2024 (10) TMI 779 - AAR - GST

Classification of goods - applicable rate of GST - Compensation Cess - Tobacco pre-mixed with lime - HELD THAT - Under N/N. 01/2017-Central Tax (Rate) no definition of manufactured or unmanufactured tobacco has been provided and accordingly we have to mainly rely upon the decision of Hon'ble Court and the Tribunals decisions in the matter. There is no doubt that chewing tobacco may be both manufactured and unmanufactured. The difference between the manufactured and unmanufactured tobacco is dependent on the process being undertaken to prepare the product. In the present case the process being undertaken by the Appellant involves mixing of Lime paste in raw cut tobacco, evaporation of the water content from the said tobacco mixed with lime paste, addition of aroma, menthol and moisturizer. Reliance placed upon the decision of the Apex Court in the State of Madras Vs Bell mark Tobacco Company 1966 (10) TMI 106 - SUPREME COURT wherein it was held by the Hon'ble Court that cumulative effect of various processes to which Tobacco was subjected, before it was sold, amount to the manufacturing process. In the instant case that mixing lime and other ingredients with the tobacco leaves would result into emergence of a new product with distinct name and character. 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 to be supplied by the applicant is manufactured tobacco product for chewing'. Once, it is decided that the product is 'manufactured chewing tobacco', the classification of the product merit under CTH 2403 99 10 which specifies 'chewing tobacco' under the head 2403-0ther manufactured tobacco and manufactured tobacco substitutes. Thus, the product to be supplied by the applicant is manufactured tobacco classifiable under 24039910. Since it has been concluded that the product to be supplied by the applicant is classifiable under HSN 24039910 (Chewing Tobacco without Lime Tube), the applicable rate of GST Compensation Cess in term of Serial No.26 of Notification No. 1/2017-Compensation cess (R) dated 28.06.20171 is 160% - the product (i.e. tobacco pre-mixed with lime) to be supplied by applicant is classifiable under HSN24039910 (Chewing Tobacco without Lime Tube). The rate of GST is 28% and IGST-28%) and that of Compensation Cess is 160%.

Summary

Issues Involved:

1. Classification of the product 'Tobacco pre-mixed with lime'.
2. Applicable rate of GST and Compensation Cess on the product.

Detailed Analysis:

1. Classification of the Product 'Tobacco pre-mixed with lime':

The primary issue in this case is the classification of the product 'Tobacco pre-mixed with lime' under the GST regime. The applicant, M/s. Dindayal Colloids Private Limited, intends to manufacture and supply this product, which involves mixing raw cut tobacco with lime paste, drying it, and adding aroma, menthol, and moisturizing agents. The applicant argues that the product should be classified under Heading 2401 as 'Unmanufactured Tobacco' without lime tube, as the lime is mixed directly with the tobacco rather than being provided as a separate tube.

The applicant supports their classification by comparing their product to traditional unmanufactured tobacco used by villagers and farmers, where lime is mixed directly with tobacco leaves. They also cite previous advance rulings (Gyankeer Products Pvt. Ltd. and Samanvay Packmark Pvt. Ltd.) which classified similar products under CTH 24012090 as unmanufactured tobacco.

However, the Authority for Advance Ruling (AAR) disagrees with the applicant's classification. The AAR finds that the process of mixing lime and other ingredients with tobacco leaves results in a new product with distinct characteristics, thus constituting 'manufacture' under GST law. The AAR relies on the definition of 'manufacture' as any process that results in a new product with a distinct name, character, and use. The AAR references the Supreme Court's decision in State of Madras Vs Bell mark Tobacco Company, which held that cumulative processes on tobacco amount to manufacturing.

Based on this analysis, the AAR concludes that the product is a 'manufactured tobacco product for chewing' and should be classified under CTH 2403 99 10, which covers 'Chewing Tobacco'.

2. Applicable Rate of GST and Compensation Cess:

Having classified the product as 'Chewing Tobacco' under CTH 2403 99 10, the AAR determines the applicable GST and Compensation Cess rates. According to Schedule IV of Notification No. 1/2017-Central Tax (Rate), the GST rate for 'Other manufactured tobacco and manufactured tobacco substitutes' is 28% (14% CGST + 14% SGST). Additionally, Notification No. 1/2017-Compensation Cess (Rate) specifies a Compensation Cess rate of 160% for 'Chewing Tobacco without Lime Tube'.

The AAR's ruling is that the product 'Tobacco pre-mixed with lime' is subject to a GST rate of 28% and a Compensation Cess of 160%, classifiable under HSN 2403 99 10. This ruling is valid under Section 103 of the GST Act until declared void under Section 104 (1).

In conclusion, the AAR has determined that the applicant's product is a manufactured tobacco product, specifically 'Chewing Tobacco', and is subject to the respective GST and Compensation Cess rates as outlined above.