Renganathan & Sons Vs Assistant Commissioner of GST & Central Excise (Madras High Court)
The Madras High Court allowed the writ petition challenging an order that reclassified the petitioner’s tobacco product under HSN 2403 99 10 and demanded higher compensation cess, interest, and penalty. The petitioner, a registered partnership firm engaged in the tobacco business, had classified its product under HSN 2403 99 90, contending that no manufacturing process had altered the character of the raw tobacco and had accordingly paid compensation cess at 96%. The department disagreed and passed an order confirming reclassification, demand of compensation cess under Section 73(9) of the CGST Act, 2017 read with Section 11 of the Central Goods and Services (Compensation to States) Act, 2017, along with interest under Section 50 and penalty under Section 122(2)(a).
The High Court noted that the issue had already been conclusively decided by a Division Bench in W.A.(MD) No. 746 of 2025. The Division Bench had relied on the earlier decision in Pachiappa Chettiar v. State of Madras, which held that merely sprinkling jaggery water on tobacco, drying it, cutting it into pieces, and packing it did not amount to manufacture. The Court distinguished such processes from cases where flavouring agents, spices, fragrances, or other materials were added, which could result in a manufactured product.
