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Informist, Friday, Dec. 5, 2025

NEW DELHI – The Lok Sabha Friday passed the Health Security se National Security Cess Bill, 2025, making way for a new cess to be levied on production of goods such as pan masala and any other goods that may be notified by the central government. Collections under the new cess will be used for expenditure towards public health and national security.

The additional levy on these items will replace the compensation cess under the goods and services tax regime and will be levied over and above 40% GST rate. The cess will be payable by a person who owns or controls machines or undertakes processes, to manufacture the specified goods. It will be calculated per machine installed or per unit of manual production.

For machine-based production, the cess will be based on the maximum rated speed of each machine and the weight of the product packed in each pouch or container. For example, cess will be INR 10.1 million per month per machine for maximum rated speed up to 500 pouches per minute and each pouch weighing up to 2.5 grams, the bill said.

On Thursday, Finance Minister Nirmala Sitharaman said that the central government will share part of the collection from the proposed 'Health Security Se National Security Cess' with states. This is a special case and is in contrast to how a cess is treated in fiscal arrangement. Cess is outside the divisible pool of taxes. Sitharaman said that considering the cess will be collected as a general welfare measure, it will be shared with states in the form of payout for states' health schemes. 

Speaking about the Health Security Se National Security Cess Bill, 2025, Sitharaman said that pan masala production was not "excise-able" which is why it could not be covered under The Central Excise (Amendment) Bill, 2025, passed by Parliament Thursday. Collections from excise duty are shared with states and, hence, the same treatment would be extended to this particular cess collection, she had said.

The new levy will ensure tax incidence on pan masala and related items--categorised as sin goods--is maintained following the overhaul of the GST rate structure. On Sept. 3, the GST Council slashed rates on a host of common and daily-use items. The council also introduced a new GST rate of 40% on luxury goods and sin 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 the Lok Sabha, Sitharaman had said Wednesday that the GST-related loans will probably be completely repaid in a couple of weeks. Thursday, she also said that since the cess will be imposed over and above the 40% GST rate, it will not lead to any impact on GST collections, especially as the compensation cess will be discontinued. 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 Priyasmita Dutta

Edited by Akul Nishant Akhoury

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