GST | Non-Fermented Crushed Tobacco Leaves Packed In Small Retail Pouches Classified As “Chewing Tobacco”: Gujarat HC

The Gujarat High Court has held that the non fermented non liquored crushed tobacco leaves packed in small retail pouches as “Chewing tobacco” under Tariff Heading 2403 9910. The bench of Justice Bhargav D. Karia and Justice Pranav Trivedi has observed that retail pouches carry the warning for health hazard for chewing the tobacco as per the Cigarettes And Other Tobacco Products (Prohibition Of Advertisement And Regulation Of Trade And Commerce, Production, Supply And Administration) Act, 2003 (for short ‘Copta’). This warning also clearly shows that what is sold by the petitioners is “chewing tobacco” and merely because no ingredients are added, it would not be “unmanufactured tobacco” falling under Tariff Heading No. 2401 2090 in view of the definition of “manufacture” under the GST Act. The issue raised was whether non-fermented non-liquored crushed tobacco leaves packed in small retail pouches as “Chewing tobacco” should be classified under Customs Tariff heading No.2401 -“unmanufactured tobacco ; Tobacco Refuse” or Custom Tariff Heading No.24039910-“chewing tobacco” attracting different rates of duty under the provisions of Goods and Services Tax Act, 2017. The petitioner is doing business of supplying raw, unmanufactured and unprocessed tobacco without lime tube under the brand name “OM SPECIAL PANDHARPURI TAMBAKKU since 01.10.1990 after obtaining registration under the provisions of Central Excise Act, 1944 from the Jurisdictional Central Excise Department, Mumbai and thereafter obtaining registration from Anand, Gujarat on 10.05.2013. Jurisdictional Assistant Commissioner of Central Excise (Anand) issued a Certificate dated 07.08.2013 certifying the classification of the subject products under Tariff Heading 2401 under the Customs Excise Tariff Act, 1985. Pursuant to Circular bearing F. No. 81/5/2015-CX.3 dated 23.06.1987 issued by Central Board of Excise and Customs (CBEC) clarifying that unmanufactured tobacco merely broken by beating and then sieved and packed in retail packets with or without brand names for consumption by way of chewing tobacco would be classifiable under Tariff Head 24.01 of the Schedule to the Tariff Act as “unmanufactured tobacco; Tobacco Refuse”. The Additional Commissioner, Central GST and Central Excise, Vadodara -I issued a show cause notice on 28.06.2024 invoking extended period of limitation under section 74 of the GST Act to demand and recover Compensation Cess to the tune of Rs.413,48,78,774 for the period from July, 2017 to March, 2023 and GST amounting to Rs.17,86,80,879 for then period from June, 2019 to March, 2023 along with interest and penalty. The petitioner is also registered under the GST-regime and classifies the goods under Tariff Item 24012090 under Notification No.01/2017-Central Tax under Schedule IV at Sr.13 and discharges tax liability at 28% and pays Compensation Cess at 71% under Notification No.01/2017- Compensation Cess (Rate) dated 28.06.2017 under Sr. 5 under description GM "Unmanufactured Tobacco (without lime tube), bearing a "brand name". In the show cause notice, it is the case of the respondents that the petitioner is engaged in the supply of "Chewing Tobacco" without lime and hence, shall be classified under HSN 24039910 as per the World Customs Organisation. Moreover, the same is classified under Notification No.01/2017-Compensation Cess (Rate) dated 28.06.2017 at Sr. No.26 under the description "Chewing Tobacco (without lime tube)", with Chapter heading, subheading 24039910 attracting Compensation Cess rate at 160%. The petitioner receives dried cut tobacco leaves in jute gunny bags from their supplier, who classify the goods under CTH 2401 as "unmanufactured tobacco" and charge Goods and Services Tax at 28%. It is the case of the petitioner that the only process undertaken by the petitioner is unpacking of gunny backs and repacking of tobacco in retail pouches and no ingredient or any flavour is added while retail packing. The petitioner cleared the retail packs of unmanufactured tobacco by classifying the same under CTH 2401 and discharged GST at the rate of 28% (14% CGST+14% SGST) under Sr. No. 13 of Schedule IV of Notification No. 1/2017- Central Tax (Rate) dated 28.06.2017 along with Compensation Cess at 71% under Notification No. 01/2017-Compensation Cess (Rate) dated 28.06.2017. The officers of the Directorate General of GST Intelligence (DGGI), Regional Unit, Vadodara carried out investigation with a belief that the Petitioner is misclassifying the tobacco product cleared by them under CTH 2401 as "unmanufactured tobacco" instead of classifying it as "chewing tobacco" under CTH 2403. The court held that these petitions are partly allowed to the extent that the impugned order-in-original is sustained so far as it refers to the classification of the product of the petitioners under Tariff Heading No.2403 9910 as “chewing tobacco” and such order is deemed to have been passed under section 73 of the GST Act and not under section 74 of the GST Act and therefore, the respondent authorities shall pass order giving effect after recomputing the amount payable as GST considering the show cause notice as well as the impugned order-in-original having been passed under section 73(9) of the GST Act without considering the extended period of limitation from July, 2017 onwards. Case Details Case Title: Patel Products & Anr. Versus Union Of India & Ors. Case No.: R/Special Civil Application No. 2407 Of 2025 Date: 19/12/2025 Counsel For Petitioner: Mihir Joshi, Senior Advocate Counsel For Respondent: Hetvi H Sancheti Click Here To Read Order Read More: Customs Officers at International Airports Mandated to Wear Body Cameras at Red Channels

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