5% GST Payable On RCM Basis On Purchase Of Tobacco Leaves/Bhukko From The Agriculturist: Gujarat AAR

The Gujarat Authority for Advance Ruling (AAR) has ruled that 5% GST on reverse charge mechanisms (RCM) shall be applicable on the purchase of tobacco leaves/bhukko from the agriculturist.

The two-member bench of Amit Kumar Mishra and Milind Kavatkar has observed that, in terms of Notification No. 4/2017-Central Tax (Rate), in the case of intrastate supply of tobacco leaves, falling under 2401, by an agriculturist to a registered person, GST is to be paid under RCM by the recipient.

The AAR noted that the term "agriculturist" is defined under Section 2(7) of the CGST Act, 2017. Agriculturist refers to an individual, or Hindu undivided family, who undertakes the cultivation of land by his or her own labor, by the labor of family members, by servants on wages payable in cash or kind, or by hired labor under personal supervision.

The applicant is engaged in the activity of procuring raw tobacco from farmers and making a consequent sale of unmanufactured tobacco.

The applicant requested an advance ruling on whether the purchase of raw tobacco from farmers, including naturally broken tobacco known as "tobacco leaves or tobacco bhukko," is covered by the reverse charge mechanism.

Yet another issue raised was the tax rate applicable in the case of coating processes done on unmanufactured tobacco.

The applicant contended that the coating is done to retain the characteristics of the unmanufactured raw tobacco leaf for a longer period of time. It helps preserve the nicotine content and protects the leaf from getting destroyed by bugs; it is not affected by natural moisture on account of the coating.

The AAR held that in the case of the supply of unmanufactured tobacco leaf subsequent to coating the same with natural edible gum, the applicant is liable to pay 28% GST.

The AAR observed that in the event the coated tobacco was supplied to the customers in gunny bags with their names printed or mentioned on the bags so as to identify the lot, the applicant would be liable to pay 28% GST along with 71% compensation cess.

"The applicant is liable for payment of GST at the rate of 12% (6% CGST and 60% SGST) in terms of notification no. 201201-9-C.T. (rate), dated September 30, 2019, on the job work process of coating, done in respect of tobacco leaves supplied by other registered persons," the AAR ruled.

Applicant’s Name: M/s. JCP Agro Process P Ltd.

Date: 09/03/2023

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