In a significant ruling, the Gujarat Authority for Advance Ruling ( AAR ) has held that 28%Goods and Service Tax ( GST ) attracts on the supply of unmanufactured tobacco leaves coated with natural edible gum.
M/S. JCP Agro Process P Ltd, the applicant, is engaged in the activity of procuring raw tobacco from farmers and consequent sale of unmanufactured tobacco. The Process was that once the tobacco leaves are considered ready for harvesting once it changes their colour from normal green to yellowish green or light yellow, the leaves are separated from the main stem & left on the open ground for the natural drying & curing process. Once completely dry, the harvest is then collected & stored in a suitable dry location, wherein the bigger stems, the suckered leaves & the main harvest is stored separately. This whole leaf or the broken leaf is thereafter procured from a farmer/agriculturist by the applicant.
The broken leaf is as ‘Bhukko’ in common trade parlance which is primarily used in bidi manufacturing or chewing tobacco manufacturing. The applicant sells some part of this goods/product, so procured from the farmer/agriculturist, on as it is basis, without any further process.
The applicant further contends that they also carry out a certain process on the whole leaf/broken leaf, so procured from the farmer/agriculturist. Since the unmanufactured raw tobacco is prone to change in colour and flavour on account of the passage of time like any agricultural product, the applicant proposes to carry out a coating process primarily to retain the colour and flavour of the tobacco leaves for a longer period.
The unmanufactured raw tobacco leaf is homogenously mixed with a solvent which contains natural edible gum or some naturally occurring substances; the coating process is entirely a manual process wherein the leaves are laid on the floor and the solvent is poured on it.
It was contended that the coating is done to retain the characteristics of the unmanufactured raw tobacco leaf for a longer period. In the case of Yogesh Associates, it was held that merely adding some substance does not result in the emergence of a new product.
The Authority held that the applicant is liable for payment of GST at the rate of 12 % (6% CGST and 6% SGST) in terms of notification No. 20/2019C. T. (Rate), dated 30-9-2019 on the job work process of coating done in respect of tobacco leaves supplied by other registered persons.
The authority ruled that on purchase of tobacco leaves/bhukko from the agriculturist, the applicant is liable to pay GST on RCM basis at 5% [2.5% CGST and 2.5% SGST] in terms of notification No. 1/2017-Central Tax (Rate), Sr. No. 109 of Schedule I.
The AAR held that in case of a supply of unmanufactured tobacco leaf consequent to coating the same with natural edible gum, the applicant is liable to pay GST at 28% [14 % CGST and 14 % SGST] in terms of notification No. 1/2017-Central Tax (Rate), Sr. No. 13 of Schedule IV.
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