes and not jarda scent) indeed changes the character of the unmanufactured tobacco dust to manufactured tobacco. The AAR referred to the Customs Tariff Act and the rules for interpretation, which apply to GST classification. The explanatory notes to HSN 2401 and 2403 were also considered, indicating that the applicant's product does not fit the classification of unmanufactured tobacco under CTH 24012090 but rather falls under CTH 24039910 as manufactured chewing tobacco. 2. Processing of Unmanufactured Tobacco Dust by Adding Scent: The applicant's process involves two main activities: preparation of tobacco dust and mixing it with scent. The AAR analyzed whether this processing results in a new product with distinct characteristics, thereby constituting manufacturing under GST law. The AAR referred to judicial interpretations, including the Madras High Court's ruling in Bell Mark Tobacco Company & Ors v. Government of Tamil Nadu, which established that cumulative processes like soaking in jaggery water, adding flavoring essences, and shredding tobacco amount to manufacturing. The Supreme Court also agreed with this view. Under Section 2(72) of the CGST Act, manufacturing is defined as any process that results in a new product with a distinct name, character, and use. The AAR concluded that the applicant's process of mixing scent with tobacco dust results in a new, irreversible product distinct in character, thus qualifying as manufactured tobacco. Ruling: 1. Mixing of Scent in Raw Unmanufactured Tobacco Dust: - Answer: Affirmative. The process changes the character of unmanufactured tobacco to manufactured tobacco. 2. Processing of Unmanufactured Tobacco Dust by Adding Scent: - Answer: Affirmative. The process results in manufactured tobacco. This ruling is valid within the jurisdiction of the Authority for Advance Ruling, Uttar Pradesh, subject to provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.
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