BEYOND GST COMPENSATION CESS: PARLIAMENT’S RENEWED EXCISE POWER OVER TOBACCO IN 2025

INTRODUCTION

India’s Parliament recently introduced the Central Excise Amendment Bill, 2025. This change updates the tax rules for tobacco and similar sin goods, like pan masala. It steps in as the GST compensation cess ends soon, keeping high taxes on these harmful products to protect government money and public health. The Bill updates the Central Excise Act of 1944.

It pairs with the new Health Security and National Security Cess Bill, 2025. These ensure that high taxes remain on unhealthy products like tobacco, bridging the gap left by the end of the GST compensation cess. High taxes discourage smoking and chewing tobacco which fulfil the health goals. The government receives steady revenue for public welfare such as health programs and security. Excise duties increase substantially on cigarettes and chewing tobacco. Pan masala incurs a fixed cess tied to production machine capacity, not actual sales, to minimize tax evasion. These measures sustain higher consumer prices, aligning with goals to reduce tobacco consumption for public health benefits.

OBJECTIVES OF THE AMENDMENT

The government has introduced the Central Excise Amendment Bill, 2025, for the following objectives and reasons:

1. The Old Law Was Mostly Gone (Except Tobacco and other sin products): When the main GST tax started on 1^st July 2017, the old Central Excise tax law from 1944 was repealed by the Section 174 of the of the Central Goods and Services Tax Act, 2017, except in respect of goods listed under Entry 84 of List I of the Seventh Schedule to the Constitution. This includes tobacco and tobacco products.
2. Tax Balancing Act: The government is dramatically raising the original Excise tax on tobacco because the temporary compensation cess is disappearing. This is necessary to stop the total tax on tobacco from dropping and causing a huge loss of government revenue.
3. The Solution: To ensure high taxes, the government introduced this Bill to drastically raise tobacco taxes. This is a necessary update to the tax law’s schedule of rates. The purpose is to stop the total tax collected on tobacco from falling and protect the government’s income when the temporary compensation tax (cess) disappears.

CONSTITUTIONAL BASIS: THE POWER TO LEVY EXCISE DUTIES ON TOBACCO

CASE LAW: UNION OF INDIA V. MOHIT MINERALS PVT. LTD., (2022) 4 SCC 713

The Supreme Court clarified that the recommendations of the GST Council are advisory in nature and that Parliament continues to exercise independent taxing powers post GST, including the authority to levy Central Excise duties on tobacco and related products.

• Exclusive Power of Parliament

Union List, Entry 84: This entry in the Constitution gives the Parliament the exclusive power to impose Excise Duty on certain goods manufactured or produced in India, and this explicitly includes Tobacco and other tobacco products.

Article 246(1): This Article confirms Parliament’s ultimate authority over all subjects listed in the Union List (List I).

• Coexistence with GST

GST Did Not Remove All Excise: When the GST law (Article 246A) was introduced in 2017, it created a new system for most goods. However, the law specifically preserved the Central Government’s original power to tax a few items, including tobacco products, petroleum, and alcoholic liquor.

Judicial Affirmation: Courts, like the Karnataka High Court, have confirmed that the GST framework (Article 246A) and the old Excise framework (Article 246) can exist together for tobacco. This means the Union can levy both GST and Central Excise Duty on tobacco products.

• Basis for the Special Cess

Article 271: This Article gives Parliament the power to impose a surcharge or cess (an additional tax on a regular tax) for a specific purpose.

Union Retention: This provision is the constitutional source for the Health Security and National Security Cess. Crucially, the revenue from such a cess is not shared with the states and can be kept entirely by the Union for the stated purpose.

THE COORDINATED POLICY OF THE EXCISE ACT AND HEALTH SECURITY CESS

Central Excise Amendment Bill, 2025

1. Target Product: Primarily focuses on Tobacco and Tobacco Substitutes such as Cigarettes, Bidis, Chewing Tobacco, Hookah tobacco.

2. Nature of Levy: Imposes Central Excise Duty which is a levy on the manufacture or production of goods.
3. Revenue Status: The revenue collected forms part of the Divisible Pool of Central Taxes under Article 270 and is therefore mandatorily shared with State Governments.
4. Constitutional Basis: Drawn from Entry 84 of the Union List I of the Seventh Schedule, confirming Parliament’s exclusive power to tax tobacco products.

Health Security and National Security Cess Bill, 2025

1. Target Product: Primarily targets Pan Masala and other specifically notified goods, often those susceptible to tax evasion.

2. Nature of Levy: Imposes a Cess which is an additional tax on a regular tax levied for a specific purpose in case, for Health and National Security.
3. Revenue Status: The revenue collected is categorised as Union Retention under Article 271 and it is not shared with State Governments but is apportioned for specific Union expenditures.
4. Constitutional Basis: Drawn from Article 271 which empowers Parliament to impose surcharges or cesses for specific purposes beyond the basic duties.

CASE LAW: ITC LTD. V. AGRICULTURAL PRODUCE MARKET COMMITTEE (2002) 9 SCC 232

The Supreme Court upheld the special regulatory powers over tobacco, recognizing that Tobacco is a product that can be subject to special regulation because of its adverse public effects. The regulatory control and higher taxation of tobacco are valid measures to protect public health and prevent misuse. This case provides a legal foundation for imposing high excise duties on tobacco products and implementing regulatory measures aimed at reducing tobacco consumption. Thus, aligning taxation and regulation with public health objectives, reinforcing the goals of the Central Excise Amendment Bill, 2025.

Comparison of the rates before and after amendment in the bill

Description of the Goods	Unit	Earlier Rate (Before Amendment)	Proposed Rate (After Amendment)
Flue-cured Virginia tobacco (not stemmed/stripped)	kg.	64%	70%
Tobacco refuse	kg.	50%	60%
Cigar and cheroots (containing tobacco)	Thousand units	12.5% or Rs. 4006 per thousand, whichever is higher	25% or Rs. 5000 per thousand, whichever is higher
Cigarettes	Thousand units	Rs. 200 per thousand	Rs. 2700 per thousand
Filter cigarettes (≯65 mm length)	Thousand units	Rs. 440 per thousand	Rs. 3000 per thousand
Cigarettes of tobacco substitutes	Thousand units	Rs. 600 per thousand	Rs. 5000 per thousand
Hookah or gudaku tobacco	kg.	25%	40%
Smoking mixtures for pipes and cigarettes	kg.	60%	325%
Chewing tobacco	kg.	25%	100%
Jarda scented tobacco	kg.	100%	100%
Containing tobacco or reconstituted tobacco	kg.	81%	100%

IMPACT ON CONSUMERS AND SOCIETY

1. High Prices: The duties will be largely passed on to consumers and raise the already high retail prices.
2. Public Health Objective: It directly supports the public health objective of discouraging consumption.
3. Dedicated Funding: A part of the new tax is reserved for Health Security which directly addresses the rising public health expenditure associated with tobacco-related illnesses, creating a responsible funding mechanism.

CONCLUSION

The Central Excise Amendment Bill, 2025, is a key legislative change to safeguard government finances as the short-term GST compensation cess ends. It sharply raises excise duties on tobacco and similar sin goods, keeping total taxes high to avoid revenue drops. This uses Parliament’s sole power to tax tobacco under Entry 84 of the Union List, which stayed intact after GST. The Bill also adds a new Health Security and National Security Cess alongside the duties. Together, they secure a steady income, some kept by the Union under Article 271, while high prices discourage people from using these harmful products for better public health.

REFERENCES

1. Central Excise and Amendment Bill, 2025(Bill no. 143 of 2025)
2. The Health Security and National Security Cess Bill, 2025,
3. The Constitution of India
4. The Central Excise Act, 1944,
5. The Central Goods and Services Tax Act, 2017
6. GST (Compensation to States) Act, 2017
7. Karnataka High Court, Writ Petitions concerning the levy of excise duty on tobacco post-GST
8. Union of India v. Mohit Minerals Pvt. Ltd., (2022) 4 SCC 713
9. ITC Ltd. v. Agricultural Produce Market Committee (2002) 9 SCC 232

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Author Details: Ms. Kamya Bhadouria, 4^th Year Law Student, University Institute of Legal Studies, Chandigarh University