Author: Ashwarya Sharma, Advocate & Co-Founder, RB LawCorp
Date: 09/12/2025
The Central Excise (Amendment) Bill, 2025 — Key Highlights
The Central Excise (Amendment) Bill, 2025 realigns India’s tobacco taxation structure at a crucial moment when the GST Compensation Cess is ending. The objective is not to increase taxes, but to shift the existing tax burden from a temporary cess to a permanent and constitutionally supported Central Excise Duty, ensuring revenue stability and strong public health safeguards.
1. Constitutional & Fiscal Background
- Even after GST’s introduction, the Union retained the power to levy Central Excise Duty on tobacco (Entry 84, Union List).
- Tobacco is the only consumer good in India still taxed under both GST and Excise Duty, due to public health concerns.
- Tobacco products also carried the GST Compensation Cess, which is now ending as the States’ compensation loans are fully repaid.
2. Why the Amendment Was Needed
- Ending the Compensation Cess would reduce the total tax burden on tobacco.
- This would conflict with:
- Fiscal needs of Centre & States
- Long-standing public health policies
- Constitutional design around demerit goods
- To maintain revenue neutrality and health objectives, excise duty is increased proportionately.
3. Key Provisions of the Amendment
- Significant increase in excise duty across all tobacco categories:
- Unmanufactured tobacco
- Cigarettes (rate varies by length/filtration)
- Chewing tobacco, hookah tobacco, smoking mixtures
- Total tax incidence on consumers remains the same—only the structure changes.
- Shifts revenue from a non-shareable cess to a shareable tax, benefiting States.
4. Legislative Intent
Parliament emphasized:
- Maintaining fiscal neutrality after cessation of the Compensation Cess.
- Continuing to use taxation to discourage tobacco consumption, especially among youth.
- Supporting farmers in shifting to non-tobacco crops through diversification programs.
5. Constitutional & Federal Impact
- Fully aligned with the amended Entry 84 of the Constitution.
- Strengthens cooperative federalism since excise duty is part of the divisible pool.
- Replaces a temporary, Centre-retained cess with a permanent, State-shared revenue source.
- Meets constitutional tests of:
- Reasonableness
- Proportionality
- Non-discrimination
6. Wider Implications
- Centre: Regains a predictable excise-based revenue stream.
- States: Gain higher revenue share and improved fiscal autonomy.
- Industry: Must adapt operationally and may face classification/valuation disputes.
- Consumers: High and stable taxes continue to discourage consumption.
7. Conclusion
The Central Excise (Amendment) Bill, 2025:
- Ensures a smooth transition from cess-based taxation without reducing overall taxes.
- Maintains strong public health safeguards.
- Reinforces constitutional and fiscal balance across the federal structure.
- Stabilizes the post-GST tobacco tax framework.
This amendment is constitutionally sound, fiscally prudent, and socially responsible—ensuring continuity, coherence, and long-term sustainability in India’s indirect taxation system for tobacco products.
📎 Detailed Article PDF Attached
🔗 Full PDF Link (as published):
https://vilgst.com/showiframe?V1Zaa1VsQlJQVDA9=TVRjM05RPT0=&page=articles
(The author is a practicing advocate, Co-Founder and Legal Head of RB LawCorp.
He specializes in GST law. Suggestions or queries can be directed to
ashsharma@rblawcorp.in. The views expressed in this article are strictly
personal.)
