2023 (9) TMI 853 - AAAR - GST

Process amounting to manufacture or not - mixing of scent (mixture of various perfumes and not Jarda Scent) in raw unmanufactured tobacco dust by the Appellant after procuring the same from various traders and, and its subsequent sale to customers on B to B and B to C basis, after ensuring packing from third party - processing of manufactured Tobacco dust by add mixing the scent (mixture of various perfumes and not Jarda Scent) would change the character of unmanufactured tobacco to manufactured Tobacco or not - HELD THAT - Undoubtedly, in the present case the raw tobacco dust is the result of screening of raw tobacco through which tobacco leaves, its stem, and other tender parts are separated through the process of drying, winnowing, crushing and separating through sieving and the better parts are used for chewing tobacco and remaining part in raw form i.e. stems, veins, and leaves of tobacco plant are then crushed in the dust form and the dust is sold as such for human consumption. There is nothing on record which proves that mere mixing of various flavors (Not Jarda Scent) results in irreversible change and converts the nature of raw unmanufactured tobacco to manufactured tobacco. The Authority for Advance Ruling has wrongly held that process adopted by the appellant amounts to manufacture and their product to be classifiable under Ch-2403 of GST Tariff. In fact the process adopted by the appellant does not involve fermentation at all and accordingly their product may be appropriately classified under Ch-2401 of GST Tariff subject to the process adopted by the appellant as provided under Explanatory Note to Ch-2401. The impugned order passed by the Authority for Advance Ruling modified to the extent that the product of the appellant is appropriately classifiable under Ch-2401 of GST Tariff subject to the process adopted by the appellant as provided under Explanatory Note to Ch-2401.

Summary

Issues Involved:
1. Classification of the Appellant's product under GST Tariff.
2. Determination of whether the process adopted by the Appellant amounts to manufacturing.

Summary:

1. Classification of the Appellant's product under GST Tariff:

The Appellant, a proprietorship concern engaged in the manufacturing of unbranded unmanufactured tobacco, sought an advance ruling on whether the mixing of scent in raw unmanufactured tobacco dust changes its classification to manufactured tobacco. The Authority for Advance Ruling (AAR) initially ruled that the addition of scent changes the characteristics of unmanufactured tobacco to manufactured tobacco, citing the decision in State of Madras Vs Bell mark Tobacco Company.

The Appellant contested this ruling, arguing that the process of mixing scent does not result in any irreversible change and that the product remains unmanufactured tobacco, classifiable under Chapter 2401 of the GST Tariff. The Appellant relied on several decisions, including Yogesh Associates Vs CCE Surat II and Suresh Enterprises Vs Commissioner of Central Excise Pune, which supported their stance that the product remains unmanufactured tobacco.

Upon review, the Appellate Authority found that the Appellant's product, which involves mixing perfume with raw tobacco dust, does not undergo fermentation or liquoring and thus does not meet the criteria for classification under Chapter 2403. The Authority concluded that the product should be classified under Chapter 2401, as the process adopted does not constitute manufacturing as defined under Section 2(72) of the CGST Act, 2017.

2. Determination of whether the process adopted by the Appellant amounts to manufacturing:

The Appellate Authority examined the process adopted by the Appellant, which includes screening, drying, winnowing, crushing, and sieving raw tobacco to produce tobacco dust, followed by mixing with perfume. The Authority noted that this process does not result in the emergence of a new product with a distinct name, character, and use, as required under the definition of 'manufacture' in Section 2(72) of the CGST Act, 2017.

The Authority referenced case law, including CCE, Pune Vs M/s Jai Kisan Tobacco Co., which held that raw tobacco crushed into flakes and packed without adding any ingredients does not constitute manufactured chewing tobacco. The Authority also found that the AAR's reliance on the State of Madras Vs Bell mark Tobacco Company was misplaced, as the processes in that case involved high fermentation and liquoring, which were not present in the Appellant's process.

The Appellate Authority concluded that the process adopted by the Appellant does not amount to manufacturing and that the product remains unmanufactured tobacco, appropriately classified under Chapter 2401 of the GST Tariff.

RULING:

The Appellate Authority modified the impugned ruling, classifying the Appellant's product under Chapter 2401 of the GST Tariff, subject to the process adopted by the Appellant as provided under the Explanatory Note to Chapter 2401.