Overview of New Excise Duty and Cess on Tobacco Products and Pan Masala
The Ministry of Finance has announced that tobacco products and pan masala will be subject to additional excise duty and Health Security and National Security Cess from February 1. This move follows a series of notifications issued by the Ministry, building on approvals by Parliament last month.
Key Changes
- Tobacco products will incur duties above the existing 40% GST, except bidis, which remain in the 18% slab.
- Introduction of a capacity-based duty regime specifically for chewing tobacco, jarda-scented tobacco, and gutkha.
- Revised excise duty rates for various tobacco items, including cigarettes.
New Duty Framework
- The Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines Rules, 2026, dictate that duty is based on machine capacity rather than production volume.
- Excise duty for cigarettes ranges from ₹2,050 to ₹8,500 per 1,000 sticks, depending on type and size.
- Additional duties include a 279% ad valorem on smoking mixtures and 82% on chewing tobacco.
Compliance and Monitoring
- Manufacturers must declare packing machines and install CCTV, with footage stored for 48 months.
- Changes in machinery require prior notification and possible duty reassessment.
Input Tax Credit and Export Rules
- Manufacturers can claim CENVAT credit only on duty-paid bulk packs.
- No duty-free procurement for exports is allowed.
Health Cess
A new health cess will be levied based on pan masala production capacity to fund national priorities like health and security. Proceeds from excise duties are shared with states, enhancing state revenue through increased GST rate adjustments.
Industry Perspective
- Transition to RSP-based valuation and capacity-linked excise is seen as positive, enhancing fiscal clarity and addressing tax leakage.
- Tobacco Institute of India (TII) warns of adverse effects on farmers and MSMEs, and potential growth in illicit trade due to high tax hikes.
