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The Lok Sabha passed the Health Security National Cess Bill, 2025, taxing pan masala production
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The new cess replaces the existing GST Compensation Cess and funds public health and security
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Cess is based on machinery speed, pack weight, or manual processes, applying to all producers
The Lok Sabha on Friday passed the The Health Security se National Security Cess Bill, 2025, that will levy a special cess on pan masala. The Bill will introduce a new cess that replaces the existing Compensation Cess under the GST framework.
The proposed law will create a clear legal framework for a special excise cess. The Bill proposes to levy a cess on the machinery installed or the processes undertaken for the manufacture or production of pan masala or other proscribed goods, manually or through hybrid processes.
The proceeds of this cess will flow into the Consolidated Fund of India and will support the government in meeting expenditure related to national security and public health. Initially the Bill is applicable to pan masala, however, the government may notify to extend the cess to other goods, if necessary.
As per the bill's factsheet, the cess will apply to any person who owns/operates/controls machines or processes manufacturing specified goods as given, regardless of tax status, as prescribed.
The tax will be bomputed by maximum rated speed (pouches/tins per minute) and weight per pack, or manual process flat rate, as prescribed.
An Enforcement Framework will include search, inspection, seizure, confiscation of goods and machinery, recovery of dues, penalties, and arrest in severe contraventions, has been provided to safeguard revenue.
This is done in order to close out a common loophole and establish that the person controlling the machine remains liable, even if the production gets outsourced to job workers.
Finance Minister Nirmala Sitharaman on Thursday clarified that the primary intent behind the newly introduced Health Security (National Cess) Bill, 2025 is to levy a tax specifically on the production capacity of pan masala, a category the government says cannot be effectively brought under the conventional excisable regime.
The Finance Minister explained that pan masala, including both tobacco and non-tobacco variants, operates in a segment where traditional excise mechanisms do not adequately capture actual production or market value. Issues such as underreporting, complex manufacturing formats, and challenges in tracking output have made it difficult to tax the sector efficiently through GST-linked excise structures.
The bill serves as a pivot to India's fiscal policy as the GST compensation cess is set to expire in March 2026.
The government has a plan to enforce strict compliance as well, mandating that every taxable entity must register their equipment and file declarations regarding machine capacity.
As such, manufacturers must submit monthly self-assessed returns and remit the cess payment by the 7th of each month.
In a provision granting the government significant fiscal flexibility, the bill allows the Centre to temporarily double the cess rate "in the public interest."
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