GST Update: Tobacco Product Manufacturers Face Rs 1 Lakh Penalty for Unregistered Packing Machines

Starting from April 1, manufacturers of pan masala, gutka, and similar tobacco products could be subject to penalties of up to Rs 1 lakh if their packing machinery is not registered with GST authorities. This measure aims to tackle revenue leakage within the tobacco manufacturing sector.

Amendments to the Central GST Act introduced in the Finance Bill, 2024, specify a penalty of Rs 1 lakh for each unregistered packing machine. Non-compliant machinery may also be at risk of seizure and confiscation in certain cases.

In response to a recommendation by the GST Council, tax authorities implemented a special procedure for the registration of machines by tobacco manufacturers last year. However, no penalties were initially notified.

According to Revenue Secretary Sanjay Malhotra, the GST Council decided in a previous meeting that for pan masala, gutka, and similar products, machine registration is essential to monitor production capacity. The Finance Bill now includes penalties of up to Rs 1 lakh for failure to register machines.

In February of the previous year, the GST Council, chaired by the Union finance minister, approved a report addressing tax evasion in pan masala and gutkha businesses. A group of ministers (GoM) recommended changing the mechanism for levying compensation cess on these products, leading to amendments in the Finance Bill, 2023. Under these changes, GST compensation cess would be levied based on the highest retail sale price for pan masala and other tobacco forms.