TMI Blog2020 (7) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... green leaf plucked from the plant undergoes different types of curing to reduce the level of moisture to the maximum extent for sustainability and to continue as leaf for further process. The tobacco leaf will be entitled as a commercial commodity only drying (Curing) and normally 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. As envisaged from the entries under GST, there are four different entries for tobacco, one under Schedule-I. Liable @5% (CGST 2.5% and SGST 2.5%) and the remaining heads are in Schedule- IV liable 28% - And there is an entry of tobacco leaves under Reverse charge mechanism also. The commodity tobacco leaves shall be interpreted in the light of the entry 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly in overseas market. After the introduction of GST, Tobacco is brought under the taxability from the stage of tobacco leaves. The applicable rates of unmanufactured tobacco are covered under two heads under the tariff which are as under vide Notification No.1/2017-Central Tax (Rate) dt.28.06.2017, both having the same HSN Code of 2401, as shown below: SI.No Schedule HSN Product Description Rate of GST 1 Schedule - Sl. No. 109 2401 Tobacco Leaves CGST 2.5%+SGST 2.5% i.e. total GST = 5% 2 Schedule - IV; Sl. No. 13 2401 Unmanufactured Tobacco; tobacco refuse (other than tobacco leaves) CGST 14 % +SGST 14% i.e. total GST = 28% The applicant opines that though there is clarity as to the product description in the above two headings, since the terms Tobacco leaves' and `Unmanufactured Tobacco (other than tobacco leaves)' are not defined in the Tariff, classification of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he graded tobacco leaves or the butted leaves are at this stage, stripped wherein the stem portion of the Tobacco leaves is separated from the leaf. The lamina portion and the woody portion i.e mid-rib (stern) of tobacco leaf are to be separated as they are to be processed separately. Bundling Process: The graded tobacco leaves will be bundled as per the requirement of customer. This bundled tobacco is further processed into Threshed lamina or Re-dried leaf as such depending upon the requirement of the customer. Re-drying of tobacco leaves: Re-drying of tobacco is compulsory whether it is in the form of leaf as such or hand stripped form or threshed lamina form. This process is mainly done to remove un-even moisture levels in the tobacco leaf and to add required level of moisture evenly for storing the tobacco leaves long time. Re-drying will not alter the shape or physical or chemical parameters of the tobacco leaf. Threshing of tobacco leaves: The leaves are threshed and/ or re-dried, even though there will not be any change in the tobacco leaf except that the stem is separated, and the leaves are broken into small pieces during the process. 4. QUESTIO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the process of threshing and re-drying of tobacco leaves, saying that these are intermediate production processes carried out in relation to agriculture and are exempt from service Tax. After the introduction of GST, Tobacco is brought under the taxability from the stage of tobacco leaves itself. The applicable rates of unmanufactured tobacco are covered under two heads under the tariff which are as under vide Notification No.1/2017 - Central Tax (Rate) dt:28.06.2017, both having the same HSN Code of 2401, as shown in Para No 3 above. Though there is clarity as to the product description 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. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein, 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 with regards to the levy of GST on the tobacco leaves. The applicant states that all of the tobacco crop that is produced shall have to be 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 (04) SCC 0741 = 1979 (9) TMI 168 - SUPREME COURT wherein a mention is made about the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contributing to the value-addition to the farm produced tobacco by improving the she 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 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 Further applicant contends that 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 interpretat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. Further, the applicant mentions the earlier Ruling No. AAR/AP/17 (GST)/2018 dt.10.10.2018 passed by this Hon'ble Advance Ruling Authority, A.P. = 2018 (11) TMI 449 - AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH , in the case of application filed by M/s. Pragathi Enterprises, which has given a ruling 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 color, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the plant undergoes different types of curing to reduce the level of moisture to the maximum extent for sustainability and to continue as leaf for further process. The tobacco leaf will be entitled as a commercial commodity only drying (Curing) and normally 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. As envisaged from the entries under GST, there are four different entries for tobacco, one under Schedule-I. Liable @5% (CGST 2.5% and SGST 2.5%) and the remaining heads are in Schedule- IV liable 28% (CGST-14% and SGST 14%). And there is an entry of tobacco leaves under Reverse charge mechanism also as explained below: As per the notification 4/2017 CGST (Rate), the supply of the Tobacco Leaves shall be under 'Reverse charge' No Tariff item sub-heading, heading or chapter Description of supply of Goods Supplier of goods Recipient of goods 3 2401 Tobacco Leaves Agriculturist Any registered pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s who have purchased them from farmers, for the purpose of trading? Answer : 5% (2.5% SGST + 2.5%CGST) as per Sl.No.109 of schedule I Notification No.1/2017-Central Tax (Rate) dated 28.06.2017. Question (c): 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 leaf etc., and sells such graded tobacco leaf? Answer : 5% (2.5% SGST + 2.5%CGST) as per Sl.No.109 of schedule I Notification No.1/2017 Central Tax ( Rate) dated 28.06.2017. Question (d): What will be the applicable rate of tax if the tobacco leaves are butted and sold to other dealers? Answer: 5% (2.5% SGST + 2.5%CGST) as per Sl.No.109 of schedule I Notification No.1/2017 Central Tax (Rate) dated 28.06.2017. Question (e): What is the applicable rate of tax if the applicant gets the tobacco leaves re-dried without getting them threshed and sold them? Answer: 5% (2.5% SGST + 2.5%CGST) as per SI.No.109 of schedule I Notification No.1/2017 Central Tax (Rate) dated 28.06.2017. Question (f): What will be the applicable rate of tax if the applicant gets the tobacco leaves thresh ..... 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