Buying tobacco or pan masala? New Excise, Health Security se National Security Bills to bring these changes

Finance Minister Nirmala Sitharaman introduced two Bills in Lok Sabha on Monday, the first day of the Winter session of Parliament, aimed at levying cess on tobacco products and their manufacturing.

The finance minister introduced the Central Excise (Amendment) Bill, 2025, and the Health Security se National Security Cess Bill, 2025, in the Lok Sabha after Parliament convened following a brief adjournment till noon.

“It will augment the resources for meeting expenditure on national security and for public health, and to levy a cess for the said purposes on the machines installed or other processes undertaken by which specified goods are manufactured or produced, and for matters connected therewith or incidental thereto,” FM Nirmala Sitharaman told Parliament.

The Central Excise Amendment Bill, 2025 seeks to replace the GST compensation cess currently imposed on all tobacco products, including cigarettes, chewing tobacco, cigars, hookahs, zarda, and scented tobacco. Meanwhile, the Health Security se National Security Cess Bill, 2025 seeks to levy a cess on the production of specified goods, such as pan masala.

What changes do the new Bills make to your tobacco and pan masala purchases?

• The Central Excise Amendment Bill, 2025, aims to “to give the government the fiscal space to increase the rate of central excise duty on tobacco and tobacco products so as to protect tax incidence,” once the GST compensation cess ends, according to the Bill, as quoted by news agency PTI.
• After the Bill is passed in Parliament, the new law will principally reorganise the taxation of tobacco products by replacing the existing Goods and Services Tax (GST) compensation cess with a new central excise duty. The overall tax burden on these products is intended to stay the same, ensuring revenue neutrality for the government.
• The second Bill proposes a cess on machines installed or processes undertaken for the manufacture or production of specified goods, including pan masala and gutkha, according to a report by ANI.

“The Health Security se National Security Cess Bill proposes to levy cess on the machines installed or processes undertaken by which the specified goods, namely, pan masala, is manufactured or produced, whether manually or through hybrid processes,” as per the Bill.

• The bill classifies taxable persons as individuals or entities that own, possess, operate, or control machinery involved in producing specified goods, either directly or via workers or contracted parties.
• The cess will be payable regardless of production volume, with liability determined by machine speed, capacity, or process parameters declared by manufacturers.

“The cess is linked to the production capacity of machines or other processes rather than the quantity actually produced of such specified goods,” the Bill was quoted by the news agency.

• The Bill authorises the Centre to raise the cess by up to double the scheduled amount in certain special conditions and allows for exemptions via notifications in the public interest.
• The proposed law mandates registration, monthly returns, and rigorous audit and assessment procedures. It also establishes a broad penalty framework for non-compliance, including imprisonment for serious offences such as fraud, evasion, or falsification of records.
• The Bill also outlines detailed provisions for search, seizure, and confiscation of goods and machines, as well as arrest powers for specified officers.

Where will the funds go?

Funds collected through the cess will be deposited into the Consolidated Fund of India and can be used, subject to Parliamentary approval, for activities and schemes related to national security and public interest health.

(With inputs from agencies.)