TMI Blog2019 (11) TMI 1253X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as they do not loose their basic character ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral Tax (Rate) dated 28.06.2017. - AAR No.13/AP/GST/2019 - - - Dated:- 26-3-2019 - D. RAMESH, AND S. NARASIMHA REDDY, MEMBER Represented by: Y. Srinivasa Reddy, Advocate ORDER (Under sub-section (4) of Section 98 of Central Goods and Services Tax Act, 2017 and sub-section (4) of Section 98 of Andhra Pradesh Goods and Services Tax Act, 2017) 1. The present application has been filed u/s 97 of the Central Goods Services Tax Act, 2017 and AP Goods Services Tax Act, 2017 (hereinafter referred to CGST Act and APGST Act respectively) by Maddi Lakshmaiah and Company Private Limited, Guntur (hereinafter referred to as applicant), registered under the Goods Services Tax. 2. The provisions of the CGST Act and APGST Act are identical, except for certain provisions. Therefore, unless a specific mention of the dissimilar provision is made, a reference to the CGST Act would also mean a reference to the same provision under the APGST Act. Further, henceforth, for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST or AP GST Act would be mentioned as being under the GST Act. 3. Brief Facts of the case: Maddi Lakshma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill 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? On Verification of basic information of the applicant, it is observed that the applicant falls under Central jurisdiction, i.e. Jaggaiahpet Range. Accordingly, the application has been forwarded to the jurisdictional officers, Assistant Commissioner (ST), Chilakaluripet, Narasaraopet Division, with a copy marked to the Central tax authorities, Deputy Commissioner (Central Tax), Guntur Division, Guntur to offer their remarks as per the Section 98 (1) of CGST/APGST Act 2017. The jurisdictional officers concerned responded that there are no proceedings passed or pending relating to issue on which Advance Ruling is sought by the applicant. 5. Detailed Description Of the activities of the Applicant: The applicant in his plea presented an elaborate description of the activities of the trade right from the stage of plucking of the tobacco leaves from the farm to the stage of unmanufactured tobacco that he finally trades. Tobacco being an agricultural plant plucking of the tobacco is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e side it attached to the plant. These rough edges may damage other leaves or make packing difficult. Therefore, the edge of the tobacco leaf, which is called butt of the leaf, is removed by manually chopping them off. This will not alter any other character of the leaves. Butting is a very rare and occasional requirement of the buyer and only 2 to 3% of the total tobacco is ordered for butting. If the buyer requires the leaf to be butted, the same is undertaken along with grading by manual labour and then packed by wrapping jute bags. The applicant undertakes threshing and re-drying activities also at his premises using machines to avoid manual labour which is scarce. 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. These threshing and re-drying activities do not alter any of the physical or chemical characteristics/ parameters of the leaf. 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 ensu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. He therefore, sought for an Advance Ruling. 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 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cured 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. In this context, the applicant takes shelter under the following case law. The applicant affirms that his stance is upheld in various celebrated cases like M/s. D.S. Bist sons Nainital 1979 (004) SCC 0741 = 1979 (9) TMI 168 - SUPREME COURT wherein a mention is made about the agricultural produce. It says that it should be remembered that almost every kind of agricultural produce has to undergo some kind of processing or treatment 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 relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FCV tobacco has no use as such, hence it can be considered as primary agricultural produce only. In another letter, the CTRI has opined as follows: The curing (drying) is an integral process of agricultural operations, like in case of any other agricultural products. The curing operations followed in India are dependent on several factors such as type of tobacco, convenience, agricultural infrastructure etc. The four prevalent methods of curing are (i) flue-curing (ii)air-curing (iii) fire-curing and (iv) sun-curing. The main characteristics of tobacco leaf viz., Nicotine and sugars will remain unaltered by the process of curing/drying It is a settled legal position that an entry in the tariff has to be read as it is following the principle of literal Rule of interpretation and the word , term or a phrase shall not be read by affixing or suffixing another word to it. In the above entry, the term Tobacco Leaves is mentioned without any qualifier attached 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UTHORITY FOR ADVANCE RULING, ANDHRA PRADESH passed by this Hon ble Advance Ruling Authority, A.P., in the case of application filed by M/s. Pragathi Enterprises, which has given a holding that the rate of GST applicable for tobacco supplied at all the below mentioned stages shall be 5% only. (i) Tobacco leaves procured at tobacco leaves platforms directly or from farmers; (ii) On tobacco leaves purchased from other dealers who has in turn purchased from farmers for the purpose of trading; (iii) When tobacco leaves are graded basing on their colour, width etc and when such graded leaves are sold; (iv) On tobacco leaves butted and sold to other dealers; (v) On tobacco leaves re-dried without threshing. In view of all the above, the applicant is of the view that the following commodities that the applicant deals with, will fall under the head Tobacco Leaves only and the applicable rate is 5% only: (a) Tobacco leaves in Cured form procured from farmers directly in case 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule-I: SI.No.109 2401 Tobacco Leaves CGST 2.5%+ SGST 2.5% total GST = 5% Schedule-IV SI.No.13 2401 Unmanufactured Tobacco; tobacco refuse (other than tobacco leaves) CGST 14% + SGST 14% total GST =28% The ICAR - Central tobacco research institute, Rajahmundry, A.P., has observed as under: In tobacco matured and ripe tobacco leaves are harvested and subjected to the process of curing to remove moisture to a desired level (10%-12%). Green leaves as such are not used for making tobacco products (both smoke and non smoke) as it contains huge moisture (75%-80%). The process of curing is done by the solar energy (sun curing), or air/shade or thermal energy (flue curing) depending upon the type of tobacco to be cured. As the curing process is done by the farmer at farmer s place, it is construed as an integral part of tobacco leaf production process . As seen from the different stages of commodity i.e., from the leaves stage to the final product (manufactured tobacco), the green leaf plucked from the plant undergoes d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems . It clearly expresses that the leaves as long as they do not loose their basic character as leaves , shall be considered as tobacco leaves only. In the present case the applicant purchases the dried leaves on auction platform, and trades the same to other dealers or exporters and further engaged in threshing and re-drying of tobacco leaves on job work basis for other traders or manufacturers. In the light of the facts and legal position the ruling is given as under. RULING (Under section 98 of Central Goods and Services Tax Act, 2017 and the Andhra Pradesh Goods and Services Tax Act, 2017) (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? The GST Rate of tax for the tobacco leaves procured at tobacco auction platforms or directly from farmers, which are cured and dried by farmers themselves is 5% as per Notification No. 4/2017 Central Tax (Rate). (b) What will be the applicable rate of tax if the applicant purchases tobacco leaves from other dealers who have purchased them from farmers, for the purpose of trading? 5% (2.5% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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