Parliament passes Bill to impose cess on pan masala manufacturing units

The Parliament on Monday (December 8) approved the Health Security and National Security Cess Bill, 2025, that seeks to impose a cess on pan masala manufacturing units to extend resources for meeting expenditure on national security and public health.

All about new bill

However, opposition members argued that the Bill is an encroachment upon the rights of States. In her reply to the debate, Finance Minister Nirmala Sitharaman said cess as a percentage of the gross tax revenue during the erstwhile UPA regime was 7% and in 2025-26, it was 6.1%.

“Far lower cess is being collected now than what was collected under the UPA,” Sitharaman said.

She reasoned that the new cess, as proposed in the Bill, was intended to serve the cost of national and health security.

Currently, pan masala, tobacco and related products draw 28% GST plus a compensation cess at a varied rate. With the end of the compensation cess levy, the GST rate will rise to 40%.

Furthermore, the excise duty will be levied on tobacco, and the Health and National Security Cess on pan masala.

"This cess aims to serve the cause of national security and also health security. It is not going to be on any essential commodities, but it is going to be only on demerit goods," Finance Minister Nirmala Sitharaman said.

Modern conflicts are controlled by precision weapons, autonomous systems, space assets and cyber operations and battlefield intelligence, all of which require huge capital-intensive expenditure, she stated.

"Technology being such a rapidly growing area, you also have to keep updating the technology, which also requires investment that has to be for upgrading as well. I am sure all members will agree with me that in the age of technology, one needs to be constantly on top of what is the latest. We cannot compromise on this front," she said.

India needs a steady flow of revenue for keeping the defence forces fighting fit, she said.

"So this cess actually offers a feasible mechanism to strengthen both citizens' health and military preparedness," the Minister said.

She explained that under the earlier GST regime, sin goods or demerit goods attracted GST, along with a compensation cess, pushing the total incidence as high as 88% in some cases, and always above 40%.

With the introduction of next-generation GST, the compensation cess has been eliminated, and GST alone now provides a cap of 40%, she added.

Responding to the queries raised by members, FM Sitharaman said the Centre will also share some portion of the cess with states.

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