2025 Supreme(Online)(Guj) 13396
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
BHARGAV D. KARIA, J,PT
PATEL PRODUCTS – Appellant
Versus
UNION OF INDIA – Respondent
R/SPECIAL CIVIL APPLICATION NO. 2407 of 2025 | R/SPECIAL CIVIL APPLICATION NO. 2463 of 2025 | R/SPECIAL CIVIL APPLICATION NO. 3629 of 2025 | R/SPECIAL CIVIL APPLICATION NO. 3657 of 2025 | R/SPECIAL CIVIL APPLICATION NO. 5014 of 2025 | R/SPECIAL CIVIL APPLICATION NO. 5015 of 2025
Petitioner Advocates:MR DIGANT M POPAT(5385) ,Respondent Advocate: MR ANKIT SHAH(6371)
Under the GST Act, processing tobacco leaves into retail pouches for chewing results in 'chewing tobacco' (CTH 2403) even without fermentation, but extended limitation under section 74 requires fraud or suppression; bona fide classification under old regime limits demand to normal period.
Headnote:(A) Central Goods and Services Tax Act, 2017 - Section 2(72) (definition of 'manufacture'), Sections 73, 74; Central Excise Act, 1944 - Section 2(f); Customs Tariff Act, 1975 - First Schedule; Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Administration) Act, 2003 - Sections 3(k), 3(p), 7; HSN Explanatory Notes to Chapter 24; Board Circulars F. No. 81/5/87-CX.3 dated 23.06.1987 and F.No.81/01/2015-CX-3 dated 01.04.2015.
(B) The definition of 'manufacture' under section 2(72) of the CGST Act requires processing of raw material or inputs that results in emergence of a new product having a distinct name, character and use. Even without adding ingredients, the process of drying, cleaning, sieving, sizing, cutting and repacking tobacco leaves from bulk to retail pouches results in a product that is 'chewing tobacco' under Tariff Heading 2403 9910. The HSN Explanatory Note describing chewing tobacco as 'usually highly fermented and liquored' does not exclude unfermented, non-liquored products. The COPTA definition of 'production' includes repacking from bulk to retail packages as production of chewing tobacco.
(C) Circulars and clarifications under the erstwhile Central Excise regime, which classified such products under CTH 2401 as 'unmanufactured tobacco', are not binding under the GST regime due to the change in the definition of 'manufacture'. However, the extended period of limitation under section 74 of the CGST Act cannot be invoked when the petitioner had a bona fide classification based on settled practice under the old regime; the demand should be limited to the period under section 73.
Facts of the case:
The petitioners, suppliers of non-fermented, non-liquored crushed tobacco leaves packed in small retail pouches, had classified their product under Customs Tariff Heading 2401 as 'unmanufactured tobacco' and paid GST at 28% and compensation cess at 71%. Following investigations, the respondent authorities issued show cause notices proposing reclassification under CTH 2403 as 'chewing tobacco' attracting higher rates, invoking the extended period under section 74 of the CGST Act. In some petitions, demands were also raised under the Central Excise Act for the pre-GST period. The petitioners challenged the orders-in-original passed by the adjudicating authority.
Findings of Court:
The Court held that under the GST regime, the product is correctly classified under CTH 2403 9910 as 'chewing tobacco' because the processing undertaken (drying, cutting, sieving, repacking) results in a new product with a distinct name, character and use for chewing. The HSN Explanatory Note and the COPTA provisions support this conclusion. However, the extended period under section 74 was not justified as the petitioners had acted bona fide under the old regime; the order is deemed to have been passed under section 73, and the demand shall be recomputed accordingly. For the Central Excise demands, the classification under CTH 2401 was correct under the Central Excise Act, and those demands cannot be sustained.
Issues: 1. Whether the product (non-fermented, non-liquored crushed tobacco leaves in retail pouches) is classifiable under CTH 2401 as 'unmanufactured tobacco' or under CTH 2403 as 'chewing tobacco' for the purpose of GST. 2. Whether the extended period of limitation under section 74 of the CGST Act was validly invoked. 3. Whether the demands under the Central Excise Act for the pre-GST period were sustainable.
Ratio Decidendi: The definition of 'manufacture' under section 2(72) of the CGST Act differs from that under the Central Excise Act. Under GST, processing that gives a product a distinct name, character and use amounts to manufacture. The petitioners' product, intended for chewing and bearing statutory warnings under COPTA, is 'chewing tobacco' under CTH 2403 even without fermentation or liquoring. However, because the classification under CTH 2401 was historically accepted and no fraud or suppression was proved, the extended period under section 74 cannot be applied; the demand is limited to the normal period under section 73. Under the Central Excise Act, the product remained 'unmanufactured tobacco' as per binding circulars, so no duty is payable. Result : Petitions disposed of. For GST cases (Special Civil Application Nos.2407, 2463, 3629, 3657 of 2025), the classification under CTH 2403 9910 is sustained, but the order is deemed under section 73; respondent to recompute liability without extended period. For Central Excise cases (Special Civil Application Nos.5014 and 5015 of 2025), petitions allowed and demands set aside. Rule made absolute to the aforesaid extent. No order as to costs.
Reserved On : 10/10/2025 Pronounced On : 19/12/2025 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 2407 of 2025 With R/SPECIAL CIVIL APPLICATION NO. 2463 of 2025 With R/SPECIAL CIVIL APPLICATION NO. 3629 of 2025 With R/SPECIAL CIVIL APPLICATION NO. 3657 of 2025 With R/SPECIAL CIVIL APPLICATION NO. 5014 of 2025 With R/SPECIAL CIVIL APPLICATION NO. 5015 of 2025 FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA and HONOURABLE MR. JUSTICE PRANAV TRIVEDI ==========================================================
Approved for Reporting Yes No ✓
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PATEL PRODUCTS & ANR.
Versus UNION OF INDIA & ORS.
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Appearance:
MR MIHIR JOSHI, SENIOR ADVOCATE WITH MR DIGANT M POPAT, MR ANANDODAYA S MISHRA, MR ANAND NAINAWATI for the Petitioners MS HETVI H SANCHETI, MR ANKIT SHAH, MR MAUNIL YAJNIK, MR TIRTH NAYAK, MR NEEL P PAKHANI, MR C.B. GUPTA for the Respondent(s) No. 2,3 ==========================================================
CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA and HONOURABLE MR. JUSTICE PRANAV TRIVEDI
CAV JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Advocate Mr.Mihir Joshi with learned advocate Mr.Digant M. Popat, learned advocate Mr.Anandodaya S. Mishra and learned advocate Mr.Anand Nainawati for the respective petitioners and learned advocate Ms.Hetvi H. Sancheti, learned advocate Mr.Ankit Shah, learned advocate Mr.Maunil Yajnik, learned advocate Mr.Tirth Nayak, learned advocate Mr.Neel P. Lakhani and learned advocate Mr.C.B.Gupta for the respective respondents.
2. Rule returnable forthwith. Learned advocate Ms.Hetvi H. Sancheti, learned advocate Mr.Ankit Shah, learned advocate Mr.Maunil Yajnik, learned advocate Mr.Tirth Nayak, learned advocate Mr.Neel P. Lakhani and learned advocate Mr.C.B.Gupta waives service of notice of rule on behalf of the respective respondents.
3. This group of petitions pertain to issue of classification as to 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 (For short “the GST Act”).
4. In view of similar issue raised in these petitions, same were heard analogously and are being disposed of by this common judgment.
FACTS:
5. Facts of Special Civil Application No.2407 of 2025 are that the petitioner is doing business of supplying raw, unmanufactured and unprocessed tobacco without lime tube under the brand name “OM SPECIAL PANDHARPURI TAMBAKKU NO.1” (here- in-after referred to as “the subject goods”) 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 (for short ‘Tariff Act’). 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”.
6. It is the case of the petitioner that Ministry of Finance vide letter bearing F.No.81/01/2015-CX-3 dated 01.04.2015 further clarified that “unmanufactured tobacco” sold in small packs under brand name would be classifiable under Chapter Sub Headi
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