Central Excise Duty on Sin Goods Reformed

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Jan 23, 2026

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Tags :Central Excise act, Cess, Excise duty, Law, Legal article, legal research, reform bill, Sin goods

Author: Krishna Gawade

Introduction of the bill

The government has taken a significant initiative and passed an important bill on 4th December 2025, which is the Central Excise Amendment Bill, 2025, Amending the Central Excise Act, 1944. India is the second-largest producer and consumer of tobacco and tobacco-related products. Around 28-29% Indian adults, approximately 267 million people, consume tobacco and tobacco-related products. This is a great concern for public health. Taking this into consideration, our government has taken this initiative to keep the rates of these ‘sin goods’ high so that people will consume these less, and some can even stop consuming these products.

What is the need for the bill?

The question that arises here is why there was a need for this bill to be passed, as already people are paying 28% GST, and as per the new GST rules, it is going to be 40% soon. To answer this question, we need to go back some years and understand the background behind this bill. The GST Act was enforced in 2017. At that time as to keep the revenue of states stable, the Government also started to collect GST compensation cess on Sin Goods, which are tobacco and tobacco-related products, including some other goods as well. The cess collection duration was decided to be 5 years (2017-2022), but due to the COVID-19 pandemic, the duration was extended, and the compensation cess was increased after the pandemic to use that money for repaying the debt taken by the government during the COVID-19 period. As the debt is about to be repaid, the duration for collecting compensation cess is to end soon. So, the GST compensation cess will not be collected on these products when the debt is completely repaid, and the extended duration ends. Currently, a 28% GST plus cess at a varied rate is levied on tobacco and tobacco-related products. Most of it is levied through compensation cess, but as the compensation cess will end soon, the price of these products will decrease, impacting stability in revenue and threatening public health. Hence, to keep the tobacco and tobacco-related products high in pricing, the government implemented the Central Excise Bill, 1944, by amending it.

Some changes in the bill.

The bill increases excise duty on unmanufactured tobacco from 64% to 70%, on chewing tobacco, the duty will be increased from 25% to 100%, and on hookah/gutka will increase from 25% to 40%. For cigarettes, smoking mixture pipes can increase from 60% to 325%. The act levied according to the previous bill was between Rs. 200 and Rs. 735 per thousand cigarettes, but the levies as per the amended bill are increased from Rs. 2,700 and Rs. 11,000 per thousand cigarettes. Excise duty is also changed on cigars or cheroots from 25% or Rs. 5,000 per thousand sticks (whichever is higher).

Compensation cess vs Central Excise Amendment Bill, 2025

Comparing the Compensation cess and the central excise duty, here are some important points to take into consideration. The compensation cess was implemented so that states can be compensated for revenue loss after the GST rollout. It was a part of the GST Act. But the Central Excise Amendment Bill is introduced to replace the compensation cess, as it will end soon, so that excise duty on tobacco and tobacco products can be raised and regulated. Compensation cess was temporary, and the excise bill is replacing it as a permanent tax separate from GST. As we know, the compensation cess was to compensate states; the money from the cess was provided to states, but the money from the excise duty will be beneficial for the central government.

	Compensation Cess	Central Excise Amendment Bill
Purpose	To compensate states for the Revenue loss	To replace compensation cess and to keep price of tobacco and tobacco-related products high
Nature	Temporary type of cess	Permanent Tax
Beneficiary	State Government	Central Government

Pros and Cons of the reformed bill

As the bill is introduced and soon to be implemented, we should understand the pros and cons of it. First, let’s see the pros of the amended act.

First most important positive impact this bill can bring is improved public health, as due to high pricing, people will buy less of these tobacco and tobacco-related products, and there possibility that some population (youths) can stop consuming these products.
The excise duty from the Central Excise Bill 1944 has now increased, which will either increase the prices of these products or keep them stable. This will increase the revenue of the government.
The compensation cess is going to end, which was temporary in nature, but due to this excise bill government now has a permanent taxation policy on these sin goods.
It will discourage the manufacturing of tobacco and tobacco-related products to some or more extent.

As we have understood the pros of this newly amended bill, we should also take a look at the cons, which are challenges to implement these laws.

There are people from all classes who consume these tobacco-related products; hence, the increased rates of these products would affect the lower-income group, and it would create a burden on them. And as they are addicted to these products, they will consume them no matter what.
The important thing to consider is that it will increase the possibility of illegal trade as the legal price of tobacco-related products is high, and if illegal traders are selling those same products at low prices, then people will tend to buy these products an illegal way.
This can impact small traders and manufacturers as they can face financial burden due to the higher excise duty.
Something more about bill

During the parliament session conducted in Lok Sabha, our Finance Minister Nirmala Sitaraman highlighted that the affordability index tracked by the WHO and the World Bank jointly stated that the Affordability of cigarettes in India has either stagnated or increased (prices remain low) in the past decade, meaning cigarettes have not become more expensive in relation to consumers’ purchasing power. WHO has given a benchmark of total tax incidence on cigarettes is 75% but India’s total tax incidence is approximately 53% therefore, India is looking forward to meeting the benchmark given by WHO. She also said that it’s a health-related concern, hence the price or tax should be a deterrent so that people will not be addicted to those particular products.

Conclusion

I think this is an overall very great decision taken by the government. Public health is a very important factor that the government has to consider. Bringing back the excise bill with taking into consideration today’s needs, was a really important initiative. Many young people of today’s generation are being addicted to these products due to peer pressure, normalisation of consumption of these tobacco and tobacco-related products, easy availability of cigarettes, tobacco, and bidis, etc. Even so, many students and young people think that it helps to relieve stress. But I hope people will reduce their consumption of these harmful products soon. And this bill can be one of the important steps taken towards Nasha Mukta Bharat Abhiyan. This initiative alone cannot make Nasha Mukta Bharat, but we will need to initiate more programs or schemes in respect to implement this policy and make it 100% beneficial.

References

https://www.thehindu.com/news/national/parliament-approves-bill-to-levy-higher-excise-duty-on-tobacco/article70359130.ece

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