Pan masala cess revenue to be shared with states: FM

In a unique move of cooperative federalism, Union finance minister Nirmala Sitharaman on Thursday told the Lok Sabha that the revenue from the proposed capacity-based cess on pan masala will be shared with states to be used in “health-related” activities.

- Rajeev Jayaswal

Nirmala Sitharaman

While introducing the bill in the House, the minister explained the reason for bringing two separate legislations for demerit goods — the Central Excise (Amendment) Bill, 2025 on tobacco and its products, and the Health Security se National Security Cess Bill, 2025 on pan masala. She said a new cess has been proposed as excise could not be levied on pan masala on the basis of capacity.

Speaking about the cess, she said in Hindi: “Aur States ke sath bhi, scheme ke dwara, hum share bhi kar rahe hain. Ye hai is kanoon ka ek unique point. (And, we are also sharing it with states through [a] scheme. This is one of the unique points of this legislation).”

As per the Constitution, a cess is imposed for a specific purpose and its revenue is not shared with states as it is not considered part of the divisible pool of taxes.