Duty on tobacco products raised by 10-20% across all categories

The hike is usually a Budget ritual but this year the government is preparing vote on account before declaring the elections

Contrary to the convention, the government has increased the excise duty on smokeless tobacco - pan masala, gunk and chewing tobacco by 10-20% across categories before the Union Budget.

Hike in tobacco duty used to be a ritual in Budget though this year, the government is preparing vote on account before declaring the elections.

owever official sources explained vote on account is not the reason and there may be duty hikes when the new government presents budget after its formation. According to them,  the sector is highly disorganised , rife with  evasion and  some part of the industry  is not clear about the  compounded levy scheme . Compounded levy scheme is the method of duty levy for the said industry , first implemented in 2008 and then in 2010 in a modified form.  In fact in the last budget 2012, the duty on tobacco products witnessed steep hike of  50% but the revenue collection did not matchup to the hike.

Therefore the government started with relatively less dose of duty hike in the beginning of the year and following the impact on duty collection from the sector may contemplate its next move, said sources.

Under the compounded levy scheme, excise duty is chargeable with respect to deemed production based on the number of packing machines in the factory of the manufacturer.  The department received various industry feedbacks that while some manufacturers use indigenous packing machine, many have imported machines with higher capacity and speed.

The issue raised is whether excise duty can be re-determined based on the speed of the packing machine and actual production thereof, which may be higher than the deemed production, explained a clarification issued by the department.

Presently, the mandatory compounded levy scheme is applicable to Pan Masala, Gutkha and chewing tobacco manufactured with the aid of packing machine & packed in pouches. The factor relevant to the production on which excise duty is leviable is the number of packing machines installed in  the factory of the manufacturer under the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 and the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010.

The monthly deemed production per operating machine per month is prescribed based on the average speed of packing machines and average working hours of a factory. Excise duty is chargeable at the rates notified on the basis of Retail Sale Price (RSP) slabs on per machine basis. In order to minimise the element of subjectivity and to ensure certainty and objectivity, the number of packing machines installed in the factory has been notified to be the only factor relevant to the production of the notified goods under the said rules, said an official.