Sun-Cured, Graded & Butted Tobacco Leaves Qualify as Tobacco Leaves, Taxable at 5% GST: AAR [Read Order]

The West Bengal Authorityfor Advance Ruling (WBAAR) has held that sun‑cured, graded, and butted tobacco leaves continue to qualify as “tobacco leaves” under the Goods and Services Tax(GST) law, and are therefore taxable at the concessional rate of 5%.

The applicant, Om Jai Balajee Construction Pvt. Ltd., sought clarity before entering the tobacco trade, asking whether cured leaves purchased from farmers and later sold to dealers would be taxed at 5% or 28%.

The applicant argued that tobacco leaves, once sun‑cured by farmers, remain “tobacco leaves” in commercial parlance, and that minor handling does not change their essential character. They pointed to CBIC’s 2017 clarification that “tobacco leaves” include broken leaves and stems, and cited rulings from Andhra Pradesh, Kerala, and Karnataka AARs that consistently applied the 5% rate.

The Revenue referred to a recent judgment passed by the Hon‟ble Gujarat High Court in the case of Patel Products vs. Union of India. The SGST authority states that the Hon'ble Gujarat High Court has observed in the referred case that the process adopted by the petitioner, including drying, cleaning, sieving, sizing, and cutting of tobacco leaves, amounted to production " under Section 3(p) of COPTA, 2003, which includes packing and repacking of tobacco products.

The bench of Shafeeq S and Jaydip Kumar Chakrabarti observed that the GST tariff distinguishes between “tobacco leaves” (taxed at 5%) and “unmanufactured tobacco other than leaves” (taxed at 28%). Since curing is a natural and necessary process to make leaves marketable, and grading or butting does not alter their essential nature, the concessional rate applies.

The authority stated that Tobacco leaves purchased from farmers attract 5% GST under reverse charge, and Subsequent sales by traders also attract 5% GST under forward charge. It was also mentioned that activities like grading, bundling, or butting do not convert leaves into “unmanufactured tobacco” for 28% GST.

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