GST Vidhi | GST Advance Ruling

Herbal Smokes / Classification and GST Applicability on Herbal Smokes / GST Rate on Herbal Smokes

·  Name of the Party: M/s Aorom Herbotech

·  Name of the Ruling Authority: Gujarat Appellate Authority for Advance Ruling (GAAAR), GST

·  Ruling No.: GUI/GAAAR/APPEAL/2024/06

·  Date of Ruling: 30.12.2024

·  Summary of Ruling:

• The case pertains to the classification and taxability of Aorom Herbal Smokes under GST.
• The Gujarat Authority for Advance Ruling (GAAR) earlier classified the product under HSN 2402 (Tobacco and Substitutes) and applied 28% GST + Compensation Cess of ₹4,006 per 1,000 units.
• The appellant challenged the classification, arguing that Aorom Herbal Smokes is an Ayurvedic product and should be classified under HSN 3004 (Medicinal Products), attracting a lower tax rate.
• The GAAAR upheld the GAAR ruling, confirming that Aorom Herbal Smokes is not a medicinal product and should be classified as a cigarette substitute under HSN 2402, making it liable for high GST and cess.

·  Facts of Advance Ruling:

• Aorom Herbotech manufactures nicotine-free, tobacco-free herbal smokes, marketed as an alternative to cigarettes.
• The product contains tendu leaves, nutmeg, fennel powder, liquid glucose, propylene glycol, sorbitol, menthol, and flavoring additives.
• The final product is packed into herbal cigarette-like tubes.
• The company claimed that the product is based on Ayurvedic principles and is used in traditional medicine.

·  Question Raised:

• Whether Aorom Herbal Smokes should be classified under HSN 3004 (Ayurvedic Medicinal Products) or HSN 2402 (Cigarettes and Substitutes)?
• What is the applicable GST rate and cess on the product?

·  Submission Made by Applicant:

• The product is not a cigarette or tobacco substitute but an Ayurvedic formulation used for treating respiratory ailments.
• The product does not contain nicotine or tobacco, differentiating it from traditional cigarettes.
• The packaging and form of the product should not determine its classification; its therapeutic use should be considered.
• The company sought a lower tax rate applicable to medicinal products under HSN 3004.
• They referred to Ayurvedic texts and practices to support their claim that herbal smokes are used in traditional medicine.

·  Relevant Sections:

• HSN 3004 (Medicinal Products): Covers Ayurvedic formulations intended for therapeutic or prophylactic use.
• HSN 2402 (Tobacco and Substitutes): Includes cigarettes, cigars, and tobacco substitutes, whether or not they contain tobacco.
• GST Notification No. 1/2017 – Central Tax (Rate): Specifies 28% GST for HSN 2402 products.
• Compensation Cess Notification No. 2/2017: Imposes an additional cess of ₹4,006 per 1,000 units for HSN 2402 products.

·  Discussion and Findings of Ruling Authority:

• The GAAR noted that Chapter Note 1(b) of HSN 30 specifically excludes products like chewing gum or patches intended to help people quit smoking.
• The appellant could not provide proof that their product was recognized as an Ayurvedic medicinal product under the Drugs and Cosmetics Act, 1940.
• The packaging, marketing, and consumer use of Aorom Herbal Smokes are identical to cigarettes, making them a cigarette substitute.
• The GAAAR confirmed that the product falls under HSN 2402 and is liable for high GST and cess.

·  Final Ruling and Conclusion:

• Aorom Herbal Smokes is classified under HSN 2402, not HSN 3004.
• The product is liable for 28% GST and ₹4,006 per 1,000 units as Compensation Cess.
• The appeal was rejected, and the original GAAR ruling was upheld.

Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.

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