TMI Blog2018 (11) TMI 449X X X X Extracts X X X X X X X X Extracts X X X X ..... mally 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 and the trader on the auction platform. Further, as per the clarification issued by TRU tobacco leaves means leaves of tobacco as such or broken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling 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 dealers what will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clarity as to the product description in the above two heading. However the words of Tobacco leaves and Unmanufactured Tobacco (other than tobacco leaves) are not defined in the tariff. d. FCV Tobacco Leaves, Flue Cured Virginia Tobacco 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 brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of drying of the leaves may not be uniform thought out the leaves and there Could be some portions of leaves which are not exposed to sun and hence might not be cured properly. Hence the buyers may order for redrying of the leaf, and the leaves are subjected to drying process once again 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and re-drying of tobacco leaves and even at this stage also it is commonly referred to as Tobacco leaf. e) Tobacco leaves after threshing and redrying are sent to manufacturers for manufacture of cigarettes, cigars, chewing tobacco and other tobacco products. In this process there will be many intermittent stages like 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 dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent purpose. Cut-Rag Cut rag (Chemically blended) Cigarette Pipe This is machine made cutting of strands of tobacco (unmanufactured) Chemically blended and flavoured tobacco. Fiited into a cigarette tube. Filled into a somke-Pipe, Fermented Leaf Cherrots Cigars Bidis Fermented dried tobacco leaves for the manufacture of cherrots or cigars. Rolled Fermented leaves into Cherrots. Rolled Fermented leaves into Cigars, (tapered on one side) Tobacco dust, wrapped along with other materials into Bidi Leaves Tobacco Chew: Guthka Khaini Snuff Chewing Tobacco. Chewing tobacco treated with lime and other chemicals Chewing tobacco treated with flavours and Masal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cultural 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, any body would not treat the produce as an agricultural produce.. .... g) The Central Tobacco Research Institute (CTRI), Guntur in its letter dt.11.12.2012 addressed to the Indian Tobacco Association explained as follows: The operations of stripping, threshing, re-drying and packing are contributing to the value-addition to the farm produced tobacco by improving the shelf-life and maintaining the quality. Further, export price of tobacco generally influences the farm price. Hence, the above operations are construed as an extension of agricultural activity only as in the case of other commodities like cotton, chillies etc. The threshed and re-dried FCV tobacco has no use as such, hence it can be considered as primary agricultural produce only. h) It is a settled legal position that an entry in the tariff has to be read as it is following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied areca nuts, whether or not shelled or peeled 29. 0802 Dried chestnuts (singhada), whether or not shelled or peeled-----Sche 1-----2.5% 62. 1109 00 00 Wheat gluten, whether or not dried -----Sch. I----2.5% (gluten means proteins contained in wheat) Exempt Nuts 49. 0802 Other nuts, Other nuts, fresh such as Almonds, Hazelnuts or filberts (Coryius spp.), walnuts, Chestnuts (Castanea spp.) Pistachios, Macadamia nuts, Kola nuts (Cola spp.), Areca nuts, fresh , whether or not shelled or peeled Dates Taxable dates:- 16. 0804 Dates, figs, pineapples, avocados, guavas, mangoes and mangos teens, dried -Sche.II-6% Exempt dates 51. 0804 Dates, pineapples, avocados, guavas, mangoes and mangos teens, fresh . Government therefore made its intention unambiguously clear wherever it intended to levy tax or exempt dried and processed goods by those specific words. Thus while Entry No. 109 mentions in simple terms Tobacco leaves , it can by no stretch of imagination be interpreted as to mean only green leaves or other than dried leaves . j) There is a pron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicable rate of tax? The Authorised representative Sri. G. Sivarama Prasad C.A., have appeared before the authority and explained the process of tobacco products from the field to the end product, with stage wise physical specimens of tobacco. In support of his argument he has furnished the letter issued by the ICAR Central tobacco Research Institute - Rajahmundry, Andhra Pradesh. The concerned jurisdictional authority Assistant Commissioner State Tax Ongole -2 have submitted that there are no proceedings passed or pending in this regard. . Legal Position 1. The rates of GST in relation to tobacco are covered under the heads as under, (Notification no; 1/2017, Central Tax (Rate), Schedule HSN Product Description Rate of GST Schedule -I : Sl No 109 2401 Tobacco Leaves CGST 2.5% i.,e total GST % = 5% Schedule - IV; Sl No; 13 2401 Unmanufactured Tobacco; tobacco refuse (other than tobacco leaves) CGST 14 % ie., total GST = 28% S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufactures 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 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? it has been answered that For GST rate of 5% tobacco leaves means, leaves of tobacco as such or broken tobacco leaves or tobacco leaves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 : represents the commodities of Tobacco not stemmed or stripped, and 2410.20 represents the commodity Tobacco partly or wholly stemmed or stripped . Further, the entries 2402, speaks about the finished product, and 2403 describes about the other products ..... X X X X Extracts X X X X X X X X Extracts X X X X
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