In re Om Jai Balajee Construction Private Limited (GST AAAR West Bengal)
The appeal before the GST AAAR, West Bengal concerned the classification and applicable GST rate on tobacco leaves procured from farmers after sun-curing and supplied either as such after storage/stocking or after grading, bundling, or butting. The Revenue contended that cured tobacco leaves should be classified as “Unmanufactured Tobacco (other than tobacco leaves)” under Heading 2401 and taxed at the higher applicable rate, relying primarily on Circular No. 332/2/2017-TRU dated 27.12.2017 and certain advance rulings. The Respondent maintained that curing undertaken by farmers merely makes tobacco leaves marketable and does not alter their essential character, while subsequent activities such as storage, grading, bundling, and butting similarly do not transform the commodity.
The AAAR examined the GST notifications, Heading 2401 of the Customs Tariff, HSN Explanatory Notes, the relevant circular, submissions of both parties, the impugned WBAAR ruling, and the samples produced during hearing. It held that the GST rate notification does not restrict the expression “tobacco leaves” to fresh, green, or uncured leaves. It found that sun-curing is a necessary process to reduce moisture and render tobacco leaves fit for storage, transportation, and sale, without changing their essential character as leaves. Similarly, grading, bundling, and butting were held to be processes undertaken for segregation, handling, packing, storage, and transportation that do not result in a different commodity. The AAAR distinguished these activities from processes such as stemming, stripping, or threshing, which may materially affect the character of the tobacco leaves. It also held that Circular No. 332/2/2017-TRU cannot be interpreted to introduce limitations absent from the GST rate notification and that the expression “leaves of tobacco as such” refers to leaves retaining their character as leaves rather than only freshly plucked green leaves. While considering conflicting advance rulings, the AAAR observed that advance rulings are binding only as provided under Section 103 of the GST Act and possess only persuasive value in other cases.
