New “Health Security se National Security Cess” Bill: Government Prepares for a New Sin-Goods Levy as Parliament’s Winter Session Begins

The Union Government is set to introduce a new cess regime targeting sin goods, beginning with pan masala and eventually extending to cigarettes and other tobacco-based products. As Parliament’s Winter Session begins, this marks one of the most significant fiscal policy developments replacing the GST Compensation Cess framework.

Introduction of the Health Security se National Security Cess Bill

Union Finance Minister Nirmala Sitharaman will introduce the Health Security se National Security Cess Bill, 2025 in the Lok Sabha.
The objective of the legislation is two-fold:

  1. To mobilize funds for national security expenditure, and

  2. To strengthen public health financing.

The bill empowers the central government to impose a cess on pan masala and any other items it notifies under public interest. Once passed, the cess will come into effect from the date it is notified in the Official Gazette.

Scope of Goods Covered Under the New Cess

While the bill is expected to begin with pan masala, sources indicate that it may be expanded to other sin goods, including:

  • Cigarettes

  • Chewing tobacco

  • Zarda

  • Gutkha

  • Other tobacco-based products

Bidis have been explicitly excluded at this stage. The bill authorizes the central government to include additional items for cess in the future.

Cess Based on Production Capacity

A major structural departure from GST is that the proposed cess is to be levied on the production capacity of units, not on actual sales.

Self-Declaration Mechanism

Producers or manufacturing firms must self-declare:

  • Location-wise production capacity

  • Number of machines

  • Production speed

  • Weight of units (pouches, packets, tins, containers)

The cess will be assessed per machine and may escalate with production speed or unit weight.

Illustrative Cess Rates

As per the draft structure shared with MPs:

  • A machine producing 500 units of 2.5g pouches/min could attract a cess of ₹100 per month per machine.

  • A machine producing 1,000 to 1,500 units of 2.5g pouches/min could attract ₹30.3 lakh per month.

  • If the pouches weigh more than 10g, cess could jump to ₹2,547 lakh per month per machine.

These examples reveal a sharply escalating cess structure tied to production intensity and packaging weight.

Replacement of GST Compensation Cess on Sin Goods

The proposed cess will replace the GST Compensation Cess on tobacco-related products.

Reason for Replacement

  • The GST Compensation Cess continues to remain in force solely to repay principal and interest on back-to-back loans taken during the Covid-19 pandemic.

  • The GST Council, in its 56th meeting, decided that compensation cess would be phased out once all liabilities are cleared.

  • This repayment is expected to be completed by December 2025.

Once the financial liabilities are serviced, GST compensation cess will no longer be applicable on tobacco and luxury goods, allowing the new Health and National Security Cess to take over.

Legislative Priority for the Winter Session

The government has indicated that the bill is among the priority agenda items in both the Lok Sabha and Rajya Sabha.

Two major bills listed for introduction include:

  1. Health Security se National Security Cess Bill, 2025

  2. The Insurance Laws (Amendment) Bill, 2025 – proposing to raise FDI limits in the insurance sector from 74% to 100%.

Additionally, the Central Excise (Amendment) Bill, 2025 has also been scheduled.

Regulatory Oversight and High-Tech Monitoring

The bill’s rules, once framed, will introduce:

  • High-tech inspection mechanisms

  • Digital monitoring of production lines

  • Automated regulatory systems to detect evasion or under-reporting

This shift aligns with the government’s broader strategy of technology-driven enforcement.

Background: GST Compensation Framework and Transition

Initial Promise Under GST

When the GST system was launched in 2017, states were assured:

  • 14% annual revenue growth for five years

  • Compensation for revenue shortfall funded through a Compensation Cess on luxury and sin goods

Extension During Covid

Due to the severe revenue slump in 2020 and 2021:

  • Compensation cess was extended until March 31, 2026

  • The extension was solely to repay loans raised on behalf of states

Latest Reduction in Scope

The 56th GST Council restricted compensation cess to only tobacco-related products, until the loan is fully cleared.

The Council’s 54th meeting estimated that all liabilities would be serviced by December 2025, paving the way for the new cess framework.

Statutes, Constitutional Provisions, and Judicial Background

Relevant Statutory Provisions

  • Goods and Services Tax (Compensation to States) Act, 2017

  • Central Goods and Services Tax Act, 2017

  • Central Excise Act, 1944 (relevant after amendments)

  • Proposed Health Security se National Security Cess Bill, 2025

Constitutional Foundations

  • Article 265 – Taxes and levies must be imposed by authority of law

  • Article 246 & Seventh Schedule – Parliament’s power to legislate on excise duties and cess

  • Article 279A – GST Council’s recommendations and fiscal coordination

  • Article 21 (Right to Health) – Indirectly supports public health-financing measures

  • Article 47 (Directive Principle) – Duty of the State to improve public health and reduce consumption of harmful substances

Judicial Precedents

While no direct judgment exists on the proposed cess, various judgments affirm Parliament’s power to levy special duties and cesses:

  • Kunnathat Thathunni Moopil Nair v. State of Kerala – Reasonableness of taxation

  • R.C. Tobacco Pvt. Ltd. v. Union of India – Legitimacy of capacity-based excise duty structure

  • Union of India v. Mohit Minerals – Constitutional validity of cess under GST framework

  • Sri Krishna Das v. Town Area Committee – Cess is valid if traceable to legislative power

These precedents confirm that Parliament may introduce a capacity-based cess on specified goods as long as legislative competence exists.

Conclusion: A Major Fiscal Policy Shift Ahead

The proposed Health Security se National Security Cess marks a strategic shift in India’s taxation of sin goods. With GST Compensation Cess nearing its end, the new cess will serve dual national objectives—public health protection and national security funding.

Its capacity-based structure, high-technology regulatory mechanisms, and broad expansion potential reflect the government’s intention to create a more accountable and targeted fiscal framework for harmful products.

As Parliament begins its Winter Session, the bill will be closely watched for debates, industry response, and long-term impact on revenue and public health.


Location: Pune, Maharashtra, India

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