Health Security (National Cess) Bill, 2025

Lok Sabha passed the Health Security (National Cess) Bill, 2025.

Introduces a special cess replacing the existing GST compensation cess for pan masala.

Revenue will be used for:

• public health improvement, and

• strengthening national security.

The cess will initially apply only to pan masala, but the government may extend it to other goods when notified.

The cess will be levied on the production capacity of machines (installed capacity or processes) in pan masala manufacturing factories.

Rationale: pan masala cannot be effectively taxed under the conventional excise regime due to valuation and compliance challenges.

GST rate on pan masala remains at 40% (maximum slab); the new cess does not affect GST revenue.

The cess is over and above GST.

Public health is a State subject; government stated cess proceeds will be shared with States.

Creates a predictable resource stream for health and national security.

Ms. Sitharaman noted that cess as a share of gross total revenue is 6.1% in the current fiscal, lower than 7% in 2010–2014.

Article 265: No tax shall be levied or collected except by authority of law. The cess must be backed by a parliamentary law (fulfilled through the Bill).

Article 246 / Seventh Schedule: Parliament has power over Union List subjects, including duties of excise.

Parliament may impose a special-purpose cess under its taxation powers.

Article 270: Taxes levied and collected by the Union are shared with the States, except for:

• cesses and surcharges earmarked for specific purposes.

Therefore, cess proceeds need not be mandatorily shared, but Parliament may choose to share them, as stated by the Finance Minister.

Article 266(1): All Union revenues flow into the Consolidated Fund of India (CFI), unless the law creates a special fund.

Article 266(3): No money can be withdrawn from CFI without parliamentary appropriation.

Parliament may allocate cess proceeds to specific sectors (health, security) through appropriation.

Article 271: Parliament may at any time increase duties of excise or customs by imposing surcharges for Union purposes.

• Although the Bill imposes a cess, not a surcharge, the underlying principle is similar:

  • A dedicated charge for Union-level purposes.

  • Not sharable under Article 270 unless the law itself provides sharing.

Articles 246A, 269A: GST structure, with GST Council recommending rates.

The cess is outside the GST rate structure but can coexist as a capacity-based levy under separate legislation, similar to GST Compensation Cess Act.