The Centre will implement a revised tax structure for cigarettes, tobacco products and pan masala from February 1, introducing additional excise duties and a new health and national security cess as part of efforts to tighten regulation and maintain high taxation on these products.
Under the new framework, cigarettes and tobacco products will attract an additional excise duty, while pan masala will be subject to a newly introduced health and national security cess. These levies will replace the existing taxation system, which included 28 per cent Goods and Services Tax (GST) along with a compensation cess that has been in force since the rollout of GST in July 2017.
The government has also moved to introduce an MRP-based valuation mechanism for several tobacco products, including chewing tobacco, filter khaini, jarda scented tobacco and gutkha. Under this system, GST will be calculated based on the maximum retail price printed on the product packaging, rather than the factory gate value.
Officials said the shift to MRP-based valuation is aimed at curbing tax evasion and strengthening revenue collection by reducing under-reporting of production values.
As part of the revised compliance framework, pan masala manufacturers will be required to obtain fresh registration under the newly notified health and national security cess law starting February 1. Manufacturers will also have to install closed-circuit television (CCTV) cameras covering all packing machines at their production facilities.
The new rules mandate that CCTV footage must be preserved for a minimum period of two years and made available to excise authorities when required. In addition, manufacturers will be required to provide detailed information to excise departments regarding the number of packing machines installed at their factories and their respective production capacities.
The revised framework also outlines provisions related to machine downtime. If any packing machine remains non-operational for a continuous period of 15 days, manufacturers will be eligible to claim a corresponding reduction in excise duty for that duration, subject to compliance with prescribed procedures.
Despite the introduction of new levies and compliance measures, the government has indicated that the overall tax burden on pan masala products will remain broadly unchanged. Including GST at 40 per cent, the cumulative tax incidence on pan masala is expected to stay close to the current level of approximately 88 per cent.
Officials said the restructuring is intended to strengthen oversight of the tobacco and pan masala sectors while ensuring tax neutrality in aggregate terms. The changes are part of broader efforts to regulate products classified as ‘sin goods’ and to improve transparency and accountability in their manufacturing and taxation.
The revised tax structure comes into force from February 1, marking a significant shift in how tobacco products and pan masala are taxed and monitored under the indirect tax regime.
