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TMI Blog2018 (5) TMI 529X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of GST under Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017 is concerned, it is observed that 'Tobacco Leaves' attract 2.5% (CGST) and 2.5% (SGST) or 5% (IGST) under S. No. 109 of Schedule-I of Notification No. 1/2017 -Central Tax (Rate) dated 28.06.2017. Whereas, 'unmanufactured tobacco (other than tobacco leaves)' attract 14% (CGST) and 14% (SGST) or 18% (IGST) under S. No. 13 of Schedule-IV of the said Notification - All the three categories which are covered as 'Tobacco Leaves' in S.NO. 109 of Schedule-1 of Notification No. 1/2017 - Central Tax (Rate) dated 28.06.2017 as per CBEC Circular F.No. 332/2/2017-TRU dated December 2017, covers only those Tobacco Leaves which have not undergone any processing like curing, fermentation etc. Since the goods proposed to be supplied by the applicant are admittedly undergone curing by Sun-dry/ Air-dry processes, the same cannot be called 'Tobacco Leaves' and would be covered as ‘unmanufactured tobacco (other than tobacco leaves)'. Circular No. 81/5/87 - CX-3 dated 23.06.1987 issued by the Ministry of Finance - Held that: - the same is regarding classification of unmanufactured tobacco merely broken by beating and then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arified that such 'Dried Tobacco Leaves' are not fit for direct human consumption in any way. A flow chart of the entire agricultural activity on tobacco is also given as follows: Details of Question on which Advance Ruling is requested: 3. Classification of goods and/ or services or both: As per HSN Code List Chapter No. 24 Tariff Item 2401 and Notification No. 01/2017-Central Tax (Rate), dated 28.06.2017, GST on Tobacco Leaves is 5% and 28% on all goods not specified elsewhere. In this background, whether 'Dried Tobacco Leaves' on which cleaning and removal of unwanted particles (Bhusa, Dust etc.) has been done would be classified under Tobacco Leaves' or not, if the form and nature of same has still not undergone any change. Whether 'Dried Tobacco Leaves' on which cleaning and removal of unwanted particles has been done would be classified under Tariff Item/Heading 2401 as 'Tobacco Leaves' or 'All goods not specified elsewhere' as mentioned in Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017. 4. Determination of the liability to pay tax on goods or services or both: Whether GST on such & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner's Order was incorrect and should be set aside. 10. Board vide its Circular No. 37/90-CX.3, dated 17.07.1990, in case of flavours/scents added in preparation of scented snuff held the view that Snuff Tobacco even after addition Of Perfumes, Scents and Menthol remain Tobacco. Therefore, the explanatory notes of HSN bringing in the leaf treated with tobacco Solution Quimam herein and thereafter with flavouring perfumes agents cannot transform Raw leaf tobacco unmanufactured to manufactured tobacco. The addition of these volatile flavours will not amount to unmanufactured tobacco to manufactured tobacco following the settled posion that process of treatment Raw leaf of tobacco by effecting various processes, e.g. sieing etc. would keep the tobacco as unmanufactured. See 1997 (96) E.L.T. 712: 2002 (147) E.L.T. 1184 and classification under heading 2401 cannot be disturbed and Board Circular 81/5/87-CX. 3, dated 23.06.1987 upholds the view. RELEVANT PROVISIONS: 11. S. No. 28 of FAQs on GST Rate-II dated 03.08.2017 and S. No. 42 of CBEC Circular F.No. 332/2/2017-TRU dated December 2017: S. No. Question A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tied in hands (several leaves tied together with a band or with another tobacco leaf), or simply left as loose leaves. They are always tightly compressed in order to ensure preservation. In some cases, in addition to (or instead of) fermentation, flavouring or moistening substances are added (casing) in order to improve the aroma or keeping qualities. 14 HSN Notes for heading 24.01: 24.01- Unmanufactured tobacco; tobacco refuse. 2401.10 - Tobacco, not stemmed/stripped 2401.20 - Tobacco, partly or wholly stemmed/stripped 2403.30 - Tobacco refuse This heading covers: (1) Unmanufactured tobacco in the form of whole plants or leaves in the natural state or as cured or fermented leaves, whole or stemmed/ stripped, trimmed or untrimmed, broken or cut (including pieces cut to shape, but not tobacco ready for smoking). Tobacco leaves, blended, stemmed/stripped and cased ( sauced or liquored ) with a liquid of appropriate composition mainly in order to prevent mould and drying and also to preserve the flavour are also covered in this heading. (2) Tobacco refuse , e.g., waste resulting from the manipulation of tobacco leaves, or from the manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Heading 2401 of HSN or the same may be classified in Heading 2403 of HSN or in any other Heading of HSN. Further, if the same are classified under Heading 2401, whether the same will be covered in S. No. 109 of Schedule-I of Notification No. 1/2017 - Central Tax (Rate) dated 28.06.2017, being 'tobacco leaves' or the same will be covered under S. No. 13 of Schedule-IV of the said Notification which covers 'Unmanufactured Tobacco and Tobacco Refuse (other than tobacco leaves)'. 19. To understand the goods proposed to be supplied, and applicable rate of GST, the process of harvesting, curing, fermentation etc. of tobacco leaves and meaning of various terms used in the HSN, relevant Notification and Circular issued by CBEC have been discussed as under: 20. Harvesting of tobacco : Harvesting is the process of collecting tobacco leaves from the field at the time when leaf maturity has reached its desired stage. Harvesting can be done by either manual or mechanical means. Tobacco can be harvested in several ways. If the entire plant is harvested at once by cutting off the stalk at the ground with a sickle it is called stalk cutting and if the tobacco is harves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll sunlight, thereby drying the leaves completely. 22. Tobacco curing is also known as colour curing, because leaves are cured with the intention of changing their colour and reducing their chlorophyll content. Curing tobacco has always been a process necessary to prepare the leaf for consumption because, in its raw, freshly picked state, the green tobacco leaf is too wet to ignite and be smoked. 23. Fermentation: Some tobaccos are subjected to a second stage of curing knows as fermenting or sweating. There are primarily two types of fermentation, natural fermentation and forced fermentation, with the duration of the process ranging from two days to two months or more. Natural fermentation, sometimes known' as aging, is a chemical reaction caused by moisture and warm temperatures; it occurs when tobacco is packaged in bales or hogsheads. Natural fermentation generally gives tobacco a more uniform colour and a milder taste. Forced fermentation involves placing tobacco in huge stacks so that the chemical reaction caused by the moisture and warm temperatures is intensified by the pressure the tobacco is under. Forced fermentation generally gives tobacco a more uniform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered as manufactured tobacco. It is observed that HSN notes for heading 2401 specifically mention that the said heading covers whole plants or leaves in the natural state and also cured or fermented leaves. Hence, even after the process of curing or fermenting of Tobacco Leaves, they remain covered under heading 24.01. 32. As far as rate of GST under Notification No. 1/2017 - Central Tax (Rate) dated 28.06.2017 is concerned, it is observed that 'Tobacco Leaves' attract 2.5% (CGST) and 2.5% (SGST) or 5% (IGST) under S. No. 109 of Schedule-I of Notification No. 1/2017 -Central Tax (Rate) dated 28.06.2017. Whereas, 'unmanufactured tobacco (other than tobacco leaves)' attract 14% (CGST) and 14% (SGST) or 18% (IGST) under S. No. 13 of Schedule-IV of the said Notification. It has been clarified by the CBEC vide Circular F.No. 332/2/2017-TRU dated December 2017 that the said rate of 5% is applicable only on the following three categories of goods. (i) Leaves of Tobacco as such; (ii) Broken Tobacco Leaves; (iii) Tobacco Leaves Stems; 33. To ascertain whether the 'Dried Tobacco Leaves' after the process of curing are covered in any of the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y serve no other purpose than to prepare a blend of unmanufactured tobacco for purposes of use in further manufacture of Gutkas/pan Masala, classification under sub-heading 2401.10 of Central Excise Tariff is appropriate. Hence, the ratio of the said order is not applicable in the present case. 40. Regarding Circular No. 143/12/2011-ST dated 26.05.2011 mentioned by the applicant, -it is observed that the same is regarding levy of Service Tax on certain processes in relation to agriculture and hence, the same is not applicable in the present case. 41. Further, the applicant has mentioned Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 which pertains to levy of GST on certain processes related to agriculture. Hence, the same is not applicable in the present case. Ruling 42. It is held that the 'Dried Tobacco Leaves' which have undergone the process of curing after harvesting of tobacco leaves are 'unmanufactured tobacco' covered in HSN Code 2401. However, they are not covered under S. No. 109 of Schedule-1 of Notification No. 1/2017- Central Tax (Rate) dated 28.06.2017 @ 2.5% (CGST) + 2.5% (SGST) or 5% (IGST), but the same are covered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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