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In a major step to curb the health risks associated with tobacco and strengthen the country’s security, Finance Minister Nirmala Sitharaman introduced the Health Security to National Security Cess Bill, 2025 in the Lok Sabha on December 1, opening the winter session of Parliament. The law imposes a stiff tax on pan masala and gutkha production, replacing the GST Compensation Cess, which is set to expire at the end of this month after states repay their pandemic-era loans.

Unlike a traditional output-based tax, the bill imposes a cess on installed machines and manufacturing processes—manual, automated, or hybrid—that is tied to declared capacity and speed, not actual yield. It ensures payments even during periods of low production, thereby targeting theft in the unregulated underbelly of the industry. Taxable entities include owners, operators, or contractors who control equipment that has a defined monthly liability as of July 7.

This framework requires universal registration, self-assessed monthly filing, strict audit and appeal to the Supreme Court. Enforcement is strong: officers have the power to search, seize and arrest, while penalties for fraud, theft or falsifying records range from fines to five years in prison. The Center can double the cess in difficult times and give exemption for public good.

The revenue will go to the Consolidated Fund of India, set up after approval by Parliament to improve defense and public health programs to combat the harms of tobacco – which is responsible for millions of oral cancer cases every year. With the Central Excise Amendment Bill, 2025, it retains the higher sin tax (changing from 28% GST plus cess to 40% GST plus new levy), which may increase retail prices without changing the overall burden.

Industry watchers predict that there will be changes in compliance, which will curb grey-market operations and create sustainable funds. As GST 2.0 progresses, it will imply tighter monitoring of demerit items, and “health security” will be considered essential for the strength of the country.