2025 (1) TMI 200 - HC - GST

Classification of chewing tobacco - to be classified under the heading 2403 99 10 of Customs Tariff Act, 1975 or under Heading 2401 20 90 of the Customs Tariff Act, 1975? - demanding higher compensation cess leviable under the Goods and Service Tax (Compensation to States) Act, 2017 at 160% at Serial No.26 to Notification No.1/2017 - Compensation Cess (Rate), dated 28.06.2017 - HELD THAT - The Hon'ble Supreme Court in State of Madras Vs. Bell Mark Tobacco Co. 1966 (10) TMI 106 - SUPREME COURT , while dealing with the levy of sales tax under the provisions of Madras General Sales Tax Act, 1939 concluded that the chewing tobacco was the manufactured product following the decision in State of Madras Vs. Swasthik Tobacco Factory 1965 (12) TMI 90 - SUPREME COURT . There, the Court has held that the expression in respect of the goods in rule 5 (1) (i) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, means on the goods , and therefore only the excise duty paid on the goods sold by the dealer is deductible. The petitioner continued to file returns and did not surrender the GST registration. It appears that on 12.11.2018, the petitioner has stated that, the petitioner has also supplied chewing tobacco by classifying the product under heading 2403 99 10 by paying GST compensation cess at 160 % in terms of Serial No.26 of Notification No. 1/2017 Compensation Cess (Rate), dated 28.06.2017 even during the period of Jan 2018 to May 2018 and that from 1st June 2018 to September 2018, paid cess at 72 % by classifying the same product under Tariff Heading 24 03 99 20 - It is the elementary principle that insofar as the classification of products are concerned an assessee cannot change the classification merely to take advantage or benefit of any rate/concession. Classification can also not be altered because the product will attract higher rate of duty/tax. In this case, admittedly, the respective petitioners have classified their products under Heading 2403 99 10 of the Central Excise Tariff Act, 1985 which is similar to Customs Tariff Act, 1975 which are based on HSN Classification. Tariff Heading 2403 99 20 pertains to Preparations Containing Chewing Tobacco . Such preparations are clearly banned in terms of the Government orders issued by Government of Tamil Nadu under regulation 2.3.4 of the Food Safety and Standards (Prohibition and Restrictions on Sales) Regulations, 2011. The classification adopted by the said petitioner under 2403 99 20 would not have permitted the petitioner to manufacture and sell the products - There is no difference between the Tariff classification under the Central Excise Tariff Act, 1985 under Tariff Heading 2403 99 10 and under Customs Tarrif Act, 1975. Under the respective Customs Tarrif Act, 1975, goods falling under the main Tariff Heading 2403 is Other Manufactured Tobacco And Manufactured Tobacco Substitutes; Homogenised or Reconstituted Tobacco, Tobacco Extracts Essences . Conclusion - The petitioners' products are to be classified under Heading 2403 99 10, and the Advance Ruling decisions are binding. The food safety regulations do not affect GST classification. Petiton dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• What is the correct classification of "chewing tobacco" for the purpose of Goods and Services Tax (GST) and Compensation Cess under the relevant notifications and statutes?
• Whether the petitioners' products should be classified under Heading 2403 99 10 as "Chewing Tobacco" or under a different heading such as 2401 20 90 as "Unmanufactured Tobacco"?
• Whether the petitioners can change the classification of their products to benefit from lower tax rates?
• What is the binding nature of decisions made by the Authority for Advance Ruling and the Appellate Authority for Advance Ruling under the GST enactments?
• Does the ban under the Food Safety and Standards Act, 2006 on tobacco products affect the classification for GST purposes?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Chewing Tobacco

• Relevant legal framework and precedents: The classification of goods under the GST regime is governed by the Customs Tariff Act, 1975, which is adopted for GST purposes. The relevant notifications are Notification No.1/2017 - Compensation Cess (Rate), dated 28.06.2017, and others.
• Court's interpretation and reasoning: The court examined the classification under the Customs Tariff Act and the consistent classification of similar products under the Central Excise regime prior to GST.
• Key evidence and findings: The petitioners had previously classified their products under Heading 2403 99 10, which was consistent with their classification under the Central Excise regime.
• Application of law to facts: The court found that the petitioners' attempt to reclassify their products to a different heading was not justified as there was no change in the product's nature or use.
• Treatment of competing arguments: The petitioners argued for a different classification to benefit from lower tax rates, but the court held that classification cannot be changed merely for tax advantage.
• Conclusions: The products should be classified under Heading 2403 99 10 as "Chewing Tobacco," attracting a higher rate of Compensation Cess.

Issue 2: Binding Nature of Advance Ruling Decisions

• Relevant legal framework and precedents: The binding nature of Advance Ruling decisions is outlined in Section 103 of the respective GST enactments.
• Court's interpretation and reasoning: The court emphasized that decisions by the Authority for Advance Ruling and the Appellate Authority are binding on the applicant and the jurisdictional officer.
• Key evidence and findings: The petitioner in W.P.(MD) No.204 of 2021 had sought an Advance Ruling, which was upheld by the Appellate Authority.
• Application of law to facts: The court held that the petitioner is bound by the Advance Ruling decision, which classified the product under Heading 2403 99 10.
• Treatment of competing arguments: The petitioner argued against the binding nature, but the court reaffirmed the statutory binding effect of Advance Ruling decisions.
• Conclusions: The Advance Ruling decisions are binding, and the petitioner cannot challenge the classification in a writ petition.

Issue 3: Impact of Food Safety Regulations

• Relevant legal framework and precedents: The Food Safety and Standards Act, 2006, and related regulations prohibit the use of tobacco and nicotine as ingredients in food products.
• Court's interpretation and reasoning: The court noted that the ban under the Food Safety Act does not affect the classification for GST purposes.
• Key evidence and findings: The petitioners' products were classified based on their nature and use, not their status under food safety regulations.
• Application of law to facts: The court found that the food safety ban does not justify a change in classification for GST purposes.
• Treatment of competing arguments: The petitioners argued that the ban should affect classification, but the court disagreed.
• Conclusions: The food safety regulations do not impact the GST classification of the petitioners' products.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "Classification can also not be altered because the product will attract higher rate of duty/tax."
• Core principles established: The classification of goods for GST purposes must be consistent with their classification under the Customs Tariff Act, and changes cannot be made merely for tax benefits.
• Final determinations on each issue: The petitioners' products are to be classified under Heading 2403 99 10, and the Advance Ruling decisions are binding. The food safety regulations do not affect GST classification.

The judgment dismisses the writ petitions, affirming the classification under Heading 2403 99 10 and the binding nature of Advance Ruling decisions, while allowing the petitioners the option to file statutory appeals within 30 days.