Union Government Is Set To Introduce Central Excise Amendment Bill 2025

The Union government is set to introduce two major tax bills that will reshape the fiscal framework for tobacco and pan masala. As the temporary GST compensation cess nears its end, the new legislation aims to maintain high tax incidence on demerit goods while creating a permanent revenue stream.

Purpose of the Central Excise Amendment Bill 2025

The amendment seeks to replace the outgoing GST compensation cess on cigarettes, chewing tobacco, hookah products and similar items. It empowers the Centre to revise excise duties to ensure that taxation levels remain broadly unchanged even after the cess lapses. This offers fiscal room for rate adjustments while protecting revenue.

Shift to a New GST Structure

With GST rationalisation underway, the 28% slab is being phased out. Ultra-luxury and sin goods, including tobacco, are set to fall under a proposed 40% GST bracket. Once the transition is completed, tobacco products will attract GST plus central excise duty rather than GST plus compensation cess.

New Cess on Pan Masala and Related Goods

A separate Health Security-cum-National Security Cess Bill proposes an additional levy on pan masala and other notified items. The cess will be imposed on manufacturers and will exist alongside GST. Authorities intend to direct the proceeds towards public health and security objectives, making the levy both fiscal and welfare-oriented.

Exam Oriented Facts

• GST compensation cess was originally set for five years from July 2017 but extended to March 2026.
• The new 40% GST slab is designed for ultra-luxury and demerit goods.
• Manufacturers must file self-declarations of machinery and production processes for cess assessment.
• Tobacco products will shift from GST plus cess to GST plus central excise duty after cessation of compensation cess.

Implications for Prices and Revenue

The bills aim to keep the overall tax burden on tobacco and pan masala steady, reducing chances of sharp retail price fluctuations. They also replace a temporary levy with a long-term revenue mechanism, ensuring stable collections for the Centre once loan-related obligations under the compensation cess end.