GST on Tobacco Leaves Fixed at 5% as Curing and Grading Do Not Change Character: AAR West Bengal

In re Om Jai Balajee Construction Private Limited (GST AAR West Bengal)

The applicant, engaged in construction business, proposed to enter into trading of tobacco leaves by purchasing them from farmers and selling them to other dealers without undertaking any substantial processing. The applicant sought advance ruling on the applicable GST rate in three scenarios: (i) sale of sun-cured tobacco leaves purchased from farmers without any processing except storage/stocking; (ii) sale after grading based on size, colour, length, texture etc.; and (iii) sale after removing the butt portion of the leaf to prevent damage during transport.

The applicant submitted that tobacco leaves, as marketed, are necessarily cured by farmers because green leaves cannot be sold due to high moisture content. Curing is a drying process (sun, air, flue, or fire curing) to make leaves marketable. The applicant argued that cured leaves remain “tobacco leaves” and fall under Entry No. 162 of Schedule I to Notification No. 1/2017–Central Tax (Rate), as amended, taxable at 2.5% CGST + 2.5% SGST (total 5%). It was further submitted that grading, bundling, and butting are minimal manual processes that do not alter the character of tobacco leaves. Reliance was placed on various Advance Ruling decisions from other States holding that cured, graded, or butted tobacco leaves continue to be taxable at 5%.