The Gujarat Authority for Advance Ruling (AAR) ruled that “sada tambaku” pre-mixed with lime is classifiable as chewing tobacco under HSN 24039910 and is liable to Goods and Services Tax (GST) at the rate of 28%, along with applicable compensation cess.
The applicant, Zen Tobacco Private Limited, based in Ahmedabad, proposed to manufacture and supply unbranded, unmanufactured tobacco premixed with lime. The company argued that the product, though processed with lime, remains unmanufactured tobacco in essence and should be classified under HSN 2401, which attracts GST at 28% without compensation cess.
It was submitted that no new product emerges from the mixing process and the tobacco remains in its natural or cured form, qualifying for exemption from cess under Notification No. 1/2017-Compensation Cess (Rate).
Read More: GST Dues of Deceased Not Recoverable from Legal Heir Without Evidence of Business Continuation: Jharkhand HC [Read Order]
Complete Ready to Use PDFs of 200+ Agreements Click here
The applicant’s counsel further argued that since the product does not bear a brand name and is not used in pan masala or combination with other additives, it cannot be considered manufactured chewing tobacco. Reference was made to past case laws and rulings that held minor additions or processing without transformation of the product’s essential character do not amount to manufacture.
The Revenue authorities argued that the mixing of lime with tobacco in a mechanical process results in a product ready for consumption and fit for chewing. This process amounts to manufacture under Section 2(72) of the CGST Act, 2017.
Read More: Mere Non-Appearance of Directors Cannot Justify Additions When Documentary Compliance is Complete: ITAT [Read Order]
How to Audit Public Charitable Trusts under the Income Tax Act Click Here
The resultant product is fit for direct consumption, so it must be treated as manufactured chewing tobacco and appropriately classified under HSN 24039910. The product attracts GST at 28% and compensation cess at either 0.56R per unit (if sold with a declared retail price) or at 160% ad valorem (for products not falling under the declared RSP category).
The AAR bench comprising the CGST and SGST members (P.B Meena and Kamal Shukla) examined the classification issue in light of HSN Explanatory Notes and relevant Supreme Court judgments, including Urmin Products Pvt. Ltd.
The AAR found that the process of mixing lime with raw tobacco transforms it into a new product fit for chewing, thereby qualifying it as manufactured chewing tobacco. So, it falls outside the scope of HSN 2401 and is appropriately classifiable under HSN 24039910.
The Authority ruled that the process amounts to manufacture and that the applicant’s product “sada tambaku pre-mixed with lime” is not unmanufactured tobacco. It is subject to GST at the rate of 28% and compensation cess as per Notification No. 1/2017-Compensation Cess (Rate). The AAR ruled that the applicant is not entitled to an exemption from cess and must classify the product under the appropriate manufactured tobacco heading.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
