Unregistered tobacco machines will now incur a penalty of up to Rs 1 lakh, signaling the Central Government’s firm stance against revenue leakage. The government recently discovered that several businesses engaged in the packaging of chewing tobacco or the production of gutkha use machines that are not registered with the Goods and Services Tax (GST) department. Consequently, such operators will now face substantial fines. This decision, effective from April 1, is part of the amendments made to the GST law. Sanjay Malhotra, Revenue Secretary at the Ministry of Finance, provided this information at the Central Finance Ministry.

Unauthorized Machines Subject to Penalties

The government is taking a stringent approach in cases related to revenue leakage. Reports indicate that individuals involved in the production of tobacco-related products, such as khaini, gutkha, pan masala, or similar items, use packaging machines not registered with the Goods and Services Tax (GST) department. These operators will now be subject to significant penalties. Sanjay Malhotra, the Revenue Secretary, conveyed this information, emphasizing that this decision becomes effective from April 1.

Illegitimate Without Registered Machines

Following discussions with the Revenue Secretary after this year’s interim budget, it was revealed that the decision to address revenue leakage in the tobacco manufacturing industry has been taken. Specifically, the Finance Act of 2024 introduced amendments to the Central GST Act, imposing penalties of up to Rs 1 lakh on each unregistered machine. Additionally, non-compliance may lead to confiscation in certain cases.

No Penalties Previously Imposed

Last year, in response to the recommendations of the GST Council, tax authorities issued a notification outlining a special process for tobacco manufacturers to register their machinery. While the amendment emphasized the need to document both newly acquired and existing packaging machines and their production capacities in GST Form SAR-1, no penalties were introduced.

Mandatory Machine Registration

Sanjay Malhotra explained that during a recent meeting of the GST Council, a decision was made to address the issue. He stated, “For pan masala, gutkha, and similar products, their machines should be registered so that we can monitor their production capacity. Previously, there was no penalty for non-registration. Therefore, the council decided to introduce penalties of up to one lakh rupees for not registering machines in the Finance Act.”

Implementation Follows Report Findings

After a report presented by a panel of state finance ministers was approved by the Central Finance Minister and the Council of State Finance Ministers last February, steps were taken to curb tax evasion in the pan masala and gutkha businesses. The Group of Ministers (GoM) recommended changing the process of imposing cess or tax on the retail sale price of pan masala and other forms of tobacco through a specific rate-based levy. The government introduced amendments in the Finance Bill, 2023, where the highest GST compensation cess rate would be applied to the maximum retail sale price of pan masala and other tobacco products.

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