Parliament Winter Session: The Union government is expected to introduce two bills in the Lok Sabha on Monday aimed at levying excise duty on tobacco and tobacco products, as well as a new cess on the manufacture of pan masala.
The winter session of Parliament, which begins today, will continue till 19 December. Parliament is set to have 15 sittings across 19 days.
The Central Excise Amendment Bill, 2025, will replace the GST compensation Cess, which is currently levied on all tobacco products like cigarettes, chewing tobacco, cigars, hookahs, zarda, and scented tobacco. The new levy is likely to ensure that the overall tax burden on cigarettes, gutkha, pan masala, and other tobacco products remains at the current level even after the expiry of the GST compensation cess.
The Centre’s move follows the GST Council’s decision in September to scrap the compensation cess on all goods except tobacco and shift to a largely two-rate structure, while leaving it to the finance minister to determine the exact timeline for tobacco’s transition to the proposed 40 per cent GST slab for ultra luxury and ‘sin’ goods.
The Bill seeks “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 statement of objects and reasons of the Bill, as quoted by news agency PTI.
The two bills are listed for introduction by Finance Minister Nirmala Sitharaman on Monday. The Finance Minister will also table the Health Security se National Security Cess Bill, 2025, which seeks to levy a Cess on the production of specified goods, such as pan masala. The Union government may notify any other goods on whose manufacturing such a Cess can be levied.
Sin goods attract 28 % GST
Sin goods like tobacco and pan masala currently attract a GST of 28 per cent, plus a compensation cess that is levied at varied rates, and a compensation cess that can reach up to 290 per cent in some cases, such as smoking mixtures for pipes.
Once the compensation Cess ends, sale of tobacco and related products will attract GST plus excise duty, while pan masala will attract GST plus the Health Security se National Security Cess.
Since the GST rate of 28 per cent has been abolished, such sin goods will be subject to the highest GST slab of 40 per cent.
“It is proposed to levy the Health Security se National Security Cess to contribute towards the twin purposes of enabling targeted utilisation for public health, as well as national security,” according to the statement of objects and reasons of the Bill.
Cess in addition to any other duties
The cess shall be in addition to any other duties or taxes chargeable on the specified goods under any law for the time being in force, it added.
Such businesses will have to file a self-declaration of all machines or processes for each factory or premises, and the cess would be calculated in the aggregate for each such location, it said.
At the time of the introduction of the GST on 1 July 2017, a compensation cess mechanism was implemented for a period of five years, until 30 June 2022, to compensate states for the revenue loss incurred due to the implementation of GST.
The levy of compensation cess was later extended by four years, until March 31, 2026, and the collection is being used to repay the loan that the centre took to compensate states for the GST revenue loss during the COVID period.
Since the loan repayment is expected to be fully repaid by December, the compensation cess will cease to exist.
On 3 September 2025, the GST Council decided to continue the compensation cess on tobacco and pan masala until the loans taken are repaid.
Regarding other luxury items, the compensation cess ended on 22 September, when the GST rate rationalisation was implemented, with just two slabs of 5 and 18 per cent. A 40 per cent rate was fixed for ultra-luxury goods, aerated drinks and other demerit goods.
What happens if the bills are passed?
The Central Excise Amendment Bill, 2025, and the Health Security and National Security Cess Bill, 2025, will ensure that the tax incidence on sin goods like tobacco and pan masala remains the same after the discontinuation of the compensation Cess.
The Opposition is likely to corner the government on Monday, demanding a debate on the Special Intensive Revision (SIR) of electoral rolls by the Election Commission of India, which is underway in many states across the country.
Once passed in the Parliament, the Central Excise Amendment Bill, 2025, would basically restructure the taxation of tobacco products by replacing the current Goods and Services Tax (GST) compensation cess with a new central excise duty. The overall tax burden on these products is intended to remain unchanged, ensuring revenue neutrality for the government.
What changes once the Bills are passed?
-The basic purpose is the replacement of GST Compensation Cess. The existing GST compensation cess on all tobacco products (including cigarettes, chewing tobacco, cigars, etc.) will be discontinued for these specific goods.
–The Union government will be empowered to levy and adjust a specific central excise duty on tobacco products under the amended Central Excise Act, 1944.
– The government intends to maintain the existing high level of tax incidence on “sin goods” like tobacco even after the compensation cess regime ends. The new excise duty rates will be set to match the current combined tax burden (GST plus cess).
– Along with a separate related ‘Health Security se National Security Cess Bill, 2025’ targeting pan masala and other goods, the government aims to attract higher levies.
-The tax collected through the new excise duty will provide sustained revenue for the government, distinct from the temporary compensation cess which was specifically for repaying COVID-related loans to states.
-The bills are legislative measures to create a permanent alternative tax structure for certain high-revenue goods, following the imminent end of the temporary GST compensation cess framework.