(Analysis of Notifications dated 31.12.2025)
Notifications Covered
- Notification No. 19/2025 โ Central Tax (Rate)
- Notification No. 20/2025 โ Central Tax
- Notification No. 19/2025 โ Central Tax
(All effective from 1 February 2026)
1. Background & Policy Context
For several years, tobacco, pan masala, cigarettes and similar products were taxed under a 28% GST slab plus Compensation Cess, along with excise/NCCD in certain cases. This structure was complex, litigation-prone, and vulnerable to undervaluation.
With the compensation cess regime nearing its sunset, the Government has introduced a comprehensive GST reset for these โsin goodsโ, using three coordinated notifications to address:
- Rates,
- Valuation, and
- Statutory backing under section 15(5).
2. Notification No. 19/2025 โ Central Tax (Rate)
GST Rate Restructuring
Key Changes
- 28% GST slab removed for tobacco & pan masala.
- Biris specifically classified at 18% GST.
- All other tobacco products, including:
- Pan masala
- Unmanufactured tobacco & tobacco refuse
- Cigarettes, cigars, cheroots
- Manufactured tobacco (other than biris)
- Heated tobacco & nicotine inhalation products (vapes, etc.)
are placed under 40% GST (20% CGST + 20% SGST).
- 14% GST Schedule deleted.
Significance
- Marks a formal exit from 28% + Compensation Cess model.
- Consolidates taxation into higher GST slabs for revenue certainty.
- Clear policy intent to discourage consumption while protecting revenue.
๐ Source: Notification No. 19/2025 โ Central Tax (Rate) 19-2025-CTR-Eng
3. Notification No. 20/2025 โ Central Tax
Valuation Shift to MRP / Retail Sale Price
New Rule 31D Introduced
For specified tobacco and pan masala products, GST valuation is no longer based on transaction value.
Value of supply = Retail Sale Price (MRP/RSP) โ GST
Products Covered
Same category as rate notification:
- Pan masala
- Tobacco (all forms except biris)
- Cigarettes and substitutes
- Heated tobacco & nicotine products
Key Valuation Rules
- RSP includes all taxes, duties, cess, surcharge.
- If multiple MRPs are printed โ highest MRP applies.
- If MRP is increased at any stage (before or after supply) โ increased MRP becomes taxable value.
- Area-wise MRPs โ valuation based on area-specific MRP.
ITC Restriction Relief (Rule 86B Amendment)
- Traders (non-manufacturers) dealing in Rule 31D goods are exempt from the 99% ITC payment restriction, provided tax has been paid by supplier on RSP basis.
Significance
- Completely blocks undervaluation practices.
- Aligns GST valuation with earlier excise-style MRP taxation.
- Ensures minimum assured tax collection.
๐ Source: Notification No. 20/2025 โ Central Tax 20-2025-ct
4. Notification No. 19/2025 โ Central Tax
Statutory Backing under Section 15(5)
This notification amends Notification No. 49/2023โCentral Tax to formally notify goods whose value shall be determined under section 15(5) of the CGST Act.
What It Does
- Declares that supply of specified tobacco & pan masala goods bearing RSP shall be covered under special valuation mechanism.
- Provides legal authority for overriding transaction value rules.
Why This Is Important
- Rule 31D (introduced via Notification 20/2025) derives statutory strength from section 15(5).
- Prevents valuation disputes and legal challenges.
- Ensures uniform application across the country.
๐ Source: Notification No. 19/2025 โ Central Tax 19-2025-ct
5. How the Three Notifications Work Together
| Aspect | Notification 19/2025 (CT Rate) | Notification 20/2025 (CT) | Notification 19/2025 (CT) |
|---|---|---|---|
| Focus | GST rate restructuring | Valuation & ITC control | Legal authority |
| Core Change | 28% slab removed, 18% / 40% GST | MRP-based valuation | Section 15(5) coverage |
| Goods | Tobacco, pan masala, vapes | Same goods | Same goods |
| Outcome | Higher GST slabs | No undervaluation | Strong legal backing |
6. Practical Impact for Businesses
Manufacturers
- Pricing must be aligned to declared MRP.
- Any increase in MRP directly increases GST liability.
- ERP and invoicing systems must be updated for back-calculation of tax from MRP.
Traders / Distributors
- Relief from Rule 86B ITC restriction, if supplier pays GST on RSP basis.
- Must ensure MRP compliance across supply chain.
Tax Professionals
- Clear shift from transaction value litigation to MRP-based certainty.
- Important advisory area for pricing, packaging, and compliance audits.
This marks a decisive policy shift towards a simpler, tighter, and more enforceable GST framework for tobacco and pan masala from 1 February 2026.
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