28% GST Plus Compensation Cess Made Applicable on Chewing Tobacco: AAR Holds Mixing Lime is GST Taxable as Manufacture [Read Order]

In recent, the Gujarat Authority for Advance Ruling (AAR) held that “sada tambaku pre-mixed with lime” amounts to “chewing tobacco” and not “unmanufactured tobacco.” The decision settles the dispute over whether the process of mixing lime with raw tobacco is sufficient to bring the product under the category of manufacture.

The applicant, Zen Tobacco Private Limited, is engaged in the manufacture and supply of tobacco products. The applicant sought clarity on whether their product, “sada tambaku pre-mixed with lime,” should fall under “unmanufactured tobacco” (HSN 2401) or “chewing tobacco” (HSN 24039910).

The applicant contended that the addition of lime to raw tobacco did not amount to “manufacture,” as the product remained tobacco in its natural form and only became suitable for consumption after mixing, similar to consumers adding lime themselves. They maintained that the product should not be treated as “chewing tobacco” and should not attract compensation cess.

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The Revenue argued that once lime was mixed, the tobacco became ready for direct chewing and therefore underwent a process of “manufacture” as defined in Section 2(72) of the Central Goods and Services Tax (CGST) Act, 2017. They stressed that the product must be classified as “chewing tobacco” under HSN 24039910, attracting 28% GST along with compensation cess.

The bench comprises Kamal Shukla (State Member) and P.B. Meena (Central Member) observed that unmanufactured tobacco under HSN 2401 refers only to raw or natural tobacco. By the applicant’s own admission, the tobacco leaves were never consumed directly but became fit for chewing only after lime was mixed. This resulted in a product with a distinct name, character, and use of hallmarks of “manufacture” under the GST law.

Accordingly, the AAR ruled that “sada tambaku pre-mixed with lime” is classifiable as “chewing tobacco” under HSN 24039910. It held that GST at 28% (14% CGST + 14% SGST) applies, along with compensation cess at 0.56R per unit for declared retail sale price, or 160% in other cases. The Authority rejected the applicant’s contention and confirmed that mixing lime constitutes manufacture for GST purposes.

The applicant was represented by V.K.Agrawal, along with R.J. Thakker and P M Pandya.

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