TMI Blog2020 (7) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... much as the same is cured in jaggery water, undergoes the process of stalking and semi-drying, then cut into small pieces in minced form which is stored in a separate area for a few hours/days on which some natural/agricultural preservatives for maintaining the product in wet form is applied, packed in pouches/pottlams for supply. Also, the test reports of the chewing tobacco- before processing and after processing furnished by the applicant shows that the chemical parameters Moisture, total ash and acid insoluble ash are different in % content, indicating the product has been subjected to processing. Therefore, the product of the applicant does not merit classification as unmanufactured tobacco under CTH 2401 but rightly classifiable under CTH 2403 9910 as Chewing tobacco . Rate of Compensation cess applicable to the Product - HELD THAT:- The rate of Compensation cess is provided vide Notification no. 01/2017-Compensation Cess/rate) dated 28.06.2017 and Sl.No. 26 provides the Compensation Cess Rate as 160% for the product chewing tobacco which is supplied without lime tube . - TN/16/AAR/2020 - - - Dated:- 20-4-2020 - MS. MANASA GANGOTRI KATA, IRS AND THIRU KURINJI SE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was necessity to switch over to marketing simple alternate tobacco products to cater to the demands of the lower sector in the market. 2.2 The applicant has stated that they intend to manufacture and supply the following product: Raw dried tobacco leaves are purchased from wholesale dealers/growers; Stems and dust particles are removed; then cured using jaggery water for the purpose preventing it from moulding or further decaying; after this it is cut into small pieces in a cutting machine, which is packed in pouches/pottalams for the purpose of retail sale in the shops and sold under the brand name Kulavi s Kavi cut tobacco. 2.3 The applicant has stated that the product which doesn t undergo any change in the essential character and remains in its original nature is claimed as rightly classifiable under Chapter sub heading 24012090 ( Unmanufactured tobacco partly or wholly stemmed or stripped -Others ) 2.4 The applicant has claimed the above classification on the basis of the HSN chapter notes. They have stated that the product manufactured by them involves two activities that are referred in the Chapter Notes- First one is liquoring, the dried tobacco leaves are cured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obacco leaves are sold to them as it is, by simply adding jaggery water to prevent it from any fungal / mould infection and cut into smaller sizes to facilitate easy manual packing The product do not undergo any change in its essential nature and character and the above activities are also specifically included in the inclusive definition to merit classification under CTH 2401 2.6 The applicant has relied on a catena of decisions on the issue and to emphasis that the definition in the statute takes precedence over the commercial understanding. They have contended that the term Chewing tobacco has not been explicitly defined in the Tariff. Chapter notes to Chapter 2403 states that it covers chewing tobacco usually highly fermented and liquored. Phrases Fermented and liquored are referred to in respect of unmanufactured tobacco as well as chewing tobacco. They claim that even after adding of jaggery water the essential character of the tobacco leaves do not undergo any change. 3.1 The applicant was extended an opportunity to be heard in person and heard on 18.06.2019. The authorized representative appeared and gave a written submission. They stated that their product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nmanufactured chewing tobacco in order to comply with the Tamil Nadu State Food Safety Authorities and beneficial product s production cost advantage in order to compete through cut throat competition in the market. The basic differentiation of Manufactured and Unmanufactured Tobacco is not defined either in the Central Excise Act or Central Excise Rules. It is only through the Court citation, it is being observed that the tobacco product added with jaggery water either before or after cutting of tobacco leaves constitutes Unmanufactured Tobacco and such product being further added with flavoring essence, fragrances and foreign agents, it becomes the Manufactured Chewing tobacco . There are various court citations for determining the product of Unmanufactured Chewing Tobacco and the most appropriate court case being o A.V. Pachiappa Chettiar and Ors Vs. The State of Madras (22 nd Sep 1961)-S.C. = 1961 (9) TMI 48 - MADRAS HIGH COURT o Damodar J. Malpani and Ors Vs. Collector of Central Excise (12 th Sep 2002)-S.C. = 2002 (9) TMI 114 - SUPREME COURT o Bell Mark Tobacco Vs. Government of Madras (1961) 12 S.T.C. 123 = 1960 (7) TMI 60 - MADRAS HIGH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not assigned compensation cess for applicant s varieties of tobacco product, they apply GST compensation cess rate applicable for Unmanufactured tobacco without lime tube category and paying cess at the rate of 71% on the value of product under self assessment basis. 3.3 The applicant vides their letter received on 05.07.2019 furnished the test report of the raw material and the finished product from Enviro Care India Private Limited, a NABL certified lab and also photographs of the manufacturing process as undertook by them during the hearing. The test report for the sample marked Chewing Tobacco before processing and Chewing Tobacco after processing are furnished. On perusal of the reports it is seen that the chemical parameters in both consists of Moisture, Total Ash, Acid Insoluble Ash and Nicotine. While the Nicotine content remains unchanged, the Moisture content is more than doubles and the content of Total Ash and Acid insoluble Ash are reduced. The photographs of the process undertaken shows the following process 1. Raw Tobacco Leaves Stocked; 2. Spread Out tobacco leaves sprayed with Water and Wet; 3. Tobacco leaves sprinkled with water fed into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead mentioned is 24039920 as per enclosure to the above letter. (iii) The taxpayer vide letter dated 14.03.2019, has reiterated the classification as 24039920 for June,2018 to Oct,2018) and have paid Cess @ 72%; further the taxpayer has stated that NCCD has been paid in terms of Section 4A of Central Excise Act @ 10% on 45% of MRP; further it has been stated that from Nov,2018 onwards, they had changed the product manufactured from 24039920 to 24012090, stating that they were not required to pay NCCD under Central Excise Act and hence ER 1 Returns not filed; that however, GST returns filed with CGST, SGST and Cess. Nov the applicant has requested for an advance ruling as to whether their product intended to be manufactured and supplied by them is rightly classifiable under Chapter heading 24012090 (Unmanufactured tobacco partly or wholly stemmed or tripped others ) attracting 28% GST and 71% Compensation Cess. Under the above circumstances, it is opined that the product of the applicant, which is intended to be manufactured is not to be classified under 24012090 but only under 24039910. 4.2 The Central Tax authority on being asked specifically to furnish the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Schedule shall, so far as may be, apply to the interpretation of this notification. Thus for the purposes of classification under GST, the First Schedule to Customs Tariff Act is only applicable. Further the first schedule to the Customs Tariff Act, 1975, and the Rules of interpretation therein are to be followed for classifying a product, in terms of Explanation 1 and 2 to Notification No. 1/2017- Compensation Cess (Rate) dated 28.06.2017. 6.3 HSN Explanatory Notes to Chapter 24 states: It is seen from the above that tobacco leaves after harvesting are cured in different ways either in open air (sun curing), air curing (in closed sheds with free circulation of air), flue curing (in hot air flues) or fire curing (with open fires). The purpose of curing tobacco leaves can be understood by referring to information given for farmers by ICAR-CTRI Central Tobacco Research Institute available on their website https://ctri.icar.gov.in/for_curing.php TOBACCO CURING Curing is a process by which the harvested tobacco leaf is made ready for the market. It is a well standardized process especially in FCV tobacco to achieve the desirable qualities in the cured leaf a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alks. Curing happens at the farm level itself after harvest, before they are sold by the farmers in the market. It is seen from the applicant s submissions that they buy dried tobacco leaves. This means that the tobacco procured by the applicant is already cured by any of the above methods. Further, as seen in the general notes above, before packing for shipment, the leaves can also be treated by natural fermentation. Thus, the claim of the applicant that the addition of jaggery water is for curing or for fermentation is not valid as the treatment process if any is a natural form of fermentation and not by addition of any liquids. Further, the curing and treatment process are carried out at the farm level before being sold in market. Only after these processes, the leaves are packed in bulk and sold. It is seen the product in question is not merely cured or treated tobacco. Further, the website of ICAR-CTRI Central Tobacco Research Institute available at https://ctri.icar.gov.in/for_curing.php also gives the following information: JAFFNA TOBACCO OF CEYLON AND CHEWING TOBACCO OF TAMIL NADU Fire-curing: (Smoke curing) Important type of tobacco that is fire-cure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f appropriate composition mainly in order to prevent mould and drying and also to preserve the flavour arc also covered in this heading. 2401 UNMANUFACTURED TOBACCO; TOBACCO REFUSE 240110 - Tobacco , not stemmed or stripped : 24011010 --- Flue cured virginia tobacco 24011020 --- Sun cured country (natu ) tobacco 24011030 --- Sun cured virginia tobacco 24011040 --- Burley tobacco 24011050 --- Tobacco for manufacture of biris, not stemmed 24011060 --- Tobacco for manufacture of chewing tobacco 24011070 --- Tobacco for manufacture of cigar and cheroot 24011080 --- Tobacco for manufacture of hookah tobacco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OTHER MANUFACTURED TOBACCO AND MANUFACTURED TOBACCO SUBSTITUTES; HOMOGENISED OR RECONSTITUTED TOBACCO; TOBACCO EXTRACTS AND ESSENCES - Smoking tobacco, whether or not containing tobacco substitutes in any proportion : 240311 -- Water pipe tobacco specified in Sub-heading Note to this Chapter: 24031110 --- Hookah or gudaku tobacco 24031190 --- Other 240319 -- Other: 24031910 --- Smoking mixtures for pipes and cigarettes --- Biris: 24031921 ---- Other than paper rolled bins, manufactured without the aid of machine 24031929 ---- Other 24031990 --- Other - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2403.11 - - Water pipe tobacco specified in Subheading Note 1 to this Chapter 2403.19 - - Other - Other 2403.91 - Homogenised or reconstituted tobacco 2403.99 - - Other This heading covers (3) Smoking tobacco, whether or not containing tobacco substitutes in any proportion , for example, manufactured tobacco for use in pipes or for making cigarettes. (2) Chewing tobacco, usually highly fermented and liquored. As per the Explanatory notes, Chewing tobacco falls under CTH 2403. It is seen from the information available on ICAR- CTRL Central Tobacco Research Institute website above that chewing tobacco is the tobacco which has been cured by smoking, stored and given jaggery water / salt water treatment. This is similar to the process described by the applicant in his production process. The product is universally known as Chewing Tobacco as acknowledged by the applicant. The final product sold by the applicant are in retail packets of up to 20 gms with brand name of the applicant. The purpose of the product is for the buyer to use it directly for chewing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputation of taxable turnover from the sale of chewing tobacco and therefore do not have application in the present case. In the central excise case referred though the issue raised is classification of chewing tobacco, the Hon ble Supreme Court has remanded the case and the final classification is not spelt out and therefore has no application. 6.7 Further, the decision of the Madras High Court (Madurai Bench) said to squarely cover the issue at hand and relied upon by the applicant was perused. In the said case, the core issue involved whether purchasing minced tobacco in bulk quantity and re-packing the same with added flavour in small packs involve manufacturing process or not and the Hon ble Court has held that there is no manufacturing process involved in the activities of the petitioners, in that case. As discussed in para supra, the product in hand has undergone processing other than that specified for the one to be classified under CTH 2401 and are also not used for further manufacture to merit classification under CTH 2401; is marketed as 'Chewing Tobacco for the chewing needs of the customers; chewing tobacco finds a specific entry in the customs Tariff and spe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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