Table of Contents
Introduction
Excise duty, one of India’s oldest tax frameworks, has undergone a dramatic transformation in late 2025. While the Goods and Services Tax (GST) absorbed most manufactured goods in 2017, the Central Excise (Amendment) Act 2025 has re-centralized and significantly hiked duties on “sin goods” like tobacco. Today, excise duty serves a dual purpose: generating robust revenue for the “divisible pool” (shared between Centre and States) and acting as a critical public health tool to deter the consumption of harmful commodities.
Understanding Excise Duty:
Excise duty is an indirect tax levied on the manufacture or production of goods within India. Unlike GST, which is a destination-based consumption tax, excise duty is a source-based tax collected at the factory gate. In the 2025 landscape, it remains the primary tax for:
Alcoholic liquors for human consumption (State Excise).
Petroleum products (Crude oil, Petrol, Diesel, Natural Gas, Aviation Turbine Fuel).
Tobacco and Tobacco products (Central Excise — heavily revised in 2025).
Evolution Over The Time:
India’s taxation journey reached a new milestone in December 2025. As the temporary GST Compensation Cess (introduced in 2017) began to sunset, the government passed the Central Excise (Amendment) Bill 2025 to ensure the total tax burden on demerit goods did not drop.
Historical Core: The Central Excise Act of 1944 remains the governing legislation.
The 2025 Pivot: Tobacco products were shifted from a “GST + Cess” model to a “GST + Enhanced Excise” model. This move protects the tax incidence and moves the revenue into the divisible pool, benefiting state finances directly.
Excise Duty Filing and Compliance
- Registration and E-Verification
- Manufacturers of excisable goods must register via the CBIC-GST portal. In 2025, new registrations for tobacco and pan masala units now require mandatory machine registration to curb tax evasion.
- The New Payment Structure
- Specific Duties: For products like cigarettes, the duty is now largely “specific” (e.g., up to ₹11,000 per 1,000 sticks for premium filters).
- Capacity-Based Cess: Under the companion Health & National Security Cess Bill 2025, pan masala manufacturers pay tax based on the production capacity of their machines rather than just sales.
- Return Filing
- Registered manufacturers must file monthly returns (such as ER-1) electronically. These must now be reconciled with the Annual Information Statement (AIS) to ensure transparency between production and corporate income records.
Impact of GST on Excise Duty
The September 2025 GST Rationalization (Reform 2.0) simplified the tax slabs but kept excise duty as a powerful “overlay” for specific sectors:
Petroleum “The Big Five”: These remain outside GST. They attract Central Excise Duty plus State VAT, allowing states to adjust local fuel prices.
The 40% Demerit Slab: Under the new two-tier GST system (5% and 18%), a special 40% demerit rate was introduced for luxury and sin goods. For tobacco, this 40% GST is applied in addition to the newly hiked Central Excise duties.
Removal of Layers: For non-sin manufactured goods, excise duty remains fully eliminated, continuing to simplify the supply chain for 90% of Indian industry.
Conclusion
Excise duty has transitioned from a general manufacturing tax to a specialized “Demerit Tax” in 2025. The recent legislative amendments signify a “future-ready” approach—securing government revenue while addressing public health goals through high specific duties. For businesses in the petroleum, alcohol, and tobacco sectors, navigating this dual-tax regime requires rigorous compliance with both the ancient Central Excise Act and the modern, digital GST framework.
Disclaimer: The views expressed here are of the author and do not reflect those of Dhanvantree. Mutual funds are subject to market risks, please read the scheme documents carefully before investing.