Sitharaman to Move Bill in Lok Sabha Imposing Cess on Pan Masala; Funds to be used for Health, Security

Finance Minister Nirmala Sitharaman is set to move the Health and National Security Cess Bill, 2025, in the Lok Sabha on Thursday for consideration and passing. The proposed legislation seeks to impose a cess on the production of certain goods, including pan masala, to generate dedicated funds for enhancing public health programs and national security efforts.

Originally introduced in the Lok Sabha on December 1, 2025, the Bill targets machines and manual processes involved in manufacturing pan masala and other goods notified by the central government. “It is proposed to levy ‘Health Security se National Security Cess’ to contribute towards the twin purposes of enabling targeted utilisation for public health as well as national security,” Sitharaman stated in the Bill’s Statement of Objects and Reasons.

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According to the Bill, the cess will be levied monthly on persons owning or controlling machines or processes that produce the specified goods. The cess amount will be calculated based on the production capacity of machines or manual units, with taxpayers required to self-assess and file returns. Interest will be charged on any late payments.

The cess rates for machine-based production vary significantly. For instance, a machine operating up to 500 pouches per minute, each weighing up to 2.5 grams, will attract a cess of Rs 1.01 crore per month. This increases substantially to Rs 25.47 crore monthly for machines with speeds between 1,001 and 1,500 pouches per minute and pouch weights exceeding 10 grams. For wholly manual production, a fixed monthly cess of Rs 11 lakh per factory will apply. The government retains the authority to raise these rates to twice the specified amounts if deemed necessary in the public interest.

To ensure compliance, officers at the rank of commissioner or above will conduct audits and can initiate recovery actions for unpaid or short-paid cess, including applicable interest and penalties. The Bill outlines penalties for offences such as failure to declare machines or processes, non-payment of cess, lack of registration, and tampering with seized goods. Penalties range from Rs 10,000 or the evaded cess amount, whichever is higher, up to Rs one lakh for aiding violations. In cases involving fraud or evasion exceeding Rs one crore, criminal prosecution with imprisonment from one to five years, fines, or both is prescribed.

The Bill also introduces a three-tier appeal mechanism, allowing those aggrieved to challenge orders before an appellate authority, then the Customs, Excise, and Services Tax Appellate Tribunal, and ultimately the High Court on substantial legal questions.

Additionally, officers of the rank of Joint Commissioner or higher will have the power to inspect manufacturing and storage sites and to search and seize goods, machines, documents, or records when evasion is suspected.

Sitharaman highlighted the Bill’s emphasis on transparency and monitoring: “The cess is linked to the production capacity of machines or other processes rather than the quantity actually produced of such specified goods. The Bill provides for taxable persons to self-declare all machines or processes for each factory or premises, and the cess would be calculated in the aggregate for each such location. The Bill also provides that a proper officer may verify and recalibrate these declarations through prescribed mechanisms. Compliance is proposed to be ensured through technological and inspection-based monitoring.”

This new cess aims to create a stable revenue stream to support vital public health and national security objectives, reflecting the government’s commitment to safeguarding the nation’s well-being on multiple fronts.