CLASSIFICATION OF ‘GUDAKHU’ UNDER GST

[Mr. M. GOVINDARAJAN]

Gudakhu’ is a paste-like tobacco preparation used widely in Orissa and neighboring states of India. During use it is rubbed over the teeth and gum with a finger tip. Besides tobacco, it contains molasses, lime, red soil and water. Use of tobacco in the form of gudakhu has been developed recently among large number of population in rural area of Chhattisgarh. Particularly, in Chhattisgarh, gudakhu is popular in all socioeconomic groups since it is widely available and more affordable in price.

The Authority for Advance Ruling, Odhisha gave a ruling on the classification of ‘gudakhu’ in the application filed by ‘Prabhat Guadkhu Factory, Jyoti Mill, Koraput, Odisha’ before the Authority for Advance Ruling, on 05.02.2019.

The applicant is engaged in the business of manufacture and sale of 'gudokhu', a tobacco product in a paste form which is applied orally on the teeth and gums, especially in the rural belts of Odisha and neighboring states. The product is categorized as a tobacco product even though the tobacco content in gudakhu is merely 20% while molasses accounts for about 50-60%. Gudakhu is commercially available in a paste form as well as in a granular form and the composition of both of these products is the same. While the paste is used orally as toothpaste, the substance in a granular form is used for smoking as hookah. The applicant in the instant case is engaged in the manufacture of gudakhu in paste form only. `.

The applicant used to pay central excise duty, the applicable additional duties and state VAT at the prevalent rates in the pre-GST regime. In addition, the applicant also used to pay National Calamities Contingency Duty besides central excise and VAT during the pre-GST era. Upon specific instructions from the Central Excise officials then, the applicant had to classify their product under tariff heading `2403 99 90' which is the residual category for manufactured tobacco that is `used for chewing'. Though the applicant was of the belief that gudokhu would be covered by the tariff heading no. 2403 1110, in view of the instructions from the central excise officials, the tariff heading was declared as 2403 99 90 and applicable taxes and duties were paid as applicable to the latter tariff heading.

In GST regime, the gudakhu is subjected to compensation cess as detailed below-

• 243 11 10 - 'Hookah' or ‘gudakhu' tobacco bearing a brand name – 72%;
• 243 11 10 - Tobacco used for smoking `hookah' or `chilam' commonly known as 'hookah' tobacco or 'gudakhu' not bearing a brand name – 17%

The code 2409 99 90 under which the applicant paid taxes before GST regime has the following rates of compensation cess as detailed below-

• 2403 99 90 – Pan Masaala containing tobacco ‘gutka’ – 204%;
• 2403 99 90 – All goods other than pan masaala containing tobacco ‘gutkha’ bearing a brand name – 96%;
• 2403 99 90 – All goods, other than pan masaala containing tobacco ‘gutkha’not bearing a brand name.

In the GST regime, with different rates of Compensation cess applicable to the above two classifications, there is a need to know the exact classification so that the correct rates of tax and cess may be applied to the products supplied by the applicant in their regular course of business. The departmental officials have been insisting on the applicant to declare the classification as 2403 9990 thus resulting in payment of duties and Cess at a higher rate. Thus, in order to mitigate the confusion and to collect and pay the correct taxes, the applicant seeks the advance ruling for the proper HSN classification of the product dealt by them. The following questions are submitted before the Authority for their decision-

• Appropriate classification of ‘gudakhu’ under GST tariff heading; and
• Determination of the liability to pay NCCD.

                        The applicant contended the following before the Authority-

• The applicant is of the considered view that their product 'gudakhu' falls under the HSN classification of 2403 11 10.
• That `gudakhu' is specifically mentioned in the HSN classification and tagged along with 'hookah' under tariff heading 2403 11 10.
• The Hon'ble High Court of Odisha has observed in the case of Shamsuddin Akbar Khan and Co., as reported in 1974 (7) TMI 114 - ORISSA HIGH COURT that gudakhu is a kind of manufactured tobacco and is very much akin to hookah tobacco.
• The CESTAT, Delhi had, in another case of the said appellant, concurred with the views Of the Hon'ble High Court of Odisha that gudakhu is not very much different from hookah tobacco the residual category of 2403 9990 contains all other tobacco products in the nature of gutkha which are meant for chewing.
• When there is a specific entry under classification 2403 1110 referring to the product even by its very name, it would be wrong to classify the product under the residual classification of 2403 9990.

The Authority observed the following-

• The applicant has been clearing the product as Branded Gudakhu' with CETH No-2403 99 90 right since the day of taking Central excise registration w.e.f. 01.10.2002.
• The concerned jurisdictional officer of CGST contended that Gudakhu is not entirely tobacco but rather a product consisting of tobacco, molasses, lime, red soil, water etc. Most of its composition materials are similar to Gutkha except areca nut.
• It `is primarily applied on teeth and pressed and chewed. So, it should be, and rightly classified, under heading ‘Other' with Sub-heading 'Other--2403 99' and Tariff-head ‘Other--- 2403 99 90' since it is entirely different by essential character by following general rules of interpretation from the tariff items 24031110.

In sub heading note to chapter 24 that for the purposes of sub-heading 2403 -11 the expression ‘water pipe tobacco’ means tobacco intended for smoking in a water pipe and which consists of a mixture of tobacco and glycerol, whether or not containing aromatic oils and extracts, molasses or sugar and whether or not flavored with fruit. The tariff item `24031110'---Hookah or Gudakhu Tobacco bearing a brand name refers to Hookah or Gudakhu Tobacco (branded) used as a smoking tobacco in a water pipe as explained in the sub heading note of Chapter 24, under sub heading 240311. In no way it refers to the non-smoking tobacco irrespective of the nomenclature and composition. Commercially Hookah or Gudakhu Tobacco is sold in granular form which is not the case in gudakhu manufactured by the applicant. Gudakhu manufactured by the applicant is sold as a paste and is used as a tooth paste. Hence, it is distinctly different from hookah tobacco by its essential character and use. While hookah or gudakhu tobacco as classified under 2403 11 10 is used as a smoking tobacco through a water pipe. Gudakhu manufactured by the applicant is sold in the form of a paste for use as a tooth paste and not as a smoking tobacco. Therefore, it can never be classified under tariff sub-heading 2403 11.

 

As per the scheme of classification, tariff sub heading 2403 99 is a residual sub-heading under which all forms of chewing tobacco and other forms of tobacco not specified under other sub headings of Chapter heading 2403 99 90 classified. The said sub-heading is not just confined to chewing tobacco only such as khaini, gutkha and zarda etc. It also includes cut tobacco, tobacco extracts and snufs which do not belong to the family of chewing tobacco. The sub-heading which reads as ‘2403 99 – other’ bears the essential character of a residual entry so as to classify all other forms of tobacco not specified in the preceding sub-headings. No doubt it classifies certain known chewing tobacco products under the sub-heading but, it also includes cut tobacco, tobacco extracts, snuff and other. The entry `other' appearing against 2403 99 90 is intended to cover all other tobacco products not specified under the preceding sub-headings under chapter 24 and also not specified under the tariff items specified under sub-heading 2403 99. Thus, the contention of the applicant that a tariff item can be classified under the sub-heading 2403 99 only if the said item belongs to the family of chewing tobacco like 'gutkha', zarda or khaini is totally misplaced in as much as the said sub-heading also specifies other tobacco products such as cut tobacco, tobacco extracts and snuff etc. Therefore, the general rule of classification as relied upon by the applicant cannot be applied in the case of ‘gudakhu’ as manufactured and sold by the applicant simply because it does not belong to the family of chewing tobacco such as zarda and gutka.

The Authority for Advance Ruling held that it can be classified and rightly so under the residual tariff item `2403 99 90 - other' of the said Chapter Heading because of its composition, character and use.

As regards `Determination of the liability to pay NCCD, the Authority clarified that the aforesaid duty is a levy under the Central Excise Act and not under the CGST/ OGST/lGST Act. The scope of issuing a ruling u/s 98 of the OGST/CGST Act is limited to the extent prescribed in sub-section (2) of Section 97 of the OGST/CGST Act. NCCD being not a levy under the OGST/CGST Act, it is not within the competence and mandates of the Authority of Advance Ruling constituted u/s 96 of the OGST Act to give a ruling on the liability of the applicant to pay NCCD.