Under the new framework, the cess will be calculated on a per-machine, per-capacity basis. For example, a machine churning out 500 pouches of 2.5 grams per minute may incur a monthly cess of around ₹100. As production speed rises or pouch weight increases, the levy could soar — factories operating at over 1,000-1,500 units per minute might face cess payments running into several lakhs per month. These rates reflect an effort to preserve the overall tax burden on what the government classifies as “sin goods,” despite recent changes under GST reform.
The move follows the phase-out of the GST compensation cess on tobacco and related products. Under the existing regime, tobacco items — including cigarettes, chewing tobacco, pan masala and gutkha — were subject to 28 per cent GST plus compensation cess and other duties, pushing the total tax incidence above 50 per cent. With compensation cess set to end later this fiscal year, the government sees the new bill as a mechanism to prevent tax evasion and revenue loss while reinforcing public health objectives.
Provisions in the bill give authorities the power to notify additional items for levy in future if deemed harmful. Though initial focus is on pan masala and gutkha, cigarettes and other tobacco products could be added later under the same cess structure. The collected revenue is earmarked for two major purposes — funding national security and expanding public health initiatives.
Manufacturers will need to register all production machines and submit monthly returns. Non-compliance, including manufacturing with unregistered machinery or failure to declare capacity, may attract penalties or even jail terms. Analysts warn the burden on small-scale producers could be disproportionately heavy, potentially forcing many to shut down.
The legislation arrives amid growing state-level bans and enforcement actions. Several states have imposed or renewed prohibitions on manufacture, sale and distribution of gutkha and tobacco-laced pan masala under health and food-safety laws. Despite these bans, courts and civil suits reveal banned products continue to surface through illicit channels — particularly via e-commerce platforms — underlining regulatory lapses and persistent demand.
Public health experts argue that high taxation on production machinery may discourage manufacturing, thereby cutting supply and reducing consumption. Critics counter that such levies could push producers underground, exacerbating contraband trade, undermining revenue collection and making regulation more difficult.