In re Maddi Lakshmaiah and Company Private Limited (GST AAR Andhra Pradesh)
(a) What is the rate of GST applicable on tobacco leaves procured at tobacco auction platforms or directly from farmers, which are cured and dried by farmers themselves?
The GST Rate of tax for the tobacco leaves procured at tobacco auction platforms or directly from farmers, which are cured and dried by farmers themselves is 5% as per Notification No. 4/2017 Central Tax (Rate).
(b) What will be the applicable rate of tax if the applicant purchases tobacco leaves from other dealers who have purchased them from farmers, for the purpose of trading?
5% (2.5% SGST + 2.5% CGST) as per SI.No.109 of schedule I Notification No.1/2017 Central Tax ( Rate) dated 28.06.2017.
(c) What will be the applicable rate of tax if the applicant segregates the tobacco into grades depending upon their size (width), colour /shade, length, texture of the leaf etc., and sells such graded tobacco leaf?
5% (2.5% SGST + 2.5%CGST) as per SI.No.109 of schedule I Notification No.1/2017 Central Tax (Rate) dated 28.06.2017.
(d) What will be the applicable rate of tax if the tobacco leaves are butted and sold to other dealers?
5% (2.5% SGST + 2.5%CGST) as per SI.No.109 of schedule I Notification No.1/2017 Central Tax (Rate) dated 28.06.2017.
(e) What is the applicable rate of tax if the applicant gets the tobacco leaves re-dried without getting them threshed?
5% (2.5% SGST + 2.5%CGST) as per SI.No.109 of schedule I Notification No.1/2017 Central Tax (Rate) dated 28.06.2017.
For the questions from S.No.(a) to SI.No.(e) the relevant entry for rate of the tax is 5%.
(f ) What will be the applicable rate of tax if the applicant gets the tobacco leaves threshed and re-dried?
28% (14% SGST +14% CGST) as per SI.No. 13 of Schedule IV Notification No.1/2017 Central Tax (Rate) dated 28.06.2017.
(g) What will be the applicable rate of tax if the applicant gets the tobacco threshed and re-dried on job work basis at others’ premises and then sells such threshed and re-dried tobacco leaves to others?
28% (14% SGST +14% CGST) as per SI.No. 13 of Schedule IV Notification No. 1/2017 Central Tax (Rate) dated 28.06.2017.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, ANDHRA PRADESH
(Under sub-section (4) of Section 98 of Central Goods and Services Tax Act, 2017 and sub- section (4) of Section 98 of Andhra Pradesh Goods and Services Tax Act, 2017)
1. The present application has been filed u/s 97 of the Central Goods & Services Tax Act, 2017 and AP Goods & Services Tax Act, 2017 (hereinafter referred to CGST Act and APGST Act respectively) by Maddi Lakshmaiah and Company Private Limited, Guntur (hereinafter referred to as applicant), registered under the Goods & Services Tax.
2. The provisions of the CGST Act and APGST Act are identical, except for certain provisions. Therefore, unless a specific mention of the dissimilar provision is made, a reference to the CGST Act would also mean a reference to the same provision under the APGST Act. Further, henceforth, for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST or AP GST Act would be mentioned as being under the GST Act.
3 Brief Facts of the case:
Maddi Lakshmaiah and Company Private Limited, (herein after referred to as applicant), holding GSTIN 37AABCM4998B1ZB , Ganapavaram Village, Nadendla Mandal, Guntur-522619 are registered taxable person. The applicant is registered with The Tobacco Board as a dealer in tobacco. The applicant deals in purchase and sale of tobacco of all varieties and forms. He also undertakes the operations of threshing and re-drying of tobacco leaves to make the agricultural produce marketable, mostly in overseas market.
The applicant engages in the following activities as far as tobacco is concerned:
a) Purchase of the cured tobacco leaves brought by tobacco farmers at the Tobacco Auction Platforms in case of FCV variety or directly from farmers in case of Non-FCV variety of tobacco and selling them to other dealers or exporters or manufactures of tobacco.
b) Purchase of the tobacco leaves from other dealers and sell them to the clients within India and overseas.
c) Threshing and re-drying of the tobacco leaves in their threshing premises and selling them to the clients in India and to export to various countries.
d) Engaging in threshing of re-drying of tobacco leaves on job work basis for other traders or manufactures.
4. QUESTIONS RAISED BEFORE THE AUTHORITY:
The applicant had filed an application in form GST ARA-01, dated 26.11.2018,
by paying required amount of fee for seeking Advance Ruling on the following issues, as discussed below:
(a) What is the rate of GST applicable on tobacco leaves procured at tobacco auction platforms or directly from farmers, which are cured and dried by farmers themselves?
(b) What will be the applicable rate of tax if the applicant purchases tobacco leaves from other dealers who have purchased them from farmers, for the purpose of trading?
(c) What will be the applicable rate of tax if the applicant segregates the tobacco into grades depending upon their size (width), colour /shade, length, texture of the leaf etc., and sells such graded tobacco leaf?
(d) What will be the applicable rate of tax if the tobacco leaves are butted and sold to other dealers?
(e) What is the applicable rate of tax if the applicant gets the tobacco leaves re-dried without getting them threshed?
(f) What will be the applicable rate of tax if the applicant gets the tobacco leaves threshed and re-dried?
(g) What will be the applicable rate of tax if the applicant gets the tobacco threshed and re-dried on job work basis at others’ premises and then sells such threshed and re-dried tobacco leaves to others?
On Verification of basic information of the applicant, it is observed that the applicant falls under CentrAL jurisdiction, i.e. Jaggaiahpet Range. Accordingly, the application has been forwarded to the jurisdictional officers, Assistant Commissioner (ST), Chilakaluripet, Narasaraopet Division, with a copy marked to the Central tax authorities, Deputy Commissioner (Central Tax), Guntur Division, Guntur to offer their remarks as per the Section 98(1) of CGST/APGST Act 2017. The jurisdictional officers concerned responded that there are no proceedings passed or pending relating to issue on which Advance Ruling is sought by the applicant.
5. Detailed Description Of the activities of the Applicant:
The applicant in his plea presented an elaborate description of the activities of the trade right from the stage of plucking of the tobacco leaves from the farm to the stage of unmanufactured tobacco that he finally trades. Tobacco being an agricultural plant plucking of the tobacco is the first and foremost step at the farm level. These leaves as plucked from plants are green in colour and are very tender, delicate and very high in moisture. At this stage, they will get damaged and rotten within few days of time unless properly dried immediately. Hence, they are necessarily cured (technical name for drying) by the agriculturist/ farmers himself in various ways viz., Sun curing, Air curing, Flue Curing, Fire curing etc., whereby the leaves are dried and the moisture levels are reduced to make them fit for primary marketability by the farmer.
After procuring the tobacco leaves in the market, the leaves can either be traded as such or may be graded as per their colour; length and other parameters and then traded or used for further manufacturing of tobacco. Occasionally the tobacco may be butted and redried without threshing.
The tobacco is then threshed (separating the leaf from stem portion) and the moisture contents of the tobacco are made even through re-drying. This is called threshing and re-drying of tobacco leaves
Tobacco leaves after threshing and re-drying are sent to the manufacturers for further processing and use in manufacture of cigarettes, cigars, chewing tobacco and other tobacco products. In this process there will be many intermittent stages like cut-rack etc., which are commonly referred to as unmanufactured tobacco even under the earlier tax regime and at the stage of cigarettes and cigars it is called manufactured tobacco.
In the case of sale of tobacco leaves, the applicant may undertake the following minimal process on the tobacco before supplying as per the requirement of the dealer:
Grading: The applicant may get an order from the buyers to grade the tobacco. In such cases, the applicant engages manual labour to segregate or classify the tobacco leaves into various grades depending on their size (width), length, colour or shade and other physical parameters of the leaf. These activities will be performed manually by unskilled labour, who will open the bale and separate the tobacco leaves to physically grade the tobacco into different categories as stated above. The tobacco leaves so graded, will again be packed into bales and wrapped in Jute bags for onward supply to other tobacco dealers or manufacturers.
Butting: The tobacco leaf when plucked from the plant will have a rough edge on the side it attached to the plant. These rough edges may damage other leaves or make packing difficult. Therefore, the edge of the tobacco leaf, which is called butt of the leaf, is removed by manually chopping them off. This will not alter any other character of the leaves. Butting is a very rare and occasional requirement of the buyer and only 2 to 3% of the total tobacco is ordered for butting. If the buyer requires the leaf to be butted, the same is undertaken along with grading by manual labour and then packed by wrapping jute bags.
The applicant undertakes threshing and re-drying activities also at his premises using machines to avoid manual labour which is scarce. The threshing and re-drying operations on tobacco leaves are necessary to make the leaves marketable and fit for storage. These operations make the leaves free from fungus and foreign materials and also more importantly maintain uniform moisture. These threshing and re-drying activities do not alter any of the physical or chemical characteristics/ parameters of the leaf. The threshed lamina (cut in small pieces) and stem (midrib) in the leaf are separated during these processes and the lamina is re-dried to ensure uniform and homogenized moisture throughout the lot. Tobacco after threshing and re-drying is also referred in the trade parlance as tobacco leaf only since the essential characteristics of the tobacco leaves remain unaltered and they are not commercially different product from the tobacco leaf.
In all the above activities, the tobacco leaves are purchased and sold as they are or supplied in the form which do not have any different in physical or chemical characteristics of tobacco leaves, theApplicant opines that supply of tobacco leaves either as they are or in the form of threshed and re-dried leaves, the GST rate of 5% is applicable to the leaves in all forms. However, since the term ‘tobacco leaves’ is not defined and various interpretations are being given in the trade, he intends to seek an advance ruling for clarification.
6. APPLICANT’S INTERPRETATION OF LAW AND FACTS:
The applicant submits the following facts.
Prior to the introduction of GST, the products of Tobacco leaves and unmanufactured tobacco were not leviable to tax under VAT and Central Excise Laws. The Hon’ble Customs, Central Excise and Service Tax appellate Tribunal, Hyderabad had set aside the service tax demand raised on the process of threshing and redrying of tobacco leaves, saying that these are intermediate production processes carried out in relation to agriculture and are exempt from service Tax.
After the introduction of GST, Tobacco is brought under the taxability from the stage of tobacco leaves itself. The applicable rates of unmanufactured tobacco are covered under two heads under the tariff which are as under vide Notification No.1/2017 – Central Tax (Rate) dated 28.06.2017, both having the same HSN Code of 2401, as follows:
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