Tax will be imposed on tobacco products, will be implemented from February 1
New Delhi. The government has announced to impose additional tax on chewing tobacco, Zarda flavored tobacco and Gutkha. The government will impose excise duty on chewing tobacco, jarda scented tobacco and gutkha based on the capacity of the packing machine from February 1. That's why we have brought here 30 important questions related to the new tax framework.
1. What are the effective rates of Central Excise on tobacco and tobacco products?
The effective duty rates on tobacco and tobacco products have been notified vide Notification No. 03/2025-Central Excise and Notification No. 04/2025-Central Excise dated 31.12.2025. These duty rates will be applicable from 1 February 2026.
2. Where are the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2025 given?
These rules have been notified vide Notification No. 05/2025-Central Excise – Dated 31.12.2025. These rules will come into effect from February 1, 2026.
3. Which goods are covered under these rules?
These rules will apply to chewing tobacco (including filter khaini), zarda flavored tobacco and gutkha.
4. What are the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules 2025 about?
These rules lay down the manner of capacity determination and collection of Central Excise duty on notified goods i.e. chewing tobacco (including filter khaini), Zarda flavored tobacco and Gutkha.
5. Will taxpayers who already have Central Excise registration be required to register separately under these rules?
Existing taxpayers registered for Central Excise do not require separate registration.
6. Will all manufacturers of notified goods be required to pay the duty determined as per these rules?
No, these rules apply to manufacturers of sachets of notified goods. Those manufacturing in other forms (such as tin) will have to pay applicable duty on the assessed value.
7. Is there any exemption on the retail selling price of notified goods for calculation of duty?
Yes, the exemption is available and has been incorporated in Notification No. 01/2022-Central Excise (N.T.) dated 01.02.2022 notifying the duty rates applicable to the products.
8. By what date will existing manufacturers of notified goods have to submit the declaration?
The declaration in Form CE DEC-01 will have to be filed on the portal within seven days of the coming into force of the rules i.e. by February 7, 2026.
9. Is it necessary to fill Form CE DEC-01?
Yes, it is necessary.
10. What parameters need to be specified?
The parameters include details of the number of machines, specifications about the machines such as maximum rated capacity and gear box ratio and quoted retail selling prices.
11.Why is Chartered Engineer's Certificate necessary?
This is necessary to help give technical information regarding number of tracks/funnels, gear box ratio and speed of revolutions per minute of the main motor.
12. Does actual production matter?
No, the charges are based on the quantity deemed to be produced at the maximum rated capacity of the machine.
13. How will the fee payable be calculated?
According to Section 3A of the Central Excise Act, manufacturers have to pay duty based on the prescribed annual capacity of production. However, pending verification of the declaration filed, the manufacturer will pay charges based on the retail selling values of the pouches manufactured during the month and the maximum rated speed of the packing machine, pouches per minute. For example, if the maximum rated capacity of a chewing tobacco manufacturing machine is 500 pouches and the Retail Selling Price (RSP) is Rs 2, the rate of duty per packing machine per month will be Rs 0.83 crore. If the chewing tobacco If the maximum rated capacity of tobacco manufacturing machine is 500 pouches and RSP is Rs 4, then the rate of duty per packing machine per month will be Rs 1.52 crore (Rs 0.83 crore or 0.38*RSP, whichever is higher).
14. Can a taxpayer file the first declaration and file a fresh declaration before the order determining the annual production capacity is issued by the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise?
As per Rule 6, a fresh declaration cannot be filed unless the jurisdictional Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, issues an order under Rule 8 in respect of the previous declaration.
15. How will the department decide the annual production capacity?
The jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be, will decide the annual production capacity after physically inspecting the factory and verifying the technical specifications of the machines. As per Rule 5, the annual production capacity will be determined by multiplying the quantity of notified goods considered to be produced in a month by 12 (months).
16. What will happen if the annual capacity decided by the department is more than the self-declaration of a manufacturer?
The jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be, shall issue orders within thirty days of verification, after giving the manufacturers a reasonable opportunity of being heard. Differential duty, along with applicable interest, will be payable from the date of installation of the machine or the date of change in factors of production, as the case may be, till the date of actual payment. For existing manufacturers, in case of earlier assessment, differential duty and interest will have to be paid from February 1, 2026.
17. What if the manufacturer wishes to appeal against the determination of the Deputy Commissioner or Assistant Commissioner of Central Excise?
Even if the taxpayer wishes to appeal, the duty will have to be paid for the period subsequent to the order, as per the determination of the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be.
18. Will the jurisdictional officer make determination every month?
No. Fresh determination will be made only if there is any change in the relevant production factors affecting the annual capacity of production, i.e. number of packing machines and maximum rated production capacity of the machines.
19. If a manufacturer registered after February 1, 2026, installs machines and starts production on the 10th of the month, will duty be payable for the entire month?
Yes. As per the said Rule 13(3), the manufacturers have to pay full duty for the entire month in which the machines are installed.
20. How will the number of machines be decided for calculating the fee?
The number of machines installed for a month will be considered as the maximum number of machines installed on any day of that month.
21. What monthly forms and returns need to be filed?
Manufacturers have to submit monthly form in FORM CE STR-1 on or before 10th of the same month. This is in addition to the monthly return which he has to file as per Rule 12 of the Central Excise Rules.
22. How will the abatement be calculated?
Rebate is calculated on a pro-rata basis using the formula: Rebate = (Monthly fee liability × Number of days the machine is idle) ÷ Total number of days in the month.
23. Suppose the machine is not running from 15th February to 5th March, how much rebate can be claimed?
An exemption can be claimed if the machine is not operated for fifteen consecutive days and this does not depend on whether this period falls in the same calendar month or not.
24. What are the conditions for claiming exemption?
To claim the exemption, manufacturers must inform the department at least three working days in advance and the machine must be sealed by the department.
25. Will the machines be considered operational even if not in use?
Yes. Any packing machine installed in a factory shall be deemed to be in operation unless it is sealed in accordance with the provisions of the rules.
26. What is the procedure for sealing the machines?
Manufacturers are required to inform the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be, at least 3 working days in advance of any downtime of any installed machine for fifteen consecutive days or more.
27. How can a sealed machine be de-sealed?
The jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be, has to be informed at least 3 working days before the date from which it is intended to resume operations. The machines will be de-sealed in the presence of the jurisdictional Superintendent of Central Excise.
28. What is the procedure for removing machines from the factory for sale or disposal?
The jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be, has to be informed at least 3 working days before the date fixed for uninstallation.
29. Is it necessary to install CCTV?
Yes. Every manufacturer operating a packing machine must install a functional CCTV system covering the entire packing machine area and store the footage for a minimum of twenty-four months.
30. Are rebates available?
No rebate is available on Central Excise duty under Segment 18 of the Central Excise Rules.
31. What happens to the duty already paid if a factory stops functioning?
The manufacturer must file a notice to surrender the registration. The fee will be adjusted or refunded in the manner prescribed in Rule 21 of the said rules.
32. Is export allowed without paying duty?
No. Under the Capacity-Based Levy Scheme, notified goods are not allowed to be exported without paying duty.
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