Tobacco Leaves Sold After Curing, Grading or Butting Attract 5% GST; 28% Applies Only When Leaves Lose Their Character: AAR

The West Bengal Authority for Advance Ruling (WBAAR) has ruled that tobacco leaves purchased from farmers and sold after curing, grading, bundling, or butting continue to attract GST at 5%, provided they retain their essential character as “tobacco leaves” and are not subjected to processes such as cutting, stripping, or threshing that alter their identity. The bench of Jaydip Kumar Chakrabarti and Shafeeq S. has reaffirmed that minimal post-harvest handling processes such as curing, grading, bundling, and butting do not alter the identity of tobacco leaves. As long as the commodity retains its character as a leaf, it will be taxed at the concessional rate of 5%. The applicant, currently engaged in construction activities, sought clarity on the applicable GST rate for tobacco leaves proposed to be purchased directly from farmers or marketplaces. The leaves would be sun-cured by farmers and later sold either as purchased (after storage/stocking), after grading based on size, colour, and texture, or after removal of the “butt” portion to prevent damage during transport. The applicant contended that all such supplies fall under “tobacco leaves” taxable at 5% (2.5% CGST + 2.5% SGST) under Entry 162 of Schedule I of Notification No. 1/2017-CT (Rate), as amended. The central issue before the Authority was whether cured, graded, bundled, or butted tobacco leaves remain classifiable as “tobacco leaves” (5% GST) or become “unmanufactured tobacco (other than tobacco leaves)” attracting 28% GST under Schedule III. The department relied on a recent judgment of the Gujarat High Court in Patel Products vs Union of India, arguing that drying, cleaning, sizing, and cutting amount to “production,” thereby attracting higher tax rates. The Authority undertook a detailed examination of the stages of tobacco processing harvesting (priming or whole plant cutting), curing (sun-curing, air-curing, flue-curing, fire-curing), grading, butting (removal of rough edge), bundling. It observed that curing is a necessary and inherent agricultural process without which green tobacco leaves cannot be marketed. The curing process merely reduces moisture and develops flavour and colour; it does not alter the essential character of the leaf. Similarly, grading, bundling, and butting are minimal manual processes that do not change the identity of tobacco leaves. The Authority emphasized that tobacco leaves only lose their character when subjected to stripping (removal of midrib), stemming, or threshing, where the leaf structure is destroyed. Significantly, the Authority distinguished the Gujarat High Court ruling, noting that the cited case involved cut and crushed tobacco packed for retail sale as chewing tobacco — a materially different factual scenario. The ruling carefully examined the GST schedules and the Customs Tariff Act, 1975. Under GST Schedule I (5%): Tobacco leaves (HSN 2401) and Schedule III (28%): Unmanufactured tobacco (other than tobacco leaves) The Authority noted that the legislature did not qualify “tobacco leaves” with restrictive terms such as “green” or “uncured.” It held that cured leaves brought to market by farmers are commercially understood as tobacco leaves. The WBAAR concluded that tobacco leaves purchased from farmers after curing and sold without further processing attract 5% GST. Graded tobacco leaves (sorted by size, colour, etc.) continue to attract 5% GST. Butted tobacco leaves (where only the rough edge is removed) also attract 5% GST. Only when the leaves undergo stripping, cutting, or threshing — thereby losing their identity as leaves — would higher rates apply. The Authority categorically rejected the Revenue’s argument that drying and grading amount to manufacturing. The ruling provides significant clarity to tobacco traders in West Bengal and other states, particularly small and mid-level dealers purchasing cured leaves from farmers. It reinforces that the Reverse Charge Mechanism (RCM) under Notification No. 4/2017 applies to purchases from agriculturists, but the applicable rate remains 5%. The decision also underscores the importance of preserving the essential character of the goods for classification purposes under GST. The ruling is expected to serve as an important precedent in resolving classification disputes concerning tobacco leaves under GST. Ruling Details Applicant’s Name: Om Jai Balajee Construction Private Limited Ruling Date: 13/02/2026 Click Here To Read Ruling Read More: 5% GST On Shaving Cream and 18% On Shaving Foam: AAR

Tobacco Leaves Sold After Curing, Grading or Butting Attract 5% GST; 28% Applies Only When Leaves Lose Their Character: AAR

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