Madras High Court Rules Jaggery-Water Cured Cut Tobacco Is Not “Manufactured Chewing Tobacco”

Background of the dispute

The litigation in Arumugam Vs Commissioner of GST & Central Excise (Madras High Court) revolves around the proper classification of a particular tobacco product under the GST regime and the legal effect of advance rulings.

The assessee in this case is a tobacco trader who purchases raw dried tobacco leaves, puts them through a limited set of processes, and markets the resulting product under a brand name. The core controversy was whether these processes transformed the tobacco into “manufactured chewing tobacco” attracting a higher tax incidence, or whether the product continued to remain “raw tobacco” for classification purposes.

The authorities under GST, namely the Authority for Advance Ruling (AAR) and the Appellate Authority for Advance Ruling (AAAR), had both taken the view that the assessee’s product fell within the tariff entry for “manufactured chewing tobacco”. The assessee challenged this position before the High Court, ultimately by way of a writ appeal.

Nature of the assessee’s business and process

As recorded in the writ proceedings, the assessee is engaged in the business of dealing in tobacco products under the brand name “Kulavi’s Kavi cut tobacco”. The assessee’s affidavit described the precise operations undertaken:

  1. Purchase of raw dried tobacco leaves from growers or wholesale dealers.
  2. Removal of stems and dust from the leaves as a cleaning operation.
  3. Curing of the leaves using a jaggery-water solution, a process described as liquoring, carried out to prevent mould formation and further decay of the leaves.
  4. Cutting the cured leaves into smaller pieces using a cutting machine.
  5. Packing the cut tobacco in pouches or “pottalams” for sale under the aforementioned brand name.

The assessee’s stand throughout was that, despite these steps, the product remained “raw tobacco” and therefore fell under CETH 2401 20 90. The tax department, however, classified the product under CETH 2403 99 10, treating it as “manufactured chewing tobacco” under HSN 24 03.

Advance ruling proceedings under GST

Application before AAR and appeal to AAAR

The assessee, not agreeing with the department’s view, resorted to the statutory advance ruling mechanism provided in Chapter XVII of the CGST Act, 2017. Under this framework:

  • The assessee first approached the Authority for Advance Ruling seeking a determination on classification.
  • The AAR concluded that the product in question was “manufactured chewing tobacco” and therefore classifiable under HSN 24 03, aligning with the department’s position.
  • Dissatisfied, the assessee appealed to the Tamil Nadu State Appellate Authority for Advance Ruling, which, by order dated 29.09.2020, refused to interfere and upheld the AAR’s ruling.

Initial writ petition and dismissal

Challenging both the AAR and AAAR decisions, the assessee filed WP(MD) No.204 of 2021 before the Madras High Court. This writ petition was heard along with several other matters and, by a common order dated 24.10.2024, a learned Single Judge dismissed the petition, thereby sustaining the advance ruling authorities’ classification.

The assessee then preferred a writ appeal against the Single Judge’s order, leading to the judgment under discussion.

Statutory definition and scope of advance ruling

The High Court examined the statutory scheme for advance rulings under the CGST Act, 2017:

  • Section 95(a) defines “advance ruling” as:

“advance ruling” means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in sub-section (2) of section 97 or sub-section (1) of section 100, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.

  • Under Section 97(2), an assessee can seek an advance ruling on key issues, including: