New RSP Based Valuation Mechanism, 40% GST Rate On Pan Masala, Cigarettes, Cigars, Tobacco Products From February 01

Central Board of Indirect Taxes & Customs (CBIC) has notified upward revision of GST rate on tobacco and related products together with legislative changes to the GST Rules, enforceable from February 01 2026. To phase out Compensation Cess on Pan Masala, Tobacco and Allied Products, CBIC has issued a Notification on Wednesday to prescribe a NIL rate of Compensation Cess on Tobacco Products, Pan Masala and related items from February 01 2026. As part of the GST 2.0 framework, the GST on tobacco and related products has been increased from 28% to 40%. These notified goods with tariff headings include: Pan MasalaCigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutesOther manufactured tobacco and manufactured tobacco substitutes“Homogenized” or “reconstituted” tobacco; tobacco extracts and essencesProducts containing tobacco or reconstituted tobacco and intended for inhalation without combustion.Products containing tobacco or nicotine substitutes and intended for inhalation without combustion. New RSP Based Valuation Mechanism The Central Goods and Services Tax (Fifth Amendment) Rules, 2025 introduces a new Rule 31D relating to Valuation based on Retail Sale Price and amends Rule 86B The New Valuation Mechanism stipulates that if the Retail Sale Price (RSP) printed on a package is changed to a higher price at any time before, during, or after supply the revised or altered RSP will be treated as the actual RSP. It ensures that even if multiple RSPs were printed on the pack then highest RSP was to be considered for valuation. Further, it has been clarified that if different RSPs for different regions were declared on different packages then each RSP would apply for that region. The 'Retail Sale Price' is defined as the maximum price, inclusive of all taxes/cesses displayed on the packing or the maximum price charged from customer for a particular Tobacco product. (See Explanation (a) and (b) of GST Notifications 19 and 20 and Explanation (d) to Central Excise No. 04/2025-Central Excise all dated December 31, 2025) Click here to read Central Tax NotificationNos. 19 & 20 of 2025 Notification No. Description Central Tax 19/2025-Central Tax Notifies Tobacco Products for RSP Based Valuation 20/2025-Central Tax Valuation of Tobacco Goods Central Tax (Rate) 19/2025-Central Tax (Rate) Prescribes CGST rates on tobacco products Integrated Tax (Rate) 19/2025-Integrated Tax (Rate) Prescribes IGST rates on tobacco products Union territory Tax (Rate) 19/2025-Union Territory Tax (Rate) Prescribes UTGST rates on tobacco products Compensation Cess (Rate) 03/2025-Compensation Cess (Rate) NIL rate on pan masala, tobacco products

New RSP Based Valuation Mechanism, 40% GST Rate On Pan Masala, Cigarettes, Cigars, Tobacco Products From February 01

Parul Bose

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