- Finance Minister Sitharaman introduced the Health Security (National Cess) Bill, 2025 in Lok Sabha
- The bill replaces the GST Compensation Cess set to expire in March 2026 with a new pan masala cess
- The cess targets production capacity of pan masala machinery, including tobacco and non-tobacco types
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 Bill was tabled in the Lok Sabha for consideration and passage and will introduce a new cess that replaces the existing Compensation Cess under the GST framework.
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 'Healthy Security se National Security Cess Bill, 2025' was introduced for consideration and passage in Lok Sabha earlier this month. The bill marks serves as a pivot to India's fiscal policy as the GST compensation cess is set to expire in March 2026.
As part of the proposed legislation, the government is set to introduce a 'machine-based' levy, thus shifting the tax liability to the production capacity rather than sales volume.
The cess will apply to any entity that owns, operates, manages or controls the machinery used to manufacture specified tobacco and pan masala products.
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.
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.
The legislation also grants tax authorities sweeping enforcement powers, including the right to conduct scrutiny, audits, surprise inspections, and search and seizure operations to curb evasion in the sector. This could go a long way in adding more scrutiny in a largely ambigious sector.
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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