Delhi AAR Rules 28% GST on Cured Dried Tobacco Leaves
Delhi tax authority ruled that cured and dried tobacco leaves attract 28% GST instead of the lower 5% rate.
- Ruling
- ADVANCE RULING NO. 04/DAAR/2018 dated 06.04.2018
- Dated
- 06 Apr 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- A trader asked if cleaning dried tobacco leaves attracts 5% or 28% GST.
- The authority ruled cured tobacco falls under unmanufactured tobacco.
- Cured or dried tobacco leaves attract 28% GST.
- The 5% GST rate applies only to raw uncured tobacco leaves.
In short
A wholesale trader in Delhi asked whether selling cleaned and dried tobacco leaves attracts 5% Goods and Services Tax (GST) or 28% GST. The trader purchased leaves sourced from farmers and cleaned out dust and straw without adding foreign substances or flavors. The trader believed the product qualified as basic tobacco leaves taxable at the lower 5% rate.
What has changed
How it worked before
Many traders assumed that unbranded dried tobacco leaves were basic raw agricultural produce eligible for the 5% GST rate as long as no chemicals or flavors were added.
What has changed
The Delhi Authority for Advance Ruling (AAR) ruled in order 04/DAAR/2018 that post-harvest curing and drying changes the tax classification. The ruling places cured dried tobacco under HSN Code 2401 as unmanufactured tobacco taxable at 28% GST under Schedule IV. This means businesses selling dried or cured tobacco leaves must charge 28% GST rather than 5% GST.
Who this affects
Wholesale traders, suppliers, and distributors who buy, clean, and sell dried or cured tobacco leaves.
An example
A trader in Delhi buys harvested raw tobacco leaves, sun-dries them, and cleans out dust before selling them in bulk. The trader wants to know if they can charge 5% GST to buyers. Based on this ruling, the tax department views the sun-drying process as curing, requiring 28% GST to be charged on the sale.
What you should do
Traders selling cured tobacco should review their product classifications and tax rates. Note that an advance ruling binds only the specific business that applied for it and their tax authority. Other businesses cannot treat this ruling as an automatic law for their own transactions.
If you do nothing
If a business assumes this ruling covers them automatically or continues charging 5% GST without its own ruling, the local tax authority may issue a tax demand for the 23% shortfall. The business would also be liable to pay interest and tax penalties.
The terms explained
- Advance Ruling
- An official tax decision given by authorities to a specific business explaining how tax laws apply to their specific business situation.
- Input Tax Credit
- The tax a business pays on its business purchases that it can use to reduce the GST it owes on its final sales.
- Unmanufactured Tobacco
- Raw or cured tobacco leaves that have not been processed into finished consumer items like cigars or cigarettes.
The ruling in detail
Authority for Advance Ruling
Shri Shailesh Kumar Singh
ADVANCE RULING NO. 04/DAAR/2018 dated 06.04.2018 · Delhi
Questions before the authority
- Whether 'Dried Tobacco Leaves' on which cleaning and removal of unwanted particles (Bhusa, Dust etc.) has been done would be classified under Tariff Item/Heading 2401 as 'Tobacco Leaves' or 'All goods not specified elsewhere' as mentioned in Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017.
- Whether GST on such 'Dried Tobacco Leaves' on which cleaning and removal of unwanted particles (Bhusa, Dust etc.) has been done without any addition of foreign particles, would be levied @ 5% or 28% under Chapter No. 24 Tariff Item 2401 under Notification No. 01/2017 – Central Tax (Rate) dated 28.06.2017.
Facts
The applicant proposes to trade in unbranded 'Dried Tobacco Leaves' in the wholesale market. The goods are sourced from registered dealers who procure them directly from agriculturists and farmers. The applicant performs cleaning and removal of dust, straw, and unwanted particles (bhusa) without adding any flavor, essence, or foreign substances, and asserts that the product is unfit for direct human consumption.
Ruling
| Question | What the authority ruled |
|---|---|
| Classification and GST rate applicable to cured Dried Tobacco Leaves under HSN 2401 | Classified under HSN Code 2401 as **'unmanufactured Tobacco (other than Tobacco Leaves)'** under S. No. 13 of Schedule IV, taxable at **28% GST** (14% CGST + 14% SGST or 28% IGST). Cured dried tobacco leaves do not qualify for the 5% concessional GST rate under S. No. 109 of Schedule I. |
The Authority held that 'Dried Tobacco Leaves' which have undergone curing after harvesting fall under HSN Code 2401 as unmanufactured tobacco. However, because curing is a post-harvest process, the goods do not qualify as 'tobacco leaves' under S. No. 109 of Schedule I attracting 5% GST. Instead, they are classified under S. No. 13 of Schedule IV of Notification No. 1/2017-Central Tax (Rate) as **'unmanufactured Tobacco (other than Tobacco Leaves)'** taxable at **28% GST** (14% CGST + 14% SGST or 28% IGST).
Reasoning
The Authority referred to HSN Chapter 24 explanatory notes and CBEC Circular F. No. 332/2/2017-TRU, which restrict the concessional rate for 'tobacco leaves' under S. No. 109 of Schedule I (5% GST) to raw tobacco leaves as such, broken tobacco leaves, or tobacco leaf stems that have not undergone curing or fermentation. Since the applicant's goods undergo post-harvest curing processes such as sun-drying or air-curing, they no longer remain raw tobacco leaves in their natural state. Consequently, cured dried tobacco leaves fall under S. No. 13 of Schedule IV of Notification No. 1/2017-Central Tax (Rate), which covers 'unmanufactured tobacco (other than tobacco leaves)' and attracts 28% GST.
Provisions relied on
- Chapter Heading 2401 of HSN
- S. No. 109 of Schedule I, Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017
- S. No. 13 of Schedule IV, Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017
- CBEC Circular F. No. 332/2/2017-TRU dated December 2017
For the practitioner
This ruling establishes that the lower 5% GST rate for 'tobacco leaves' under Schedule I is strictly confined to uncured, raw tobacco leaves. Once tobacco leaves undergo post-harvest curing or drying, they are categorized as **unmanufactured tobacco (other than tobacco leaves)** and attract **28% GST** under Schedule IV, regardless of whether any additives or brand names are applied.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/delhi-order-4.pdf
Legibility of the scan, as read: high.
Prepared 16-10-2026.
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