Pan Masala, Gutka, Tobacco Product Makers To Face Penalty For Compliance Failure With New GST Norms

Last year, on the recommendation of the GST Council, tax authorities issued a notification regarding a special procedure to register machinery by tobacco manufacturers

Tobacco product makers, including manufacturers of pan masala, and gutka, will be liable to pay a penalty of up to Rs 1 lakh, if they don’t register their packing machinery with the GST authorities, effective from April 1, 2024, Revenue Secretary Sanjay Malhotra said. 

The decision has been taken to restrict revenue leakage in the tobacco manufacturing industry, Malhotra revealed, while speaking with PTI. Notably, the Finance Bill, 2024, made some changes to the Central GST Act, wherein, every machine not registered would attract a penalty of Rs 1 lakh. Additionally, the non-compliance with the norm would result in seizure and confiscation in some cases. 

Last year, on the recommendation of the GST Council, tax authorities issued a notification regarding a special procedure to register machinery by tobacco manufacturers. The revision noted that details of existing packing machines, along with new ones, and the packing capacity of these, need to be provided in Form GST SRM-1. There was no penalty included in the revision. 

However, the GST Council convened a meeting and decided, “For pan masala, gutka, and similar products, there should be a registration of their machines so that we can keep a watch over their production capacity. However, there were no penalties in case they failed to register. So the Council had decided that there should be some penalties. That's why in the Finance bill you find penalty of up to a lakh of rupees for not registering machines,” Malhotra informed. 

The Council, chaired by the Union Finance Minister and the state counterparts, approved in February last year, a report submitted by a panel of state finance ministers on restricting tax evasion in pan masala and gutka businesses. 

In the recommendation, the group of ministers (GoM) said that the procedure for imposing a levy of compensation cess on pan masala and chewing tobacco should be changed from ad valorem to a specific rate-based levy to push the first stage collection of the revenue. 

As such, the government introduced the amendments to the Finance Bill, 2023, under which the GST compensation cess would be applicable on pan masala and other forms of tobacco at the highest rate of their retail sale price.