Centre set to overhaul gutkha & pan masala industry with new ‘Health-to-National Security’ cess Bill

A landmark Bill proposes strict monthly cess, capacity-based taxation, and tough regulations to bring India’s largely unregulated gutkha and pan masala sector under tight government oversight.

India’s gutkha and pan masala sector, long known for operating in one of the country’s least regulated spaces, is headed for a dramatic shift. The Union government is preparing to introduce the Health Security to National Security Cess Bill, 2025, a legislation that aims to tighten control over the manufacturing and taxation of tobacco-linked products. The Bill will be presented by Finance Minister Nirmala Sitharaman in the upcoming Winter Session of Parliament.

The proposed law is not a routine tax revision. Instead of taxing finished products based on output, the cess will be calculated on the production capacity of the machinery used in manufacturing. This means that factories will have to pay a fixed amount every month, irrespective of how much they actually produce. Even hand-made gutkha and pan masala units, often operating informally, will be brought under the system through a mandatory fixed monthly cess.

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Under the framework, manufacturers must deposit the cess every month. Relief may be granted only when a machine or process remains shut for more than 15 days, a clause expected to create significant debate among industry operators. The government believes this structure will help generate stable revenue for health-related spending and national security initiatives, while also curbing illicit trade and tax evasion.

The Bill introduces stringent compliance norms. All units, whether large factories or small-scale operations, will be required to register with the government, file monthly returns, and stay open to inspections, audits and investigations. According to the Finance Ministry, this increased transparency is crucial for regulating a sector often criticised for opaque functioning.

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The legislation also proposes strong punitive measures. Non-compliance could lead to imprisonment of up to five years and substantial fines. Companies will, however, be allowed to appeal orders through established legal channels up to the Supreme Court. The Centre will additionally retain the power to double the cess if needed, giving it significant control over the industry’s economic operations.