Processed Raw Tobacco Confining Activity to Preservation Falls

Processed Raw Tobacco Confining Activity to Preservation Falls Under Unmanufactured Tobacco Heading 2401

Issue

Whether processed tobacco leaves that are stemmed, de-dusted, and treated with jaggery-water to prevent decay qualify as “Unmanufactured tobacco” under CETH 2401 20 90, or if they must be classified as manufactured “Other” tobacco under CETH 2403 99 10.

Facts

The appellant is an entity engaged in trading raw, dried tobacco leaves sourced directly from agricultural growers and dealers.
During the handling process, the stems and dust are removed from the leaves, and the remaining leaves are liquored with a mixture of jaggery and water solely to prevent decay and degradation.
Following this preservation process, the treated tobacco leaves are cut and packed, with the final product being sold as cut tobacco.
The appellant sought a classification ruling, claiming the goods fall under Central Excise Tariff Heading (CETH) 2401 20 90 as unmanufactured tobacco.
The Revenue Department contested this layout, claiming the processing transformed the product into a manufactured variant under CETH 2403 99 10.
The Authority for Advance Ruling (AAR) classified the product under Heading 2403, a decision subsequently affirmed by the Appellate Authority for Advance Ruling (AAAR).
A single judge of the High Court dismissed the appellant’s writ petition against the advance ruling, leading to the filing of the present writ appeal.

Decision

Held, yes: While advance rulings generally bind the applicant and the scope of judicial review over them is narrow, judicial interference is fully warranted to prevent legal disparities.
Held, yes: A coordinate bench of the High Court in a similar case (WA(MD) No. 746 of 2021) had already placed identical goods under CETH 2401 20 90, provided the processing is limited to preservation.
Held, yes: The appellant’s preservation activities remained strictly within the boundaries of permissible processing approved by historical judicial precedent in Pachiappa Chettiar v. State of Madras.
Held, yes: Allowing the lower advance rulings to stand would create an invidious disparity in tax and cess liabilities for similarly situated traders, directly breaching the constitutional principle of equality.
In favour of assessee: The orders of the AAR, AAAR, and the single judge are set aside, the goods are officially classified under CETH 2401 20 90, and the writ appeal is allowed.

Key Takeaways

Preservation is Not Manufacturing: Cleaning, de-stemming, and adding basic organic solutions like jaggery-water to keep tobacco leaves from rotting does not change the core identity of the product or turn it into a manufactured item.
Parity and Equality in Customs/GST Classification: Tax authorities cannot apply different tariff classifications to identical goods processed in the same manner by different dealers, as this creates unequal tax burdens and market distortions.
Precedents Override Advance Rulings: An advance ruling can be set aside by a High Court if it contradicts a binding division bench judgment on the same product, ensuring consistency in tax administration.

HIGH COURT OF MADRAS

Arumugam

Commissioner of GST & Central Excise^*

G.R. SWAMINATHAN and K. Rajasekar, JJ.

W.A.(MD) No.1988 of 2025

APRIL 17, 2026

V. Raghavachari, Senior Counsel and Joseph Prabakar for the Appellant. R. Nandakumar, Central Government Standing counsel for the Respondent.

JUDGMENT

G.R.SWAMINATHAN, J.- The appellant herein is engaged in tobacco business. The sequence of activities undertaken by the appellant have been described in Paragraph 7 of the affidavit filed in support of the writ petition as follows :

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Raw dried tobacco leaves are purchased from wholesale dealers/growers.

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Stems and dust particles are removed.

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Then the leaves are cured using jaggery-water for the purpose preventing the leaves from moulding or further decaying, which is called as liquoring.

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Thereafter, the leaves are cut into small pieces in a cutting machine.

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Then the cut leaves are packed in pouches/pottalams.

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The pouches are then supplied for sale under the brand name Kulavi’s Kavi cut tobacco.

2 .The case of the petitioner was that the product made by him would fall under CETH 2401 20 90. The case of the department was that the appellant’s product is classifiable only under CETH 2403 99 10. Since the assessing authority did not agree with him, he moved the advance ruling authority which held that the product in question would get classified as “manufactured chewing tobacco” falling under HSN 24 03. Questioning the same, the appellant herein moved the Tamil Nadu State Appellate Authority for Advance Ruling. The said authority vide order dated 29.09.2020 declined to interfere with the order of the Advance Ruling Authority. Challenging the same, the appellant filed WP(MD)No.204 of 2021. This writ petition was taken up along with other writ petitions and by a common order dated 24.10.2024, it was dismissed. Assailing the same, this writ appeal has been filed.

3 .Heard the learned Senior Counsel for the appellant.

4 .The learned standing counsel is right in his submission that when once advance ruling was sought and obtained, the assessee is bound by the same and that the scope for judicial review is highly limited.

5 .An assessee under the GST laws is entitled to seek advance ruling from the Authority for Advance Ruling and if aggrieved by its decision, move the Appellate Authority for Advance Ruling. The provisions relating to this are set out in Chapter XVII of the CGST Act, 2017. Section 95(a) of the Act defines “advance ruling” in the following terms :

“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”

Advance ruling may be sought in respect of the following questions :

“(a) classification of any goods or services or both;

(b) applicability of a notification issued under the provisions of this Act;

(d) admissibility of input tax credit of tax paid or deemed to have been paid;

(e) determination of the liability to pay tax on any goods or services or both;

(f) whether applicant is required to be registered;

(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.”

As per Section 103(1) of the Act, the advance ruling pronounced by the Authority or the Appellate Authority shall be binding only on the applicant and the concerned officer or the jurisdictional officer.

6. Question may arise if the applicant, though declared to be statutorily bound by the advance ruling, can challenge it. The answer is in the affirmative. It has been held that an advance ruling can be assailed by filing a petition under Article 226/227 of the Constitution of India before the jurisdictional High Court. The scope for judicial review is rather minimal and limited. The High Court cannot function as an appellate body. It can only exercise the power of judicial review. The High Court would be more concerned with the process adopted by the authority than with the decision itself. While exercising the powers of judicial review, the court will see whether the authority acted within its jurisdictional limits, committed errors of law, adhered to the principles of natural justice or acted in breach thereof and whether the decision is perverse or not. If two views are possible, a court sitting in judicial review shall not exercise its discretion in favour of an alternate view to that of the authority Dabur India Ltd. v. Commissioner of CGST 78 GST 219/34 GSTL 9 (All)/2020 SCC OnLine All 36.

7 .In Income Tax Act, 1961 also, there are provisions relating to advance ruling in Chapter XIX-B. Section 245S states that the advance ruling shall be binding on the applicant who had sought it in respect of the transaction in relation to which the ruling had been sought and on the jurisdictional Principal Commissioner or Commissioner and the I.T authorities subordinate to him. Section 245W was inserted by the Finance Act, 2021 w.e.f 01.04.2021 and it provided for an appeal to the High Court. Earlier, there was no such provision. The Hon’ble Supreme Court in Columbia Sportswear Company v. DIT 346 ITR 161 (SC)/(2012) 11 SCC 224 held that an advance ruling can be challenged before the High Court under Articles 226 or 227 of the Constitution and that the binding effect set out in the statutory provision would not bar the jurisdiction of the constitutional courts to entertain a challenge to the advance ruling. The discussion in this judgment might have become academic since the I.T Act provides for an appeal to the High Court itself. But then, the opinion of the Hon’ble Supreme Court that when an advance ruling of the Authority is challenged before the High Court under Articles 226/227 of the Constitution, the same should be heard directly by the Division Bench of the High Court and decided as expeditiously as possible, would hold good. We, therefore, direct that when the advance ruling of the Authority or the Appellate Authority is challenged by filing writ petition, it shall be listed straightaway before the Division Bench and not before any single Judge bench. Not doing so would run counter to what has been laid down in Colombia Sportswear Co.

8.The issue raised by the appellant herein was raised by the appellant in WA(MD)No.746 of 2021 also. They are engaged in making similar kinds of tobacco products. Both are adopting the very same processes. In the other writ appeal, we have held that the goods dealt with by the appellant would fall under CETH 2401 20 90 provided they continue to confine their activity to what was approved in Pachiappa Chettiar v. State of Madras [1963 (2) MLJ 71] The decision of the Authority is otherwise. If the impugned decisions of the Authorities are allowed to stand, that would result in an invidious situation. Persons similarly placed would be paying compensation cess at different rates for similar products. That would be an egregious breach of the equality principle. It is in this view of the matter, we set aside the orders impugned in the writ petition as well as the order of the learned Single Judge.

9 .The writ appeal stands allowed. No costs. Connected miscellaneous petition is closed.