GST on tobacco
CA Poonam Gandhi

Updated on June 26th, 2023

‘Tobacco’ the name itself sounds so much hazardous to health. However, inversely, India is the second largest producer of tobacco and the third largest exporter of tobacco in the world. Figuratively, tobacco is a booming market and is likely to grow by 4.72% annually. 

Various taxes like National Calamity Contingent Duty, Goods and Services Tax, Compensation cess, etc. are levied on the tobacco industry. However, interestingly, even after categorizing cess rate on tobacco products and cigarettes under a 28% GST slab, the tax burden on the tobacco industry has not reached the minimum rate of 75% as recommended by World Health Organization (WHO).

The base of the tobacco is the tobacco leaves which are plucked from the plants. Such tobacco leaves, after being plucked, can either be traded or can be used for further processing/ manufacturing. Post introduction of Goods and Services Tax (GST), tobacco is brought under the taxable net right from the stage of tobacco leaves.

In the present article, we will deal with a short but highly buzzed tax implication of GST on tobacco purchased from the farmers.

GST on Tobacco : Applicability

GST on tobacco and GST rate applicability

Broadly speaking, tobacco can be categorized under the following two categories as per the GST rate notification no. 01/2017 – Central Tax (Rate) dated 28th June 2017

GST rate notification

Chapter heading

Description of Goods

Schedule and corresponding rates

109 of Schedule I


Tobacco leaves

Schedule I
Rate is 5% i.e. 2.5% under CGST and 2.5% under SGST

13 of Schedule IV


Unmanufactured tobacco; tobacco refuse (other than tobacco leaves)

Schedule IV
Rate is 28% i.e. 14% under CGST and 14% under SGST

After going through the above GST on tobacco is applicable, let us go through the relevant portion of reverse charge notification in order to understand the applicability of the same.

As we know, under GST, reverse charge is a mechanism through which GST is levied on the receiver/ purchaser instead of supplier of the goods.

Notably, 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.

GST on Tobacco : Latest Advance Ruling

GST on tobacco advance ruling

Recently, a judgement pronounced by the Gujarat Authority for Advance Ruling on 9th March 2023, in the case of M/s. JCP Agro Process P. Ltd., has created a lot of buzz in the trade and industry. The briefs of the case and rulings thereon are summarized hereunder


Details thereof

Facts of the matter

  • The applicant procures raw tobacco from the farmers and sells unmanufactured tobacco.
  • The applicant sells off some part of the product, as procured from the farmer, on as it is basis. The same is sold off without any further process. Whereas, some part is sold off after carrying out a certain process.

Relevant question involved in the matter

Mainly two questions were raised by the applicant. However, the relevant question here is whether the purchase of raw tobacco from the farmers (which includes naturally broken tobacco known as ‘tobacco leaves/ tobacco bhukko’) is covered under RCM (Reverse Charge Mechanism) or not.

Relevant provisions as discussed

As per notification no. 1/2017- Central Tax (Rate) dated 28th June 2017, tobacco leaves falling under Chapter 2401 is classified under Schedule I. Accordingly, a total of 5% GST is payable on the same i.e. 2.5% under CGST + 2.5% under SGST.

Now, as per notification no. 4/2017- Central Tax (Rate) dated 28th June 2017, reverse charge mechanism is applicable in the following manner

Chapter heading

Description of suply of goods

Supplier of goods

Receipt of the supply


Tobacco leaves


Any registered person

Thus, as and when tobacco leaves are purchased by the registered person from the agriculturist, GST gets payable by the registered person.

Relevant judgement

It is held that in case of an intra-state supply of tobacco leaves (falling under chapter 2401) by an agriculturist to any person registered under GST, GST is payable by the recipient under the reverse charge mechanism.

Notably, agriculturalist as defined under section 2(7) of the Central Goods and Services Tax Act, 2017 means –

‘an individual/ a Hindu Undivided Family, who undertakes cultivation of land by own labour/ by the labour of family/ by servants on wages payable in cash or kind/ by hired labour under personal supervision or supervision of any member of the family.

In nut-shell, GST @ 5% i.e. 2.5% under CGST + 2.5% under SGST is payable by the registered person under reverse charge on the purchase of tobacco leaves/ bhukko from the farmer.

Applicability of GST on tobacco purchased from the farmers

GST applicability on tobacco purchased from the farmers is summarized hereunder



Type of GST levy

Reverse Charge Mechanism

Circumstances when leviable

Reverse Charge is leviable when –

  • 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]

Thus, with a view to somewhat relieve the farmers/ agriculturist from the tax compliances, GST is made applicable on the registered purchaser of the tobacco leaves under reverse charge mechanism.


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CA Poonam Gandhi

About the author

Poonam Gandhi is a Chartered Accountant and a Lawyer, with practical experience of 9+ years in the field of Indirect Taxation.

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