The Central Government has formally notified the Health Security & National Security Cess Rules, 2026, laying down a comprehensive compliance framework for levy, collection, payment, audit, and enforcement of cess on notified goods, including pan masala and other specified items. The Rules have been issued under Section 35 of the Health Security & National Security Cess Act, 2025, and will come into force from 1 February 2026.
The new regime marks a return to a machine-based cess system, where tax liability is determined not by production or clearance, but by the number, speed, and capacity of packing machines or manual process units installed in a factory.
Mandatory Registration Introduced for Manufacturers
Every taxable person liable under Section 8 of the Act must apply for registration electronically by filing FORM HSNS REG-01 on the CBIC portal. Where a manufacturer owns or controls machines installed across multiple factories, separate registrations are mandatory for each factory.
A temporary registration number will be auto-generated upon application submission, allowing immediate cess payment pending final approval. If the proper officer fails to act within seven working days, registration will be deemed approved by law
Declaration of Machines and Verification by Officers
Registered persons must file a mandatory declaration of machines and processes in FORM HSNS DEC-01 within seven days of registration. Any change in machine parameters, installation, or commencement of operations requires a fresh declaration within fifteen days.
The declaration will undergo physical verification, including:
- Inspection of factory premises
- Technical verification of machine specifications
- Consultation with third-party experts, if required
Cess liability will be confirmed through a formal order, and differential cess along with interest will be payable retrospectively from the date of installation or change.
Monthly Cess Computation Based on Machine Capacity
Cess liability will be calculated per machine or manual unit per month, as specified in Schedule II of the Act. The Rules clarify that:
- Cess is based on maximum rated speed, irrespective of actual operational speed
- Where machines pack multiple weights, highest weight slab applies
- For partial months, cess is computed on a pro-rata basis
- If machines are added or removed during the month, the maximum number installed on any single day will be considered
Monthly cess must be paid electronically in FORM HSNS PMT-01 by the 7th day of the same month, while monthly returns in FORM HSNS RET-01 are due by the 20th of the succeeding month.
Abatement Allowed for Sealed or Non-Operational Machines
The Rules permit abatement of cess where a machine remains non-operational for 15 consecutive days or more, subject to strict conditions:
- Prior intimation to the department
- Physical sealing by the proper officer
- No manufacturing during the sealed period
Abatement is calculated on a daily proportionate basis and adjusted against future liabilities. Detailed illustrations have been provided in the Rules to demonstrate computation methodology
Extensive Record-Keeping and CCTV Surveillance Mandated
Manufacturers must maintain detailed records including:
- Machine purchase and lease documents
- Electricity bills
- Daily production and clearance data
- Raw material consumption
- Financial statements
All records must be retained for 24 months, extendable if litigation is pending.
Additionally, installation of CCTV systems covering all machine areas is mandatory, with footage preservation for two years and compulsory production upon departmental requisition within 48 hours.
Audit, Seizure, Compounding and Penalties
The Rules provide for:
- Departmental audit with 15 days’ prior notice
- Seizure and provisional release of goods or machines against bond and bank guarantee
- Compounding of offences, with structured tables prescribing compounding amounts up to 75% of cess evaded
Operating machines without registration empowers authorities to deem machines operational for up to two prior years, triggering substantial retrospective liability
Multi-Tier Appeal Mechanism Notified
Aggrieved persons may file appeals:
- Before the Commissioner (Appeals)
- Further before the Appellate Tribunal
Only Chartered Accountants, Company Secretaries, Cost Accountants, or eligible retired officers may act as authorised representatives under the Act
Notification Details
Notification No.01/2026 – HSNS Cess
Date: 01/01/2026
