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TMI Blog2018 (11) TMI 449X X X X Extracts X X X X X X X X Extracts X X X X ..... ainability and to continue as leaf for further processes. The tobacco leaf will be entitled as a commercial commodity only after drying (curing) and normally put to trade in form of bundles. The same will be traded between the farmer and the trader, and trader to trader/manufacturer and so on - The commodity “tobacco leaves” shall be interpreted in the light of the entry 109, the entry no 3 inserted under the notification issued for liability under reverse charge mechanism and the relevant HSN code mentioned against the description of the commodity i.e, 2401. Though there are different entries with respect to tobacco, there is a specific entry in schedule I of Notification 1/2017 (CGST Rate) as tobacco leaves , and for the same the liability was brought under reverse charge mechanism. Hence it is clear that there is a distinction from the commodity ‘tobacco leaves’ with other entries - a clear distinction shall be drawn between the ‘tobacco leaves and the unmanufactured tobacco’. The process of tobacco, from the field to final product, the green leaves undergo curing process, and become eligible commercial commodity, for which the first transaction takes place in between the farmer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17, an appeal against this ruling lies before the appellate authority for advance ruling constituted under section 99 of APGST Act'2017, within a period of 30 days from the date of service of this order. M/s. PRAGATHI ENTERPRISES, Jammulapalem Village, Tangutur, Prakasam-523274 (hereinafter also referred as an applicant), has filed an application in Form GST ARA-01, dated :07.09.2018, for seeking advance ruling on 'rate of tax under GST w.r.to classification of the commodity' to their supplies'. The issues raised by the applicant in his application for advance ruling are given here under.... * What is the rate of GST applicable on tobacco leaves procured at tobacco auction platforms or directly from farmers, which are cured and dried by farmers themselves? * If the applicant purchases tobacco leaves from other dealers who have purchased them farmers, for the purpose of trading what will be the applicable rate of tax? * If the applicant segregates the tobacco into grades depending upon their size (width), colour/shade, length, texture of the lear etc., and sells such graded tobacco leaf what is the applicable rate of tax? * If the tobacco leaves are butted and sold to other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... co is widely available in the region of Guntur and Prakasam and these leaves are cultivated by the farmers. FCV Tobacco is regulated and is permitted to be purchased or sold only at the Tobacco Auction Platforms conducted by the Tobacco Board. e. The tobacco leaves after cultivation will be plucked and separated from the plants. These leaves, as plucked from trees are green in color and are very tender, delicate and very high in moisture. In this stage they will get damaged and rotten within few days of time unless cured. The tobacco leaves are cured (technical name for drying) in various forms or styles viz., Sun curing, Air curing, Flue Curing etc. whereby the leaves are dried and the moisture levels are reduced. f. The farmers cure the tobacco at their farm fields itself and after curing the tobacco leaves will be packed as bales and brought to the Tobacco Auction platforms or for supply to dealers. No tobacco leaves can be brought for sale without curing by farmers, as the green leaf will get damaged within two to three days, if not cured immediately after plucking. 4. It is submitted that the dealer intends to engage in the tobacco business which involves the following acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on machinery and this will uniformly dry the tobacco to the required of moisture. Redrying will not alter the shape or other physical or chemical parameters of the leaf. Normally re-drying is order for, if it is not proposed to supply the tobacco for immediate threshing. These processes of grading, butting or redrying are undertaken at a specific requirement of the buyer and hardly 5% of the tobacco leaves is specified for these processes. d) The applicant will normally sell the tobacco leaves to tobacco exporters or manufacturers. The tobacco leaves will be subject to a process called Threshing and Redrying at GLT plants. Threshing is a process of separating the stem or the Mid-rib of the leaves and the leaves portion without stem is called 'Lamina'. The threshing is undertaken on certain plant and machinery, normally referred to as Green Leaf Threshing Plants (GLTs). In GLTs, the lamina and stem are separated and the Lamina is redried to ensure uniform and homogenized moisture throughout the lot. e) The Tobacco after threshing and redrying is also referred in the trade parlance as tobacco leaf only. The essential characteristic of the tobacco leaves remain unaltered and they ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cut-rack etc., which are commonly referred to as unmanufactured tobacco even under the earlier taxes regime and at the stage of cigarettes and cigars it is called manufactured tobacco. Stage 1: Green Leaf Stage 2. Air curing Stage 2. Sun curing Stage 2. Flue curing The tobacco leaves after cultivation will be plucked and separated from the plants. These leaves as plucked from trees are green in color and are very tender, delicate and very high in moisture. In this stage they will get damaged and rotten within few days of time unless cured. The tobacco leaves are cured (technical name for drying) in different forms or styles viz., Sun curing, Air curing, Flue Curing etc.(any one method) whereby the leaves are dried and the moisture levels are reduced Air curing will be adopted for lighter / thin type of leaves. Sun curing involves exposing the leaves under sun, in inverted positions. Sun cures enable more dryness than air curing Flue curing involves transmitting heat through ducts and this will result in more uniform and consistent curing of the tobacco leaves. All three of curing will be undertaken by farmers at the field level. Cured tobacco Leaf Bundled for Trading O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before it can be marketed commercially in the primary market. And the tobacco that is cured and brought to auction platforms is only called tobacco leaves. In the common parlance, tobacco leaves mean cured (dried) tobacco leaves only as the green tender is unfit for any commercial operations. b) As the words tobacco leaves and unmanufactured tobacco (other than tobacco leaves) are not defined, the meaning of the words shall be drawn having regard to the legal precedents, rules of interpretation and the meaning those words have in their common parlance. c) The dictionary meaning of the term Tobacco is a. any of several plants belonging to the genus Nicotiana, of the night shade famiy, especially one of those species, as N. tabacum, whose leaves are prepared for smoking or chewing or as snuff b. the prepared leaves, as used in cigarettes, cigars, and pipes c. any product or products made from such leaves. d) In the absence of any definition given in the enactment the meaning of the term in common parlance or commercial parlance has to be adopted as held in the case of Oswal Agro Mills Ltd vs. CCE, [1993 (66) E.L.T. 37 (S.C.) = 1993 (4) TMI 73 - SUPREME COURT OF INDIA. e) I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acco leaves', 'cured tobacco leaves' etc., In such cases, it cannot be read that tobacco leaves means only those leaves cut from the plants and tobacco leaves on which certain operations are conducted will not be 'tobacco leaves'. It is also clear that in the absence of the definition given to the term 'tobacco leaves', shall be under stood in its natural and commercial meaning. i) There are many other agricultural commodities, whose principal utility is also in the form of leaves. To cite a few, Tendu leaves, Bidi Leaves, Biryani Leaves etc., All these products of leaves are also dried to meet them intended usage and without drying there is no way that these products can be used or even preserved. Thus depending upon the intrinsic nature of the product, drying will become an essential and inevitable process without which the product itself cannot exist. a) When the words tobacco leaves are used without any qualifying adjectives, it can only mean that tobacco leaves in a widest possible import. Had the legislature intended it to qualify the same, it could have employed specified words to that effect, as can be found from the same notification, in many other instances. To cite a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edundant without application which is definitely not the intention of the legislature. k) The applicable rates of GST for goods were mentioned in Notification 1/2017 Central Rate. It is not mentioned as to who shall be supplier and who shall be recipient. While notification 4/2017 CGST (R) notifies the cases where the RCM (reverse charge Mechanism) shall be applied, it is silent as to the rate. Thus as long as the product remains the same, it does not matter whether the same is procured from an agriculturist or an unregistered dealer, or registered dealer. The application of RCM is only to prescribe as to who shall pay the tax and it had no bearing on the applicability of the rate of GST. 7. The applicant has sought for the following clarifications. i. What is the rate of GST applicable on tobacco leaves procured at tobacco auction platforms or directly from farmers, which are cured and dried by farmers themselves? ii. If the applicant purchases tobacco leaves form other dealers who have purchased them farmers, for the purpose of trading what wilt be the applicable rate of tax? iii. If the applicant segregates the tobacco into grades depending upon their size (width), colour/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sun cured Virgina Tobacco 2401 40 Burley Tobacco 2401 50 Tobacco for manufactures of Bidis, not stemmed 2401 60 Tobacco for manufactures of Chewing tobacco 2401 10 70 Tobacco for manufactures of cigar and cherrot 2401 80 Tobacco for manufactures of Hokkah tobacco 2401 90 Other 2401 20 Tobacco partly or wholly stemmed or stripped. 2401 20 Flue Cured Virgina Tobacco 2401 20 20 Sun cured Country (Natu) Tobacco 2401 20 30 Sun cured Virgina Tobacco 2401 20 40 Burley Tobacco 2401 20 50 Tobacco for manufactures of Bidis, not stemmed 2401 20 60 Tobacco for manufactures of Chewing tobacco 2401 20 70 Tobacco for manufactures of cigar and cherrot 2401 20 80 Tobacco for manufactures of Hokkah tobacco 2401 20 90 Other 2402 Cigars, Cheroots, Cigarillos And Cigarettes, Of Tobacco Or Of Tobacco Substitutes 2403 Other manufactured tobacco and manufactured tobacco substitutes; "homogenized" or "reconstituted" tobacco; tobacco extracts and essences [including biris] 4. As per the Circular of Tax Research Unit, vide F. No. 332/2/2017, Government of India Ministry of Finance Department of Revenue Tax Research Unit, Dec 2017, question no. 42 "Tobacco leaves fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd SGST 14%). And there is an entry of 'tobacco leaves under Reverse charge mechanism also as explained above. The commodity "tobacco leaves" shall be interpreted in the light of the entry 109, the entry no 3 inserted under the notification issued for liability under reverse charge mechanism and the relevant HSN code mentioned against the description of the commodity i.e, 2401. It is to note that though there are different entries with respect to tobacco, there is a specific entry in schedule I of Notification 1/2017 (CGST Rate) as tobacco leaves , and for the same the liability was brought under reverse charge mechanism. Hence it is clear that there is a distinction from the commodity 'tobacco leaves' with other entries. From the respective GST tariff entries in the light of HSN codes mentioned against them It is observed that the two entries Sl.No 109, of Schedule I 'tobacco leaves' and entry no 13 of IV schedule 'Unmanufactured Tobacco; tobacco refuse (other than tobacco leaves)' in the notification No 1/2017 (CGST Rate)Central Tax are only falling under the same HSN code 2401 .. On detailed examination of the description of the commodity under the head 2401, 2401.10 : repre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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