Indian Government Implements Penalties for Unregistered Pan Masala and Gutkha

According to a report from The Hindu Businessline on August 7th, the Indian government has announced that penalties will be imposed on specific manufacturers of pan masala and gutkha starting October 1st for not registering under the Goods and Services Tax (GST) system.

Starting on April 1, 2025, entities with multiple registrations will be required to implement an Input Service Distributor (ISD) registration, with fines imposed on those who do not comply.

The Central Board of Indirect Taxes and Customs (CBIC) has notified the date of changes brought by the Finance Act in the interim budget of 2024. As per Section 13 of the Act, manufacturers of pan masala, gutkha, and other tobacco products will be fined 100,000 rupees (approximately $1,191) for each unregistered machine. Additionally, unregistered machines will face confiscation and seizure. However, if the fine is paid or registration is completed within three days of receiving the penalty notice, no confiscation or seizure will take place.

In order to curb tax evasion and in line with the recommendations of the GST committee, the government issued a notification in January requiring taxpayers engaged in transactions involving products such as betel nut and tobacco to provide information. Accordingly, two forms were notified - GST SRM-I and GST SRM-II. The former involves registration and processing of machinery, while the latter asks for monthly input and output information.

The system was originally scheduled to take effect on April 1, but was later postponed to May 15. This program applies to manufacturers of betel nuts, unprocessed tobacco (excluding lime pipes) with or without brand, "shisha" or "gudaku" tobacco with or without brand, tobacco mixtures for pipes and cigarettes, chewing tobacco (excluding lime pipes), filtered chewing tobacco, flavored tobacco, snuff, and branded or unbranded "gutkha" products.

This special program is based on suggestions put forth by the Group of Ministers (GoM). The group has noted that illicit trade in tobacco products is a common international phenomenon and has emphasized the need for alternative systemic enforcement and administrative mechanisms to curb tax evasion and improve compliance. Therefore, it is recommended to implement tracking and tracing methods. This is an internationally recognized practice to combat illicit trade in the tobacco industry, achieved through electronic means. In addition, tobacco product manufacturers are also advised to register each machine and disclose information such as the machine's make, year of production, track number, and machine capacity.

At the 50th meeting, the GST Council proposed the mandatory implementation of the Input Service Distribution (ISD) mechanism to allocate input tax credit related to services acquired by the headquarters but distributed among multiple registered entities. Accordingly, the interim budget has been revised and a designated date has now been notified.