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TMI Blog2019 (11) TMI 1254X X X X Extracts X X X X X X X X Extracts X X X X ..... r the CGST or AP GST Act would be mentioned as being under the GST Act. 3. Brief Facts of the case: The applicant is registered under GST vide GSTIN: 37AAACV6799C1ZY. The applicant deals in purchase and sale of tobacco of all varieties and forms. He also undertakes the operations of threshing and re-drying of tobacco leaves to make the agricultural produce marketable, mostly in overseas market. After the introduction of GST, Tobacco is brought under the taxability from the stage of tobacco leaves. The applicable rates of unmanufactured tobacco are covered under two heads under the tariff which are as under vide Notification No. 1/2017-Central Tax (Rate) dt.28.06.2017, both having the same HSN Code of 2401, as shown below: Sl.No Schedule HSN Product Description Rate of GST 1 Schedule - I : Sl. No. 109 2401 Tobacco Leaves CGST 2.5%+SGST 2.5% i.e. total GST % = 5% 2 Schedule - IV; Sl. No. 13 2401 Unmanufactured Tobacco; tobacco refuse (other than tobacco leaves CGST 14 % + SGST 14% i.e., total GST = 28% The applicant opines that though there is clarity as to the product description in the above two headings, since the terms 'Tobacco leaves' and 'Unmanufactured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rying activities also at his premises using machines to avoid manual labour. The threshing and re-drying operations on tobacco leaves are necessary to make the leaves marketable and fit for storage. These operations make the leaves free from fungus and foreign materials and also more importantly maintain uniform moisture. The threshed lamina (cut in small pieces) and stem (midrib) in the leaf are separated during these processes and the lamina is re-dried to ensure uniform and homogenized moisture throughout the lot. 5. QUESTIONS RAISED BEFORE THE AUTHORITY: The applicant had filed an application in form GST ARA-01, dt: 29.11.2018, by paying required amount of fee for seeking Advance Ruling on the following issues: (a) 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? (b) What will be the applicable rate of tax if the applicant purchases tobacco leaves form other dealers who have purchased them from farmers, for the purpose of trading? (c) What will be the applicable rate of tax if the applicant segregates the tobacco into grades depending upon their size (wid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under vide Notification No. 1/2017 - Central Tax (Rate) dt:28.06.2017, both having the same HSN Code of 2401, as shown in Para No 3 above. Though there is clarity as to the product description in the above two headings, since the terms 'Tobacco leaves and 'unmanufactured Tobacco (other than tobacco leaves)' are not defined in the Tariff, the applicant claims that classification of the commodity at various stages in the above specified heads may be a contentious issue. The classification of tobacco under GST is not in tune with that of the Customs tariff. The GST tariff mentioned only 4 digits HSN whereas Customs Tariff employs full 8 digit HSN code and as such there is no clarity as to the further sub-classification of the tariff heads under GST. As per the Customs Tariff, the relevant heads are as under: 2401 Unmanufactured tobacco; tobacco refuse. 2401 10 Tobacco, not stemmed or stripped 2401 10 10 Flue Cured Virginia Tobacco 2401 10 20 Sun cured Country (Natu) Tobacco 2401 10 30 Sun cured Virginia Tobacco 2401 10 40 Burley Tobacco 2401 10 50 Tobacco for manufactures of Bidis, not stemmed 2401 10 60 Tobacco for manufactures of Chewing tobacco 2401 10 70 Toba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the agriculturist himself in his farm or elsewhere. In order to bring them to a condition of non-perishability and to make them transportable and marketable, some minimal process is necessary to be applied to many varieties of agricultural produce. But there may be some other kinds of agricultural produce which require some more processing to make it marketable. In the case of such a commodity what one to judge is to find out whether in relation to that agricultural produce the process applied was minimal or was it so cumbersome or long-drawn that either, in common parlance or in the market, or even otherwise, anybody would not treat the produce as an agricultural produce. Thus, as per the common parlance test, tobacco leaves mean only cured tobacco because it is impossible to undertake any commercial activity on green tobacco as plucked from the crop. From the stage of cured tobacco, the common understanding of the term 'tobacco leaves' stretches upto the stage of threshed and redried tobacco. As per the GST Tariff both Tobacco Leaves and Unmanufactured tobacco (other than tobacco leaves) fall under the same HSN 2401 and the words are not defined specifically in the said not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tached to it viz., 'dried tobacco leaves', 'undried tobacco 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. Further the Tax Research Unit of CBIC in its Circular No.332/2/2017-TRU clarified as under: "Q. 42. Tobacco leaves falling under heading 2401 attracts 5% GST on reverse charge basis in respect of supply by an agriculturist. What is the meaning of Tobacco leaves? Reply: For GST Rate 5%, tobacco leaves means, leaves of tobacco as such or broken tobacco leaves or tobacco leaves stems". The applicable rates of GST for goods were mentioned in Notification No. 1/2017-CT ibid. It is not mentioned as to who shall be supplier and who shall be recipient. While Notification No. 4/2017 - CGST (Rate) dt.28.06.2017 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Non-FCV tobacco and at Tobacco Auction Platforms in case of FCV tobacco. (b) Tobacco leaves traded between dealers of tobacco without rendering any further processes, what so ever. (c) Tobacco leaves that are subjected to minimum manual process like grading, butting or re-drying, where no physical or chemical changes are happening to the leaves. (d) Tobacco leaves that are threshed and re-dried, where only the tobacco leaves are as such but are in broken form. 7. RECORD OF PERSONAL HEARING: Sri Y. Srinivasa Reddy the authorized representative of the Applicant company appeared for personal hearing on 01.02.2019 and they reiterated the submission already made in the application. Further the representative of the applicant appeared before this authority on 18.02.2019 and submitted additional material along with physical samples of their commodity explaining different stages of processing. The applicant further submitted a costing sheet on 02-03-2019, wherein the value addition made at different levels is presented, of the activities being under taken by him, like butting, threshing, etc. 8. DISCUSSION AND FINDINGS: We have examined the issues raised in the application. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be interpreted in the light of the entry 109, Schedule- I of Notification No. 1/2017-Central Tax (Rate) and the entry no 3 inserted under the notification 4/2017 CGST (Rate) 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 the commodity 'tobacco leaves' is distinct from the other entries in this aspect. As observed from the facts, i.e process of tobacco, from the field to final product, the green leaves undergo curing process, and become eligible commercial commodity, for which the transaction takes place in between the farmer and the trader on the auction platform. Further, as per the clarification issued by The Department TRU (Tax Research Unit)vide circular F.No.322/2/2017/Dec.2017, "Tobacco Leaves" means leaves of tobacco as such or "broken leaves" "Tobacco Leaves stems". It clearly expresses that the leaves as long a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x (Rate) dated 28.06.2017. What will be the applicable rate of tax if the applicant gets the tobacco leaves threshed and re-dried? 28% (14% SGST +14% CGST) as per Sl.No. 13 of Schedule IV Notification No.1/2017-Central Tax (Rate) dated 28.06.2017. (g) What will be the applicable rate of tax if the applicant gets the tobacco threshed and re-dried on job work basis at others' premises and then sells such threshed and re-dried tobacco leaves to others? 28% (14% SGST +14% CGST) as per Sl.No. 13 of Schedule IV Notification No.1/2017-Central Tax (Rate) dated 28.06.2017. (h) What is the applicable rate of tax if the applicant gets the service of bundling of tobacco leaves by the service providers and then the bundled leaves are sold to others? Whether bundled or sold separately tobacco leaves attract 5% (2.5% SGST + 2.5%CGST) as per Sl.No.109 of schedule 1 Notification Central Tax (Rate) dated 28.06.2017. What is the applicable rate of tax if the applicant gets the service of stripping of tobacco leaves by the service providers without getting them threshed and sold such stripped tobacco leaves to others? 28% (14% SGST +14% CGST) as per Sl.No. 13 of Schedule IV Notificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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