Tobacco Excise Overhaul: Capacity-Based Levy and Revised Rates Effective Feb 2026

Section 3A Notification: The government has notified chewing tobacco, Jarda scented tobacco, and Gutkha under Section 3A of the Central Excise Act, 1944. This mandates that excise duty for these products will be levied based on the production capacity of packing machines rather than actual production.
New Rules Notified: The Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026 have been introduced. Under these rules, duty liability will be determined by the number of packing machines installed and their maximum rated speed, linked to the declared Retail Sale Price (RSP) of the pouches.

New Duty Structure: Notification No. 03/2025–Central Excise revises the duty rates to align taxation with consumption patterns and public health goals.
- Unmanufactured Tobacco: Fixed at 18%.
- Cigarettes: Duty rates range from ₹2,050 to ₹8,500 per thousand cigarettes, or ad valorem rates (e.g., 21%), depending on length and type.
- Chewing Tobacco & Gutkha: These products will face significantly higher duties, in some cases exceeding 80%.
Monthly Machine-Based Rates: Notification No. 04/2025–Central Excise specifies monthly duty slabs per packing machine. The rates vary based on machine speed (pouches per minute) and the RSP of the pouches.

To curb evasion and ensure revenue certainty, the new framework imposes rigorous compliance requirements:

Mandatory Declarations: Manufacturers must file Form CE DEC-01 declaring the number and speed of their packing machines.
Technical Certification: These declarations must be supported by a Chartered Engineer’s certificate verifying machine capacity and speed.
Surveillance: Installation of CCTV cameras is mandatory, with a requirement to retain data for 48 months.
Penalties: Strict penalties have been prescribed for non-compliance with these provisions.

Regulatory Clarity: An amendment has been issued to specifically substitute “Pan masala containing tobacco” with “Gutkha” in relevant excise notifications. This ensures there is no ambiguity in the tax treatment and regulation of Gutkha under the new regime.