LAW OF CENTRAL EXCISE REVISED FOR DUTIES ON TOBACCO

The Central Government had introduced two new Bills in the Loksabha on 1st December 2025, the first day of the current monsoon session of the Parliament. These Bills are Health Security se National Security Cess Bill, 2025 and Central Excise (Amendment) Bill, 2025 to levy a new cess on pan masala and to impose additional levy on cigarettes and other tobacco products. These shall enable the Union Government to collect revenue from ‘sin goods’ to compensate for cess to be forgone and funding of expenditure on public health and national security measures. Till now, a cess was levied on such products w.e.f. 01.07.2017 which was shared with states to make good the revenue loss due to introduction of GST in the country. Further, Central Excise (Amendment) Bill, 2025 aims to replace existing tariff table for tobacco and various tobacco products.  

To amend Central Excise Act, 1944 for new duties, there is now a new law to enable levy of higher duties on tobacco and tobacco related products w.e.f. notified date. The Ministry of law and justice, Government of India has notified the enactment of the Central Excise (Amendment) Act, 2025 after the assent of President of India as an Act No. 34 of 2025 w.e.f. 11 December, 2025 to amend the Central Excise Act, 1944.

According to the statement of objects and reasons of the Bill, compensation cess levied on tobacco and tobacco products, wherever applicable, will be discontinued once interest payment obligations and loan liabilities under the compensation cess account are completely discharged. In order to give the Government, the fiscal space to increase the rate of central excise duty on tobacco and tobacco products so as to protect tax incidence, it is imperative to amend the table in section IV of fourth Schedule to the said Act.

The Amendment Act provides for the levy and collection of central excise duties on goods manufactured or produced in India.  Central excise duties on many items were repealed with the introduction of the Goods and Services Tax (GST) in 2017, except for certain items such as tobacco and tobacco products. Along with GST, GST compensation cess was also introduced on products such as tobacco to compensate states for revenue loss due to the introduction of GST.   Thus, tobacco and tobacco products are currently prior to new amendment, subject to GST, compensation cess and central excise duty. The compensation cess is planned to be discontinued.  The new amendment aims to revise the rate of central excise duty on tobacco and tobacco products to keep taxes on these products at the existing level. 

The Amendment Act increases central excise duty on unmanufactured tobacco, manufactured tobacco, tobacco products, and tobacco substitutes.  For example, it raises the duty on unmanufactured tobacco (such as sun-cured tobacco leaves) from 64% to 70%.  While the Act levies an excise duty ranging between Rs 200 and Rs 735 per thousand cigarettes, the enhanced duty under the Bill ranges between Rs 2,700 and Rs 11,000 per thousand cigarettes. 

The Fourth Schedule of the Central Excise Act, 1944, has been amended by substituting an updated table of excise duties for all tobacco-related products- Unmanufactured and stemmed/stripped tobacco will now attract a uniform 70% duty, while tobacco refuse is set at 60%. Cigars, cigarettes, and cigarillos receive revised specific or ad-valorem duty rates depending on type and length. Manufactured tobacco products, including chewing tobacco, snuff, smoking mixtures, and nicotine products, face significantly increased duty slabs up to 125%.

The Table IV in Schedule in Section IV of Central Excise Act, 1944 has been substituted for the following categories of goods:

Central Excise (Amendment) Act, 2025: Key features

• Introduced in Lok Sabha on 1st December 2025 to amend Central Excise Act, 1944
• Enacted as Act No. 34 of 2025 on 11 December 2025, i.e., Central Excise (Amendment) Act, 2025.
• The objective of Bill is to give the Government, the fiscal space to increase the rate of central excise duty on tobacco and tobacco products so as to protect tax incidence and amend section IV of fourth Schedule to Central Excise Act, 1944.
• Seeks to impose an additional levy on cigarettes and various tobacco products.
• Presently these products attract a GST of 28% alongwith compensation cess
• The Bill provides for a new Central excise duty on tobacco products, such as cigarettes, chewing tobacco, cigars, hookahs, zarda, and scented tobacco, replacing the existing compensation cess.
• It will levy excise duty on cigars/cheroots/ cigarettes at a rate of Rs. 5,000 to Rs. 11,000 per 1,000 sticks, depending on length.
• It will also levy 60-70 percent on unmanufactured tobacco and 100 percent on nicotine and inhalation products.
• The new rates relate to:

• Unmanufactured Tobacco; Tobacco Refuse
• Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
• Other manufactured tobacco and manufactured tobacco substitutes; “Homogenised” or “Reconstituted” tobacco; Tobacco extracts and essences.
• Products containing tobacco, reconstituted tobacco, nicotine, or tobacco or nicotine substitutes, intended for inhalation without combustion; other nicotine containing products intended for the intake of nicotine into the human body.

• The Central Excise (Amendment) Act, 2025 shall come into force from a notified date as the Central Government may notify.

It may be noted that higher duties on cigarettes will be shared with the states. The new duty is not a cess but excise duty. It will go into the divisible pool of taxes and 41% of the collections will go to states. India’s total tax incidence on cigarettes is around 53 percent of the retail price and the benchmark rate of World Health Organization is 75 percent. The rate fixation has happened keeping WHO’s benchmark, and making sure that cigarettes are not affordable. She said, when GST was introduced, tax on tobacco and tobacco-related products even with the cess could not reach the benchmark set by WHO every year. As a result, the affordability index of tobacco products remains high, undermining public health goals.