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TMI Blog2019 (11) TMI 1253X X X X Extracts X X X X X X X X Extracts X X X X ..... oses 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 Lakshmaiah and Company Private Limited, (herein after referred to as applicant), holding GSTIN 37AABCM4998B1ZB, Ganapavaram Village, Nadendla Mandal, Guntur-522619 are registered taxable person. The applicant is registered with The Tobacco Board as a dealer in tobacco. 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. The applicant engages in the following activities as far as tobacco is concerned: a) Purchase of the cured tobacco leaves brought by tobacco farmers at the Tobacco Auction Platforms in case of FCV variety or directly from farmers in case of Non-FCV variety of tobacco and selling them to other dealers or exporters or manufactures of tobacco. b) Purchase of the tobacco leaves from other dealers and sell them to the clients within India and overseas. c) Threshing and re-drying of the tobacco leaves in their t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the farm to the stage of unmanufactured tobacco that he finally trades. Tobacco being an agricultural plant plucking of the tobacco is the first and foremost step at the farm level. These leaves as plucked from plants are green in colour and are very tender, delicate and very high in moisture. At this stage, they will get damaged and rotten within few days of time unless properly dried immediately. Hence, they are necessarily cured (technical name for drying) by the agriculturist/ farmers himself in various ways viz., Sun curing, Air curing, Flue Curing, Fire curing etc., whereby the leaves are dried and the moisture levels are reduced to make them fit for primary marketability by the farmer. After procuring the tobacco leaves in the market, the leaves can either be traded as such or may be graded as per their colour; length and other parameters and then traded or used for further manufacturing of tobacco. Occasionally the tobacco may be butted and redried without threshing. The tobacco is then threshed (separating the leaf from stem portion) and the moisture contents of the tobacco are made even through re-drying. This is called threshing and re-drying of tobacco leaves. Toba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mall 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. Tobacco after threshing and re-drying is also referred in the trade parlance as tobacco leaf only since the essential characteristics of the tobacco leaves remain unaltered and they are not commercially different product from the tobacco leaf. In all the above activities, the tobacco leaves are purchased and sold as they are or supplied in the form which do not have any different in physical or chemical characteristics of tobacco leaves, the applicant opines that supply of tobacco leaves either as they are or in the form of threshed and re-dried leaves, the GST rate of 5% is applicable to the leaves in all forms. However, since the term 'tobacco leaves' is not defined and various interpretations are being given in the trade, he intends to seek an advance ruling for clarification. 6. APPLICANT'S INTERPRETATION OF LAW AND FACTS: The applicant submits the following facts. Prior to the introduction of GST, the products of Tobacco leaves and unmanufactured tobacco were not leviable to tax under VAT and Central Exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cheroot 2401 20 80 Tobacco for manufactures of Hookah tobacco 2401 20 90 Other The tobacco leaves are supplied/ sourced in various stages but in all of which there was no change in form of the leaves except some minimal activities done on them to make them marketable. With the above entries in the tariff and also the clarification of CBIC, it is clear that tobacco leaves in all these stages of trading attracts GST rate of 5% only. However, the Authority for Advance Rulings, New Delhi Bench in its Ruling dt.6.4.2018 in the case of Shalesh Kumar Singh wherein, the facts are different to those in the case of the applicant, gave a ruling that even the dried tobacco is not tobacco leaves and hence nothing is left to be considered as Tobacco leaves, as no trade is done in the green tender leaf. The applicant claims that the above ruling had resulted in multiple interpretations and had resulted in lot of confusion as to the applicable rates of the tobacco leaves. The applicant submits the following legal position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g covers: (1) Unmanufactured tobacco in the form of whole plants or leaves in the natural state or as cured or fermented leaves, whole or stemmed/ stripped, trimmed or untrimmed, broken or cut (including pieces cut to shape, but not tobacco ready for smoking). Tobacco leaves, blended, stemmed/ stripped and cased (sauced or liquored) with a liquid of appropriate composition mainly in order to prevent mould and drying and also to preserve the flavor are also covered in this heading. The Central Tobacco Research Institute (CTRI), Guntur vide 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. In another letter, the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only and the applicable rate is 5% only. The applicant had quoted an instance where the levy of service Tax is set aside on the support services administered on tobacco leaves in a recent case of proposed levy of service tax on the services associated with the threshing, re-drying, transportation, warehousing etc., of this agricultural produce, that various orders passed by the field formations were set aside by Hon'ble Tribunal vide Final Order dt.22.02.2017 = 2017 (2) TMI 1355 - CESTAT HYDERABAD clearly holding that the tobacco leaves either before the threshing and re-drying and thereafter and whether before 1.7.2012 or after 1.7.2012 from which date negative list of services was introduced remain to be Tobacco leaves only and the services were not taxable. The Special Leave Petition filed by the revenue was dismissed by Hon'ble Supreme Court vide its order dt.16.07.2018 = 2018 (7) TMI 1581 - SC ORDER. Further, the applicant mentions the earlier Ruling No. AAR/AP/17 (GST)/2018 dt.10.10.2018 = 2018 (11) TMI 449 - AUTHORITY 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, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... variety of tobacco and selling them to other -dealers or exporters or manufacturers of tobacco. (b) Purchase of the tobacco leaves from other dealers and sell them to the clients within India and overseas. (c) Threshing and re-drying of the tobacco leaves in their threshing premises and selling them to the clients in India and to export to various countries. (d) Engaging in threshing of re-drying of tobacco leaves on job work basis for other traders or manufacturers We have gone through the facts of the case as submitted by the applicant with respect to the relevant legal position. As seen from the above it is felt that the transactions of tobacco from auction platform to the supply made to the exporter are to be interpreted in the light of the relevant notifications and to decide the rate of tax accordingly. Schedule HSN Product Description Rate of GST 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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" or "Tobacco Leaves stems". 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 proc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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