Tobacco taxes decoded: FAQs explain machine-based excise on chewing tobacco, gutkha

The government has released a detailed set of frequently asked questions (FAQs) explaining how the new machine-based central excise levy on chewing tobacco, jarda scented tobacco and gutkha will work. The levy, notified under the Central Excise Act, will come into force from February 1, 2026, marking a decisive shift in how these tobacco products are taxed.

What products are covered under the new levy?

The machine-based excise duty applies to chewing tobacco (including filter khaini), jarda scented tobacco and gutkha manufactured with the aid of packing machines and sold in pouches. Products manufactured in other forms, such as tins, will continue to be taxed on assessable value and are outside the scope of the capacity-based scheme.

How will excise duty be calculated?

Under the new framework, excise duty will no longer depend on actual production or self-declared output. Instead, it will be calculated based on the number of packing machines installed, their maximum rated speed (pouches per minute), and the retail sale price (RSP) printed on the pouch.

The FAQs clarify that actual production is irrelevant. Duty is levied on a deemed quantity of production linked to the maximum capacity of the machine. For instance, a machine with a rated speed of 500 pouches per minute producing chewing tobacco priced at ₹2 will attract a fixed monthly duty per machine, irrespective of whether the machine runs at full capacity or not.

What compliance steps must manufacturers follow?

Existing central excise registrants will not need a fresh registration. However, manufacturers must mandatorily file a declaration in Form CE DEC-01 within seven days of the rules coming into force—by February 7, 2026. The declaration must include details such as the number of machines, technical specifications, maximum rated capacity, gear box ratios and applicable retail sale prices.

Why is a Chartered Engineer’s certificate required?

A Chartered Engineer’s certificate is required to authenticate machine specifications, ensuring that the declared capacity matches the actual technical capability of the packing machines.

This is required to help in providing technical information regarding number of tracks/ funnels, gear box ratios and revolution per minute of the main motor. 

How will the department verify capacity?

The jurisdictional Deputy or Assistant Commissioner of Central Excise will conduct a physical inspection of the factory and verify machine specifications before determining the annual capacity of production. This is calculated by multiplying the deemed monthly production by twelve.

If the department determines a higher capacity than what the manufacturer has declared, the differential duty—along with applicable interest—will be payable from February 1, 2026. Importantly, even if a manufacturer appeals the determination, duty must be paid as per the departmental order for subsequent periods.

What are the rules on payment, abatement and machine sealing?

Excise duty must be paid monthly, with payment due by the 6th day of each month. A monthly statement in Form CE STR-1 must be filed by the 10th day of the same month.

Abatement is allowed if a machine remains non-operational for a continuous period of 15 days or more, provided prior intimation is given and the machine is sealed by the department. Any installed machine is deemed operational unless officially sealed.

What additional safeguards apply?

Manufacturers must install CCTV systems covering all packing machine areas and preserve footage for 24 months. Exports without payment of duty are not permitted under the scheme, and no excise rebate is available.

Other details

According to the government notification, pan masala, cigarettes, tobacco and allied products will be taxed at a 40% GST rate, while bidis will attract 18% GST under the revised tax structure.

In addition, a Health and National Security Cess will be levied on pan masala, while tobacco and related products will face an additional central excise duty, layered over GST.

In December, the Centre cleared the Central Excise (Amendment) Bill, 2025, replacing the temporary excise levy that had been in force on cigarettes and tobacco products over recent years.

An order issued late on Wednesday confirmed that excise duty on cigarettes will apply over and above the 40% GST, effectively restoring a dual-tax structure for the category.

Despite the changes, overall taxation on cigarettes in India remains relatively low by global standards. Total taxes currently account for about 53% of the retail price, comprising GST and a value-based levy linked to cigarette length, well below the World Health Organization’s recommended benchmark of 75% aimed at curbing tobacco consumption.