ORDER

BRIEF FACTS:

M/s. Aorom Herbotech, the applicant submits that it supplies ‘Aorom Herbal Smokes (regular)’, herein after referred to as goods for sake of brevity. The applicant submits that its goods are a new initiative for better health and that HSN of the subject goods is 30049011.

HSN		Goods Description.
30049011	—	MEDICAMENTS (excluding goods of heading – 3002, 3005 OR 3006) Consisting of Mixed OR Unmixed Products for Therapeutic OR Prophylactic uses. Put – up in measured does (including those in the Form of Transdermal Administration Systems) OR in Forms OR Packings for Retail Sale Other, Ayurvedic, Unani, Homoeopathic, Siddha, OR Bio – Chemic Systems Medicaments Put – up for Retail – Sale of Ayurvedic System.

2. The following ingredients are used in Manufacturing Process.

Tendu leaves, Nutmeg, Fennel powder, Liquid glucose, Propylene glycol, Sorbital, Menthol, Baking soda, Flavoring additive (Clove, paan, mint, chocolate, vanilla etc.), Empty paper tubes with filter.

Process:

(1) Leaves washing

The Leaves are first washed in a vacuum washed at applicant’s facility, and they are kept in the water for overnight before processing further.

(2) Leaves Cutting

The leaves that are kept in water overnight are drained off water and then cut in the fine size of: 0.8 mm to 1.0 mm.

(3) Leaves Drying

These cut-rags are then dried in a natural setting. The drying takes about 2 – 3 hours.

(4) Base flavouring

For each kilogram of dried leaves, a mixture of 4 liters of water, 200 grams of nutmeg powder, 200 grams of fennel powder and 8 grams of baking soda is heated on a medium flame on a stove for half an hour. After filtering this mixture, the leaves are dampened in it for about half an hour.

(5) Roasting

After half an hour, these leaves are squeezed off the mixture and then put into the roasting machine where they are given even heat till they attain 0% moisture.

(6) Flavouring

The roasted leaves are then put into the mixture where for each kilogram; 50 grams of PG, 200 grams of liquid (1000 g water: 550 g Liquid Glucose), 1 g menthol, 3 g Sorbitol and 5 g of flavouring additive is added and mixed for about half an hour. After this process the material is ready to inject / ready for herbal smokes making.

(7) Injection

The processed material is then injected in the empty paper tube with filter. This is how herbal smoke is made. Then, these herbal smokes are packed into the final packing of 10 herbal smokes / 20 herbal smokes a pack, ready to be sold.

3. The applicant submits that herbal smoking is an ancient practice to cure many diseases from root mentioned in Ayurveda; this practice is named as dhumapana; it is still a common practice in ayurvedic treatments / therapy such as Panch-Karma and is done by ayurvedic M. Ds as a medicine to many diseases.

4. The applicant submits the following are the reasons to smoke Aorom herbotech Cigarette.

No Nicotine.	No Tobacco.	No Additives.
Boosts Immunity.	Relives Stress.	Stimulates Digestion.
Helps User – Quit – Smoking.	Safer in Moderation.	Odour Free.

5. Question on which Advance Ruling sought

1. Determination of the liability to pay Tax on Sales of Aorom Herbal Smokes – (regular flavour) as per Tax Invoice No.: AH/GST/80 dt. 07/06/2021 made to : M/s. Sonde Exim Pvt. Ltd., Lohegon – Meharashtra, regarding. – IGST.

2. Determination of the liability to pay Tax on Sales of Aorom Herbal Smokes (regular flavour) as per Tax Invoice enclosed herewith of Gujarat Sales regarding CGST and SGST.

Personal Hearing

6. Personal hearing was accorded on 23-9-21 but applicant vide letter dated 20-9-21 requested for adjournment. Shri Surendra Modi, Advocate appeared for the hearing (virtual mode) on 21-10-21 and reiterated the contents of the application.

FINDINGS

7. At the outset, we would like to state that the provisions of both the CGST Act and the GGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the GGST Act.

8. The subject matter hinges on the Classification of said goods to determine its tax rate.

9. Revenue has not submitted its comments.

10. M/s Aorom in its application submitted that the subject goods are packed into final packing of 10 herbal smokes/ 20 herbal smokes a pack. M/s Aorom classifies its products at HSN 30049011. We note that HSN Chapter 30 pertains to Pharmaceutical Products and item code 30049011 pertains to Ayurvedic medicaments.

10.1 We refer to Section Note 1 (b) to Ch. 30 of Customs Tariff Act which reads as follows:

Section Note of Chapter 30

1. This Chapter does not cover:

(b) Preparations, such as tablets, chewing gum or patches (transdermal systems) intended to assist smokers to stop smoking.

As per the cited section Note to chapter 30, preparations intended to assist smokers to stop smoking are excluded from this Chapter. The Section Note to Custom Tariff Act, 1975 is a part of the Parliamentary Act and is a statutory provision. Classification as per Custom Tariff Act is as per HSN. It is thereby the intention of the Legislature to exclude herbal smokes/cigarettes from Chapter 30.

10.2 Further, we refer to Section 3(a) of Drugs and Cosmetics Act, 1940, which reads as follows:

Section 3(a): In this Act, unless there is anything repugnant in the subject or context, –

(a) “Ayurvedic, Siddha or Unani drug” includes all medicines intended for internal or external use for or in the diagnosis, treatment, mitigation or prevention of disease or disorder in human beings or animals, and manufactured exclusively in accordance with the formulae described in, the authoritative books of Ayurvedic, Siddha and Unani Tibb systems of medicine, specified in the First Schedule.

M/s Aorom has not made a case before us that subject goods are ayurvedic medicines manufactured in accordance with the Authoritative Ayurvedic Books as specified in the First schedule to the Drugs and Cosmetics Act.

10.3 Also, as per common parlance, we are of the opinion that a user in the market buying these goods does so as cigarettes without Tobacco/ Nicotine and not as an ayurvedic medicament. The popular sense/ common parlance in the market cannot be brushed aside. Thereby We hold that applicant’s proposed HSN 3004 does not apply to subject goods.

11. M/s Aorom submitted a Certificate of Analysis dated 23-6-2021, wherein the product name is ‘Cigarettes Sample’ and it was analysed that Nicotine was not detected in these cigarettes. It is forthcoming from the submissions of the applicant that these goods are cigarettes without Tobacco/ Nicotine. Thereby, these cigarettes are Tobacco substitute cigarettes. We draw our attention to HSN 2402, reproduced as follows:

2402- Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitute

2402 90 – Other :

2402 90 10 — Cigarettes of tobacco substitutes

12. We find that the subject cigarettes have specific entry at HSN 24029010 as Cigarettes of tobacco substitutes. We hold that Classification of goods under GST is based on HSN. The Customs Tariff is based on HSN. The general Interpretative Rules are to be sequentially followed as the way to classify the goods. We are to classify within the confines of law and procedure as laid down in GST scheme of law and procedure. The Section notes of Custom Tariff are part and parcel of the Custom Tariff Act, 1975 which is to say, part and parcel of law enacted by the Parliament and therefore, we are obliged to follow the classification based on Section Notes as per law. As per Rule 1 of the General Rules for the Interpretation of CTA, 1975, for legal purposes, classification shall be determined according to the terms of the headings and any Section or Chapter Notes. We shall follow the same in arriving at our pronouncement for Ruling in subject matter. The subject goods find their specific description as ‘cigarettes of tobacco substitutes’ at HSN 20029010. The Explanatory notes to HSN have guidance value to classify goods. The Explanatory Notes [ page IV-24-I] to Chapter 24 specifies that this Chapter covers not only unmanufactured and manufactured tobacco but also manufactured tobacco substitutes which do not contain tobacco.

13. We note that the Cigarettes of tobacco substitutes are covered at Sr. No.14 of Schedule-IV to Notification 1/2017-CT (R) dated 28-6-2017, liable to CGST @14%. Further, the GST Compensation Cess on Cigarette of Tobacco Substitutes is leviable, vide Sr. No. 16 of Not. No. 1/2017- Compensation Cess (R) dated 28-6-17, as follows:

16.

2402 90 10

Cigarettes of tobacco substitutes

₹ 4006/- per thousand

14. We pass the Ruling:

R U L I N G

The said goods are leviable to:

1. 28% IGST on inter state supply along with Compensation Cess of ₹ 4006 per thousand.

2. 14% CGST + 14% SGST on intra state supply along with Compensation Cess of ₹ 4006 per thousand.