Sales tax only on processed tobacco

The state government has decided against imposing sales tax on unprocessed tobacco. According to instructions given by the department of finance last week, the sales tax will be levied on processed tobacco and tobacco products only.

Principal secretary, finance, Manjula Subramanian, said: "There was a confusion relating to the interpretation of the circular sent by the central government. From now onwards sales tax would be levied only on processed tobacco. Unprocessed tobacco will not fall under purview of sales tax."

The department has sent new instruction to the sales tax department in this regard, she added.

Processed tobacco products are bidi, paste and chewing products such as guthka.

It may be recalled that in December, the state government had announced that it would charge sales tax at the rate of four per cent on tobacco. This followed a Supreme Court judgement that if tobacco is used for industrial production, the state government has powers to impose market cess.

The farmers argued that they are selling their tobacco to the manufacturers of tobacco products without processing and hence their produces should not be taxable.

The tobacco farmers usually sell their produce to tobacco product manufacturers that are mostly based in neighbouring Madhya Pradesh, Maharashtra and Karnataka. In Gujarat, tobacco is mainly grown in Anand and Kheda districts.