The Ministry of Finance has notified a comprehensive machine-based levy regime for the manufacture of chewing tobacco, jarda scented tobacco and gutkha, shifting excise duty determination from actual production to deemed production based on machine capacity. The new framework will come into force from 1 February 2026, with mandatory compliance requirements for manufacturers operating packing machines for these notified tobacco products.
The Central Board of Indirect Taxes and Customs has also released a detailed set of Frequently Asked Questions clarifying key aspects of the levy, compliance obligations, and the capacity determination mechanism.
Effective Duty Rates Notified
The effective rates of central excise duty on tobacco and tobacco products have been notified through Notification No. 03/2025–Central Excise and Notification No. 04/2025–Central Excise, both dated 31 December 2025. These rates will apply from 1 February 2026.
Packing Machine Rules Notified
The Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026 have been notified vide Notification No. 05/2025–Central Excise (N.T.), dated 31 December 2025. The Rules prescribe the manner in which production capacity will be determined and excise duty collected for the notified goods.
Goods Covered Under the Rules
The Rules apply to goods notified under Section 3A of the Central Excise Act, 1944, namely chewing tobacco including filter khaini, jarda scented tobacco and gutkha. The levy applies only to manufacturers producing these goods in pouches. Manufacturers producing tobacco in other forms, such as tins, will continue to discharge duty on the basis of assessable value.
Duty Based on Deemed Production
Under the new regime, actual production is not relevant for levy of excise duty. Duty is required to be paid on the basis of deemed quantity produced by the maximum rated capacity of the packing machine, in line with the scheme under Section 3A of the Central Excise Act.
Parameters Required to Be Declared
Manufacturers are required to declare various technical and commercial parameters, including the number of packing machines installed, maximum rated capacity, gear box ratios, retail sale price and other technical specifications relevant to capacity determination.
Chartered Engineer’s Certificate Mandatory
A Chartered Engineer’s certificate is mandatory to support the declaration filed by the manufacturer. The certificate is required to provide technical details such as the number of tracks or funnels, gear box ratios and revolutions per minute of the main motor of the packing machine.
Method of Duty Calculation
As per Section 3A of the Central Excise Act, the manufacturer is required to pay excise duty based on the determined annual capacity of production. Pending verification of the declaration, duty is required to be paid based on the retail sale price of the pouches manufactured during the month and the maximum rated speed of the packing machine, expressed in pouches per minute.
Illustratively, where the maximum rated capacity of a packing machine producing chewing tobacco is 500 pouches per minute and the retail sale price is Rs. 2, the applicable duty per packing machine per month would be Rs. 0.83 crore. Where the retail sale price is Rs. 4, the duty per packing machine per month would be Rs. 1.52 crore, being the higher of the applicable rates.
No Separate Registration Required
No separate registration is required under the 2026 Rules for manufacturers who already hold a valid central excise registration.
Abatement on Retail Sale Price
Abatement on the retail sale price of the notified goods is available and has already been factored into the notified duty rates in terms of Notification No. 01/2022–Central Excise (N.T.), dated 1 February 2022.
Mandatory Declaration and Timelines
Filing of Form CE DEC-01 is mandatory for all existing manufacturers of the notified goods. The declaration must be filed on the portal within seven days from the date the Rules come into force, that is, on or before 7 February 2026.
Once the declaration is filed, a fresh declaration cannot be submitted until the jurisdictional Deputy Commissioner or Assistant Commissioner of Central Excise issues an order determining the annual capacity of production in respect of the previous declaration.
Determination of Annual Capacity of Production
The jurisdictional Deputy Commissioner or Assistant Commissioner of Central Excise will determine the annual capacity of production after conducting physical inspection of the factory and verifying the technical specifications of the packing machines. The annual capacity will be determined by multiplying the quantity of notified goods deemed to be produced in a month by twelve months, in accordance with Rule 5 of the 2026 Rules.
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