The government on Thursday notified that additional excise duty on tobacco products, and a health cess on pan masala will be levied effective Feb. 1.
The new levies on tobacco and pan masala will be over and above the GST rate and will replace the compensation cess which is currently being levied on such 'sin goods'.
From Feb 1, pan masala, cigarettes, tobacco and similar products will attract a GST rate of 40%, while 'bidis' will attract 18% Goods and Services Tax (GST), according to a government notification.
On top of this, a Health and National Security Cess will be levied on pan masala, while tobacco and related products will attract additional excise duty.
The Finance Ministry on Wednesday also notified the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026.
In Dec. 2025, the Parliament approved two Bills that allowed the levy of the new Health and National Security Cess on pan masala manufacturing and the excise duty on tobacco.
However, the government on Wednesday notified that Feb. 1 will be the implementation date for these levies and the current GST compensation cess, levied at varying rates, will cease to exist after Feb.1.
Govt's Clarification On Excise Duty
A thing to note is that the Health Security Se National Security Cess Bill, 2025 introduces the shift to a capacity-based cess because the levy depends on installed machine capacity rather than reported production.
The reason for this is that it curbs manipulation through undeclared or intermittently run packing machines, stabilises market conditions, and ensures that revenue to both the Centre and States is protected, the government notified.
How Will Excise Duty Payable Be Calculated?
As per Section 3A of the Central Excise Act, the manufacturer is required to pay the excise duty based on the determined annual capacity of production.
However, pending verification of the declaration filed, the manufacturer will also have to pay the duty based on the retail sale prices of the pouches manufactured during the month and the maximum rated speed, in pouches per minute, of the packing machine.
For example, if the maximum rated capacity of the machine producing chewing tobacco is 500 pouches and the RSP is Rs 2, the rate of duty per packing machine per month shall be Rs. 0.83 crores.
If the maximum rated capacity of the machine producing chewing tobacco is 500 pouches and the RSP is Rs 4, the rate of duty per packing machine per month shall be Rs 1.52 crores (higher of Rs 0.83 crores or 0.38*RSP is to be taken)
It should be noted that if a manufacturer registers after Feb.1 installs machines and starts production on the 10th of a month, he will still have to pay the duty fully for the entire month in which the machines have been installed, as per the said Rule 13(3).
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