Bill to levy national security cess on pan masala returned to Lok Sabha

In a move projected as essential for safeguarding both national and public health priorities, the Rajya Sabha on Monday returned The Health Security se National Security Cess Bill, 2025, to the Lok Sabha after a detailed consideration.

The legislation proposes a new cess on pan masala, tobacco and other “demerit goods” to create a dedicated revenue stream for national security and health security.

The Bill comes at a critical moment, with the existing GST compensation cess — levied atop the 28% GST on these products — being phased out. The new cess, capped at 40%, is intended to replace that revenue without disturbing the GST architecture.

“This is a dedicated and predictable resource stream for two domains of national importance,” Finance Minister Nirmala Sitharaman said while moving the Bill.

Stressing that the levy targets only demerit goods and not essential commodities, she added, “It does not burden the common man. It acts as a deterrent for those who consume harmful products and does not alter the GST regime.”

Later replying to the debate, Sitharaman invoked past shortcomings in defence preparedness to underscore the urgency of stable funding.

“During the Kargil War, soldiers were left without snow boots. Ammunition stocks were inadequate for even a 30-day intense conflict,” said Sitharaman, adding that defence had “no priority” under earlier regimes.

She said the Modi government had reversed that neglect. “Defence was no priority of earlier the regime if I can say… but since Prime Minister Narendra Modi came to power, we have absolutely kept defence as our top priority. We make sure ammunition are available in time. I remember ordering bulletproof vest for our soldiers,” the Finance Minister said.

Linking the proposed cess to the demands of modern warfare, Sitharaman cited Mission Sudarshan Chakra, a national security architecture aimed at protecting critical industrial and public assets.

“Talking about Mission Sudarshan Chakra, the PM spoke from the Red Fort. Mission Sudarshan Chakra means building a wall of security around the country’s key locations, industrial and public sectors that the enemy cannot penetrate,” she said.

“If the enemy dares, our Sudarshan Chakra will destroy it. This was actually seen during Operation Sindoor. It showed exactly how our three services worked together, used signals and drones, and neutralised targets without our troops even crossing the border and without a single civilian casualty. These systems don’t come cheap. We need a steady flow of revenue for keeping our security forces fighting fit,” added Sitharaman.

Meanwhile, the Opposition flagged concerns with Congress MP Shaktisinh Gohil saying the government should ban gutkha and pan masala outright, arguing that a cess alone cannot address the public health menace.

TMC’s Saket Gokhale questioned the Bill’s architecture, calling it incompatible with federalism and arguing that taxation powers must remain squarely within Parliament’s domain, without broad executive discretion.

NCP (Sharad Pawar) MP Fauzia Khan urged that the Bill be sent to a Standing Committee. “We all want stronger public health systems. Let us ensure the law actually helps us get there by incorporating inputs from states, industry, health experts and enforcement agencies,” she said.

Notably, the Bill establishes a statutory framework for imposing a special excise cess on machinery or production processes involved in manufacturing specified goods. Initially, applicable to pan masala, it empowers the government to extend the cess to other demerit goods as needed.

The proceeds will flow into the Consolidated Fund of India to support spending on national security and public health.

Positioned as more than a tax amendment, the Bill forms part of a broader push to stabilise revenues through a rule-based mechanism. It details procedures for levy, calculation, audits, compliance, monitoring, and appeals—aimed at transparency and accountability.

The government maintains that with the phasing out of the compensation cess and the rising cost of modern defence capabilities, a dedicated, reliable funding mechanism has become indispensable.