Dr. Sanjiv Agarwal, (2026) 38 Centax 87 (Article)
The Central Government had introduced two new Bills in the Loksabha on 1st December 2025, the first day of the current monsoon session of the Parliament. These Bills are Health Security se National Security Cess Bill, 2025 and Central Excise (Amendment) Bill, 2025 to levy a new cess on pan masala and to impose additional levy on cigarettes and other tobacco products. These shall enable the Union Government to collect revenue from ‘sin goods’ to compensate for cess to be forgone and funding of expenditure on public health and national security measures. Till now, a cess was levied on such products w.e.f. 01.07.2017 which was shared with states to make good the revenue loss due to introduction of GST in the country. Further, Central Excise (Amendment) Bill, 2025 aims to replace existing tariff table for tobacco and various tobacco products.
When GST was introduced from July 2017, the Union Government had surrendered its power to levy tax (excise duty) on tobacco and tobacco products to enable the collection of compensation cess during the initial five years of GST. This right was ceded to the GST Council so that compensation cess could be levied and collected on items taxed @28%. This cess was collected from 2017 to 2022 and also transferred to the states as per agreed formula. What was conceded by Union in 2017 has been reverted back to it on cess going away. In fact, pre-GST rates of duties were higher but in GST era, while excise duty remained minimal, compensation cess did played a role in revenue collection.
To amend Central Excise Act, 1944 for new duties, there is now a new law to enable levy of higher duties on tobacco and tobacco related products w.e.f. notified date. The Ministry of law and justice, Government of India has notified the enactment of the Central Excise (Amendment) Act, 2025 after the assent of President of India as an Act No. 34 of 2025 w.e.f. 11 December, 2025 to amend the Central Excise Act, 1944.
According to the statement of objects and reasons of the Bill, compensation cess levied on tobacco and tobacco products, wherever applicable, will be discontinued once interest payment obligations and loan liabilities under the compensation cess account are completely discharged. In order 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, it is imperative to amend the table in Section IV of the Fourth Schedule to the said Act.
The Amendment Act provides for the levy and collection of central excise duties on goods manufactured or produced in India. Central excise duties on many items were repealed with the introduction of the Goods and Services Tax (GST) in 2017, except for certain items such as tobacco and tobacco products. Along with GST, GST compensation cess was also introduced on products such as tobacco to compensate states for revenue loss due to the introduction of GST. Thus, tobacco and tobacco products are currently prior to new amendment, subject to GST, compensation cess, and central excise duty. The compensation cess is planned to be discontinued. The new amendment aims to revise the rate of central excise duty on tobacco and tobacco products to keep taxes on these products at the existing level.
The Amendment Act increases central excise duty on unmanufactured tobacco, manufactured tobacco, tobacco products, and tobacco substitutes. For example, it raises the duty on unmanufactured tobacco (such as sun-cured tobacco leaves) from 64% to 70%. While the Act levies an excise duty ranging between Rs 200 and Rs 735 per thousand cigarettes, the enhanced duty under the Bill ranges between Rs 2,700 and Rs 11,000 per thousand cigarettes.
The Fourth Schedule of the Central Excise Act, 1944, has been amended by substituting an updated table of excise duties for all tobacco-related products- Unmanufactured and stemmed/stripped tobacco will now attract a uniform 70% duty, while tobacco refuse is set at 60%. Cigars, cigarettes, and cigarillos receive revised specific or ad-valorem duty rates depending on type and length. Manufactured tobacco products, including chewing tobacco, snuff, smoking mixtures, and nicotine products, face significantly increased duty slabs up to 125%.
The Act will also not harm tobacco farmers and beedi workers. There are many schemes, including crop diversification scheme, to take care of tobacco farmers, to encourage them to move to other crops from tobacco. More than 1.12 acres of land have been shifted to other crops from tobacco cultivation to other crops between 2017-18 to 2021-22. There are 49.82 lakh registered beedi workers in the country and labour welfare welfare schemes are being implemented across the country through labour welfare organisations.
