GST on Tobacco and tobacco leaves under RCM

GST on Tobacco

GST on Tobacco and tobacco leaves: The word “tobacco” sounds very bad for the body. On the other hand, India is the world’s third-largest tobacco exporter and the second-largest tobacco producer. In a literal sense, the tobacco market is enormous and is projected to expand by 4.72% a year.

The tobacco industry is subject to a number of taxes, including the Goods and Services Tax, the Compensation Cess, and the National Calamity Contingent Duty. Interestingly, however, the tax burden on the tobacco industry has not yet reached the minimum rate of 75% as advised by the World Health Organization (WHO), despite the cessation rate on tobacco products and cigarettes being classified under a 28% GST slab.

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GST rate for all types of tobacco products is 28%, except for tobacco leaves. GST rate for tobacco leaves is 5% under reverse charge. As GST for tobacco leaves is applicable under reverse charge, the recipient of the goods is required to pay the GST applicable directly to the Government. For example, if a tobacco manufacturing unit purchases tobacco leaves from a farmer, the tobacco manufacturing unit would be required to pay GST at the rate of 5% directly to the Government.

This means that the GST will have to be paid directly by the receiver instead of the supplier. The registered buyer who has to pay GST under reverse charge has to do self-invoicing for the purchases made. In intra-state purchases, CGST and SGST have to be paid under reverse charge mechanism (RCM) by the purchaser.

GST rate notification	Chapter heading	Description of Goods	Schedule and corresponding rates
109 of Schedule I	2401	Tobacco leaves	Schedule I Rate is 5% i.e. 2.5% under CGST and 2.5% under SGST
13 of Schedule IV	2401	Unmanufactured tobacco; tobacco refuse (other than tobacco leaves)	Schedule IV Rate is 28% i.e. 14% under CGST and 14% under SGST

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Notification no. 04/2017 – Central Tax (Rate) dated 28th June 2017 deals with the provisions relating to the applicability of the reverse charge mechanism on specified goods. Accordingly, as per S. No. 3 [Chapter heading 2401], reverse charge is applicable in the case the following conditions are satisfied-

Condition 1– Goods involved are ‘tobacco leaves’ falling under chapter heading 2401
Condition 2– The supplier of the goods is an ‘agriculturist’; and
Condition 3– The recipient of the goods is any person registered under GST.

In nut-shell, when all the above three conditions are satisfied, the recipient i.e. GST registrant is liable to pay GST @ 5% [2.5% under CGST + 2.5% under SGST] on the purchase of tobacco leaves from the agriculturist.

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Applicability of GST on tobacco purchased from the farmer

Circumstances when GST leviable under RCM –

Goods supplied are tobacco leaves;
The purchaser of tobacco leaves is registered under GST; and
The supplier of tobacco leaves is a farmer/ agriculturist.

[Refer S. No. 3 of notification no. 04/2017- Central Tax (Rate) dated 28th June 2017]

Rate at which GST is payable 5% [2.5% CGST + 2.5% SGST] [Refer S. No. 109 of notification no. 01/2017- Central Tax (Rate) dated 28th June 2017]

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Rates of Compensation Cess for Tobacco and tobacco leaves

For the purposes of this notification, the phrase “brand name” means brand name or trade name. whether registered or not, that is to say, a name or a mark, such as symbol, monogram, label, signature or invented word or writing which is used in relation to such specified goods for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified goods and some person using such name or mark with or without any indication of the identity of that person.