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Tobacco in gunny bags to attract 28% GST, 71% compensation cess: AAR

No new product emerges from the post-coating process, rules authority in Gujarat

GST, Goods and Services Tax

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Indivjal Dhasmana New Delhi
Tobacco coated with natural edible gum and sold in personalised gunny bags would attract 28 per cent goods and services tax (GST) and 71 per cent compensation cess, the authority for advance rulings (AAR) has ruled in Gujarat.

The AAR held that no new product emerges from the post-coating process. As such, the product will be classifiable as un-manufactured raw tobacco leaves which draw 28 per cent GST.

However, if the same coated tobacco leaves are supplied to customers in personalised gunny bags, 71 per cent compensation cess would be applicable.

The ruling was given in an application by JCP Agro Process (P) Ltd which supplies un-manufactured tobacco procured from farmers.

The AAR said that five per cent GST on the reverse charge mechanism (RCM) would be applicable on the purchase of tobacco leaves from farmers by companies. Generally GST is imposed on sellers of goods but RCM is used to impose it on buyers where sellers are unregistered entities.

The AAR also ruled that the 'job work' of coating tobacco leaves would attract 12 per cent GST if it is done by registered entities.

Sandeep Sehgal, partner tax at AKM Global, said tobacco or tobacco leaves in different forms attract different rates of GST. The ruling by the Gujarat AAR has rightly taken care of the classification of the product, he said. 

Recently, the Finance Bill made changes to the cess rates on tobacco. The order pertained to an earlier case.

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First Published: Mar 27 2023 | 12:50 PM IST

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