GST Advance Ruling: Tobacco leaves, even after undergoing sun-curing, grading, or butting, are subject to GST at 5%

Tobacco leaves, even after undergoing sun-curing, grading, or butting, are subject to GST at 5%

Facts of the Case

• The applicant, Om Jai Balajee Construction Private Limited, is engaged in the construction business in Kolkata and intends to enter the business of purchase and sale of tobacco leaves due to a slump in construction.
• The applicant proposes to purchase tobacco leaves from farmers, after sun curing in the fields, and sell them to other dealers without any processing except storage/stocking.
• The applicant sought an advance ruling under Section 97(1) of the GST Act regarding the applicable GST rates on: (i) tobacco leaves sold as purchased from farmers after sun curing, (ii) tobacco leaves segregated into grades and sold, and (iii) tobacco leaves sold after removing the butts.
• The application was admitted as the questions fall under clause (a) of sub-section (2) of section 97 of the GST Act and were not pending or decided by any authority under the Act.

Contentions of the Parties

Applicant

• Tobacco leaves are agricultural produce, and sun curing is a necessary process for marketability; green leaves cannot be sold or transported.
• Manual activities like grading, butting, or bundling do not alter the essential character of tobacco leaves.
• GST rate of 5% applies to tobacco leaves as per Notification No. 9/2025-Central Tax (Rate) and relevant circulars; only unmanufactured tobacco other than tobacco leaves attracts 28% GST.
• CBIC Circular No. 332/2/2017-TRU clarifies that “tobacco leaves” includes leaves as such, broken leaves, or stems.
• Advance Ruling Authorities in other states have consistently held that cured, graded, or butted tobacco leaves attract 5% GST.
• Processes like curing, grading, and butting are essential and do not change the nature of the product; only stripping or threshing changes the character, attracting higher GST.
• Statutory language is plain and unambiguous; “tobacco leaves” should be interpreted broadly unless specifically qualified.

Revenue

• Relied on the Gujarat High Court judgment in Patel Products v. Union of India, where processes like drying, cleaning, sizing, and cutting were held to amount to “production” under COPTA, 2003, attracting 28% GST and other duties.
• Argued that similar processes in the applicant’s case should attract the higher GST rate.

Issues

1. What is the applicable rate of GST on tobacco leaves sold to other traders by the applicant as purchased from farmers after sun curing in the fields, without any processing except storage or stocking?
2. What is the applicable rate of GST if the applicant segregates the tobacco into grades depending on size, colour, length, texture, etc., and sells such graded tobacco leaf?
3. What is the applicable rate of GST if the tobacco leaves are sold to other traders after removing the butts to avoid damage during transportation?

Decision

A. Analysis of the Applicant’s Business and Questions Raised

• The applicant is registered under GST and intends to purchase tobacco leaves from farmers and sell them as such, without any processing except storage or stocking. The applicant raised three specific questions regarding the applicable GST rates in different scenarios involving tobacco leaves. (p4.2)

B. Stages of Tobacco Leaf Processing and Market Practices

• Harvesting of tobacco leaves occurs when leaves mature, using either priming (individual leaves) or whole plant cutting. After harvesting, leaves undergo curing (sun, air, flue, or fire curing) to reduce moisture and develop aroma, flavour, and colour. (p4.4–4.5)
• Grading is done based on position, colour, size, texture, maturity, and blemish, usually by visual and physical assessment. Butting involves removing the tough edge of the leaf for packing convenience. Bundling involves tying cured leaves together for transport and storage. These processes do not alter the fundamental nature of the leaves. (p4.6–4.7)
• Stripping or stemming, which removes the midrib, causes the leaf to lose its character as a leaf. Threshing further breaks the leaf into smaller pieces. The present application does not involve these processes. (p4.8)
• Farmers typically cure, grade, and bundle leaves before bringing them to market. Cured and bundled leaves are sold as tobacco leaves in the market. (p4.9)

C. Applicability of Gujarat High Court Judgment in Patel Products v. Union of India

• The Revenue cited the Gujarat High Court judgment, arguing that similar processes attract 28% GST. The Authority found the factual matrix different: the cited case involved cut tobacco leaves packed in retail pouches, whereas the present case involves only cured, graded, or butted leaves, not cut leaves. The Authority held the Gujarat High Court ratio inapplicable and did not accept the Revenue’s view. (p4.10)

D. Statutory and Tariff Analysis: GST and Customs Tariff Act

• GST rates are linked to HSN codes under the Customs Tariff Act, 1975. Entry No. 162 of Schedule I of Notification No. 1/2017-Central Tax (Rate), as amended, taxes “tobacco leaves” at 2.5% CGST + 2.5% SGST. Entry No. 15 of Schedule III taxes “unmanufactured tobacco; tobacco refuse [other than tobacco leaves]” at a higher rate, specifically excluding tobacco leaves. (p4.11–4.12)
• The Customs Tariff Act includes tobacco leaves under “tobacco,” but does not define “tobacco leaf” separately. The GST notification carves out a concessionary tariff for “tobacco leaves.” The Tariff distinguishes “tobacco, not stemmed or stripped” (240110) from “tobacco, partly or wholly stemmed or stripped” (240120). Curing does not remove the essential character of tobacco leaves; only stemming or stripping does. (p4.12)

E. Interpretation of “Tobacco Leaves” and Relevant Circulars

• CBIC FAQ No. F. No. 332/2/2017-TRU clarifies that “tobacco leaves” means leaves of tobacco as such, broken tobacco leaves, or tobacco leaves stems. Curing is a drying process that does not alter the essential character of the leaves. (p4.13)
• Sun cured tobacco leaves, graded leaves, and butted leaves retain their character as tobacco leaves. Grading and butting are physical processes that do not interfere with the essential characteristics. (p4.14)

F. Ruling on the Three Questions

• Question 1: Tobacco leaves purchased from farmers after sun curing, without any processing except storage or stocking, are covered by Tariff item no. 240110 and Entry No. 162 of Schedule I of Notification No. 1/2017-Central Tax (Rate), as amended. GST rate is 2.5% CGST + 2.5% SGST. (Ruling)
• Question 2: Tobacco leaves, even after grading by size, colour, length, or texture, remain tobacco leaves as such and are covered by Tariff item no. 240110. GST rate is 2.5% CGST + 2.5% SGST. (Ruling)
• Question 3: Tobacco leaves sold after removing the butts retain their character as tobacco leaves and are covered by Tariff item no. 240110. GST rate is 2.5% CGST + 2.5% SGST. (Ruling)
• None of the above cases are covered by Notification No. 04/2017 – Central Tax (Rate) Dated 28.06.2017, as amended. (Ruling)

Conclusion

The Authority held that tobacco leaves purchased from farmers after sun curing, and sold as such or after manual processes like grading or butting, retain their essential character as tobacco leaves and are taxable at 5% GST (2.5% CGST + 2.5% SGST) under Entry No. 162 of Schedule I of Notification No. 1/2017-Central Tax (Rate), as amended. The processes described do not amount to manufacturing or change the nature of the product, and the higher GST rate is not applicable.

Disposition

The application is allowed. The Authority ruled in favour of the applicant, holding that all three scenarios involving tobacco leaves (as purchased after sun curing, after grading, and after butting) are taxable at 5% GST (2.5% CGST + 2.5% SGST) under Entry No. 162 of Schedule I of Notification No. 1/2017-Central Tax (Rate), as amended.

Source: In re: Om Jai Balajee Construction Pvt. Ltd., (2026) taxcode.in 10 AARGST