NEW DELHI: With the new levies — Central Excise duty and the Health Security se National Security Cess — on tobacco products and pan masala, manufacturers should be prepared for greater scrutiny along with an additional compliance burden, experts cautioned. At the same time, the government will need to enhance the system’s capacity to manage the renewed complexity that could arise from implementing these two new levies.
“The government is signalling tighter regulatory oversight and a more formula-driven revenue model. Manufacturers can expect deeper scrutiny of pricing, production patterns, and reporting practices as compliance becomes more data-intensive. The shift to a retail sale price (RSP)-based GST system further elevates the significance of accurate price declarations,” said Manoj Mishra, Partner and Tax Controversy Management Leader, Grant Thornton Bharat.
Experts have highlighted that the Health Security se National Security Cess is likely to trigger significant litigation because it attempts to shift the tax base from actual production to a capacity-linked levy on machines.
“The wide powers of inspection, search, seizure, and arrest may also lead to possible overreach. Further, the overlap between this cess and existing GST provisions — especially in relation to valuation, assessment timelines, penalties, and appeals — could create dual compliance burdens and ambiguities,” explained Abhishek A. Rastogi, tax expert and founder of Rastogi Chambers.
However, experts also noted that its implementation will be equally challenging for the government.
According to Mishra, the revised excise structure could reopen old classification and valuation disputes, especially around the interpretation of tobacco sub-categories and the use of transaction value, RSP or deemed MRP for duty calculation. Any lack of clarity during transition may quickly lead to litigation.
Thus, he said, the government needs to ensure greater precision in definitions, valuation rules, and transition timelines. Industry players may also challenge the potential for arbitrary classification of “specified goods”.
Parliament recently passed the Central Excise (Amendment) Bill, 2025, to levy excise duty on tobacco products such as cigarettes, cigars, hookah tobacco, chewing tobacco, zarda and scented tobacco. The Health Security se National Security Cess Bill, 2025, on the other hand, proposes to levy a cess on the production of goods such as pan masala and any other goods as notified by the central government.
“With higher taxes, there is also a possibility of increased smuggling activity, and some states and farming communities have expressed concern about how the revenue will be shared,” said Hardik Shah, Partner, Deloitte India.