Tobacco excise: Govt caps deemed output for Rs 2 tobacco pouches via machine speed formula

The Center has tightened compliance with taxes on chewing tobacco and other tobacco products notified through a series of notifications issued under the Central Excise Act, strengthened machinery-based taxes, clarified product definitions, and strengthened enforcement powers.

The notifications, published in the Gazette of India, continue the capacity-based excise duty system, under which tax liability is determined not by the declared production but by the number and speed of packing machines installed in manufacturing units.

A key element of the notification is the revised production capacity formula for packing machines, which directly links liability for excise taxes to machine speed and the retail selling price of tobacco pouches. The government set the maximum monthly production per machine based on the number of bags the machine can fill per minute.

For products priced up to Rs 2 per bag, the machine works in:

Up to 500 bags per minute is considered to be a production of Rs 1.12 crore per month,

501-1000 bags per minute corresponds to Rs 2.24 lakh crore,

1,001-1,500 bags per minute means Rs 3.36 crore,

While machines operating at 1,501 bags per minute and above are rated using a multiplier formula (22,464 x S, where S represents the stated speed).

For products priced above Rs 2 per bag, the considered yield is lower but still significant:

1.01 crore bags per month for machines with a capacity of up to 500 bags per minute,

2.02 Crore for 501-1000 bags per minute,

3.03 crore for 1,001-1,500 bags per minute,

and 20,218 x S for machines exceeding 1,500 bags per minute.

Maximum production capacity of each filling machine per month
(For reported goods – number of bags)

——————————————————————————————————-
S. | Retail price | Up to 500 | 501–1000 | 1001–1500 | 1501 bags/min
No. | (per bag) | Bags/minute | Bags/minute | Bags/minute | and above
——————————————————————————————————-
1 | Up to Rs. 2.00 | 1,12,32,000 | 2,24,64,000 | 3,36,96,000 | 22,464 x h
——————————————————————————————————-
2 | Exceeding Rs. 2 | 1,01,08,800 | 2,02,17,600 | 3,03,26,400 | 20,218 x h

Source: Al-Hind newspaper

By codifying production assumptions in this way, the government eliminates scope for underreporting of production and links duties directly to installed capacity and the declared retail price.

The notification also expands the definition of packing machines to include all configurations, i.e. vertical, horizontal, single-track, multi-track or other, closing loopholes which were earlier used to evade the duty. In addition, chewing tobacco under the relevant tariff provision now explicitly includes a tax filter, ensuring uniform tax treatment across similar products.

Manufacturers are required to advertise, register and operate only approved packaging machines. Any discrepancy in a machine declaration, speed reporting or RSP marking could result in reassessment of duties, seizure of goods and penalty action.

The Center also strengthened enforcement powers, allowing tax authorities to inspect premises, check machinery speed, stamp equipment, and confiscate non-compliant goods.