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Informist, Wednesday, Dec. 3, 2025

 

--Lok Sabha passes central excise amendment bill 
--CONTEXT: Sitharaman speaking in Lok Sabha on central excise amendment bill 
--Sitharaman: Expect GST-related loans to be repaid in next couple of weeks

 

NEW DELHI - The Lok Sabha Wednesday passed The Central Excise (Amendment) Bill, 2025, paving the way for a revised duty structure on tobacco products like cigarettes, cigars and chewing tobacco. The new duty structure on these items will replace the compensation cess under the goods and services tax regime.

 

By amending the Central Excise Act, 1944, the government seeks to levy excise duty of INR 2,700 to INR 11,000 per 1,000 sticks of various categories of cigarettes. The Bill also proposes a levy of 60-70% on every kilogram of tobacco used for various purposes and 100% on chewing tobacco.

 

In her response to the discussion on the bill, Finance Minister Nirmala Sitharaman said "this is not a new law. This is not an additional tax. This is not something which the Centre is taking away. This is excise duty. It existed before GST. It's come back to the Centre, because Centre gave it away at that time for collecting compensation cess. Now it's reverting back to the Centre."

 

Under the GST regime, cigarettes attract compensation cess of 5?-valorem in addition to INR 2,076-3,668 per 1,000 sticks depending on their length. This is over and above the excise duty of INR 200 to INR 735 charged per 1,000 units. The existing Central Excise Act also provisioned for 50-64% levy on every kilogram of tobacco used for various purposes and 100% on chewing tobacco.

 

With the levy of GST and compensation cess on tobacco and tobacco products, the rates of central excise duties were reduced significantly to allow for the levy of compensation cess without large impact on their tax incidence, the government said.

 

On Sept. 3, the GST Council overhauled the indirect tax structure by slashing rates on a host of common and daily-use items. The council also introduced a new GST rate of 40% on luxury goods to subsume the GST compensation cess that some of the items in the 28% GST bracket attracted. However, the council decided to continue with the compensation cess on tobacco-related products till the GST-related loans were repaid. The government had said that the overall tax incidence on such sin items would not be allowed to come down in post-compensation cess era.

 

The GST compensation cess was introduced to bring states on board to adopt the GST regime in 2017. The Centre had promised to protect 14% revenue growth for states for the first five years by levying a compensation cess on certain luxury goods, including motor vehicles, expensive motorcycles, caffeinated beverages, and sin goods such as tobacco items and pan masala. Initially set to expire in June 2022, the cess was extended until March 2026 to repay INR 2.69 trillion in loans taken by the Centre to partly bridge the revenue shortfall of states during the COVID-19 pandemic.

 

In her statement in Lok Sabha, Finance Minister Nirmala Sitharaman said that the GST-related loans will probably be completely repaid in a couple of weeks. On Monday, Sitharaman had also introduced The Health Security Se National Security Cess Bill, 2025, proposing a new cess on pan masala over the 40% GST. This 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," she had said.

 

For the first full month post GST rate rationalisation, collections in November fell on a year-on-year basis for the first time in over six years. The government collected INR 1.750 trillion in November, down 4.0% on year. The government collected INR 47.56 billion as cess in November, lower than INR 132.53 billion a year ago.  End

 

Reported by Sagar Sen

Edited by Vandana Hingorani

 

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