"This is a cess, and it is placed not on any essential commodity. The purpose of this Bill is to levy a cess on demerit goods, which are associated with significant health risks. We wish to impose such a cost, so that it is a deterrent, so people tend not to use it," the minister said. Based on its consumption, pan masala will be taxed at the maximum 40 per cent rate under Goods and Services Tax (GST). There will be no impact of this cess on GST revenues, Sitharaman said.
The proposed Bill, which will be over and above the GST, will be levied on the production capacity of machines in pan masala manufacturing factories. "The cess liability will be different for every factory, depending on their production capacity," the Finance Minister said. "Part of the revenue from this cess will be shared with states through health awareness or other health-related schemes/activities," Sitharaman pointed out.
She noted that as excise duty cannot be levied on pan masala, the government is bringing a separate cess bill to ensure that production of pan masala is taxed, along with GST, which is levied on consumption. Earlier on Wednesday, the Lok Sabha passed a Bill, amending the Central Excise Act of 1944, to levy excise duty on tobacco, over and above the 40 per cent GST. Currently, pan masala, tobacco, and related products attract 28 per cent GST plus a compensation cess at a varied rate. With the end of the compensation cess levy, the GST rate will go up to 40 per cent.
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