December 3, 2025
Lok Sabha MP Sougata Ray’s speech on The Central Excise (Amendment) Bill, 2025
Sir, I rise to speak on the Central Excise (Amendment) Bill, 2025 brought forward by the Finance Minister, Ms. Nirmala Sitharaman. Once again, it has fallen on the Finance Minister to mobilise resources for the Government due to which she has brought about this Bill. It has been stated in the Statement of Objects and Reasons that with the introduction of GST, Central Excise Act was repealed by Section 174 of Central GST Act except in respect of goods listed under entry 84 of List I of Seventh Schedule to the Constitution. This includes tobacco and tobacco products. With the levy of GST and compensation cess on tobacco and tobacco products, the rates of central excise duties were reduced significantly to allow for levy of compensation cess without large impact. In order to expand the fiscal space to increase the rate of Central excise duty on tobacco and tobacco products, and thereby protect the overall tax incidence, it is imperative to amend the table in Section 4 of Schedule IV to the Act. Now, why was this brought about? Products such as cigarettes, cigars, hookah, tobacco, chewing tobacco, zarda, and scented tobacco currently attract 28 per cent GST plus a hefty compensation cess that varies by product, and in some cases, goes as high as 290 per cent. This cess was originally introduced in 2017 to compensate States for the GST-related revenue loss and was extended until March 2026 to help repay loans taken during the COVID period. These loan repayments are expected to be completed by December. After that, the compensation cess will cease, which would otherwise lead to a sudden fall in the tax incidence on tobacco. Therefore, the Government plans to replace the cess with a new Central excise duty. According to the Statement of Objections and Reasons, the Bill seeks to give the Government the fiscal space to increase the rate of Central excise duty on tobacco and tobacco products so as to protect tax incidence. This change aligns with the GST Council’s September decision to discontinue the compensation cess on all goods except tobacco and to transition to a two-rate GST structure while reserving a 40 per cent slab for ultra-luxury and sin goods. If enacted, the Bill will replace the GST compensation cess on tobacco with a Central excise duty, allow the Centre to revise excise rates to match current local overall taxation levels, ensure revenue neutrality by keeping the tax burden on sin goods unchanged, create a permanent taxation structure instead of a temporary cess, and maintain tobacco under the highest GST bracket of 40 per cent once the rationalised slabs come into effect. In any case, we are opposed to cess because it is wholly consumed by the Central Government. The States do not get any part of it. Under the new law, the GST compensation cess on tobacco will be replaced with a Central excise duty, the Centre will be able to revise excise rates to match total taxation levels, and revenue neutrality will be ensured. Now, there are two Bills. After this Bill, another Bill will come on pan masala, on which the Minister for her own reasons stated that the pan masala tax will be helping both health and national security. I will discuss that when that Bill comes up. This measure will ensure that the total tax incidence on tobacco and pan masala remains unchanged, replace the compensation cess with a permanent excise duty, introduce a new machine-capacity-based cess on pan masala to bolster public health, and prevent revenue loss to the Centre once the compensation cess ends at the end of this year. This Bill will formally end the compensation cess on tobacco products such as cigarettes, cigars, chewing tobacco, and zarda. The Centre will gain authority to impose and revise a new Central excise duty on tobacco under the amended Central Excise Act, 1944. The aim is to keep the overall incidence of tobacco – currently a mix of GST and compensation cess – at a high level even after the cess expires. Now, what was the logic behind compensation cess? It was an additional charge. The compensation cess was levied on certain goods and services in India designed to compensate States for potential revenue losses following the implementation of the GST while largely merged into the new GST slabs. As on September 2025, it continues to apply to tobacco and tobacco related products. The purpose was to protect the revenue of manufacturing-heavy States which were expected to lose tax income under the consumption-based GST system. As per the mechanism, the revenue collected from the cess was put in a dedicated fund and disbursed to States based on a formula that projected 14 per cent annual growth. Goods originally covered applied to luxury and sin goods including luxury cars, aerated drinks, coal and tobacco products. The 56th GST Council meeting, which was a very important meeting, streamlined the tax structure leading to the cess being integrated into a new consolidated GST rate for most luxury and sin goods. For example, luxury cars and aerated drinks are subjected to 40 per cent GST which includes the cess component. Now, this cess is extended till 31st March, 2026 but is solely focused on repaying loans the Central Government took during the COVID-19 pandemic. So, the remaining cesses are still subjected to a separate compensation cess in addition to their GST rate. The cess will continue for these items until the outstanding loan and interest obligations are fully discharged. The Bill has been introduced in the Lok Sabha. Now, the Bill, in its Schedule, details the different types of tobacco products, starting with unmanufactured tobacco, tobacco refuse, which includes sun-cured country tobacco; tobacco for manufacture of Bidis, not stemmed; tobacco for manufacture of hookah, flue-cured Virginia tobacco. It also includes cigars, cheroots, cigarillos and cigarettes of tobacco or tobacco substitutes, including cigars, cheroots, cigarillos, cigars and cheroots, cigarettes containing tobacco other than filter cigarettes, other than filter cigarettes, filter cigarettes of length (including length of the filter, the length of the filter being 11 millimetres or actual length), filter cigarettes of length (including length of the filter, the length of teh filter being 11 meters or its actual length). All this will fall under this and there are other manufactured tobaccos, for instance, water pipe tobacco, hookah or gudaku tobacco, smoking mixture for pipes and cigarettes, on which in any case, a lot of tax is put. As I mentioned earlier, this has been forced. The Government has been compelled because the cess is going and Government has to make up the revenue loss. Now, this brings me to the end of my deposition regarding my submission on the fiscal matter. But here, while speaking, both Purandeswari ji from the Ruling Party and Shri Karti P. Chidambaram from the Opposition mentioned the moral question of the Government depending on tobacco and tobacco products for its resource mobilisation. They mentioned how many people are affected by cancer due to tobacco. I have been a smoker myself and I am trying to kick the habit because people say that I will not live for five years if I cannot kick the habit. So, this moral question is before the Finance Minister. The moral question is before the Finance Minister as to whether the Government has any role in controlling the consumption of tobacco in reducing the health problems. The Finance Minister is silent about it. I am speaking, Sir. …Why would we appreciate Shri Jagdambika Pal unless he encourages us? So, this question remains whether fiscal instruments can be used to reduce consumption of tobacco. What alternative is now there? There is now only mention on the packet ‘cigarette smoking is injurious to health’. Somebody writes, ‘cigarette smoking can even cause death’. Nishikant is the favourite child of the ruling Party. Hence, I try to respond to him. He is a favoured child. You will see that he will speak four times every day. … So, this question has been raised. The contrary opinion has been voiced by the Samajwadi Party. He said that so many people are dependent on tobacco. Purandeswari ji asked what will happen to six million
tobacco farmers and 20 million tobacco workers. An alternative has to be found for them. I do not belong to the JD(U), but Nitish Kumar ji took a bold decision to establish prohibition in Bihar, which gave him good electoral advantage. He must have lost
revenue, but still he took that bold decision. Has that reduced illicit liquor in Bihar or not? This is a question to be probed.Now, the question is this. Can the Finance Minister show courage, boldness, and take a moral stand: “No, as Finance Minister, I do not want to encourage any type of smoking including cigarettes, cigars, hookah, and everything? This is the principal moral question which has been put before the Finance Minister. While one cannot object to resource mobilization by the Government for raising revenue, one must pose the question where this revenue will come from. It seems that all Governments, whenever there is shortfall in revenue tax cigarettes, etc. This means indirect encouragement. The economists have to delve into the question whether
increasing price of cigarettes, etc. has reduced consumption of tobacco.With this question, I leave it to the Finance Minister to respond to the moral question raised before her whether by increasing the tax the Finance Minister is encouraging or discouraging smoking.
