Finance Minister Sitharaman Introduces Health Security Cess Bill to Strengthen National Security and Public Health Funding

Union Finance Minister Nirmala Sitharaman introduced The Health Security se National Security Cess Bill, 2025 in the Lok Sabha on Thursday, seeking consideration and passage of this significant legislation.

Speaking before the house, Sitharaman stated, "I rise to move that the bill to augment the resources for meeting expenditure on national security and for public health and to levy assess for the said purposes on the machines installed or other processes undertaken by which specified goods are manufactured or produced and for matters connected therewith or incidental thereto."

The Finance Minister explained the reasoning behind the proposed cess, noting that while GST taxes consumption with pan masala currently taxed at 28 percent plus compensation cess, the system has limitations. "Since the compensation cess is going to end, that portion will shift into a 40 percent cess. However, many types of pan masala still do not fall under the tax net because GST is applied on the basis of consumption," she clarified.

Sitharaman elaborated on the difference between GST and excise taxation: "Excise taxes production. But pan masala cannot be taxed on production because it is not classified as an excisable product. Therefore, through the new law, the government is imposing a production-based tax in the form of a cess."

The minister emphasized that this Bill aims to create a dedicated source of funding for two critical national priorities: health security and national security. She assured that the cess would not affect essential commodities but would only target demerit goods associated with significant health risks, stating, "We want to impose such a cost as a deterrent."

Congress MP Varun Chaudhury from Haryana's Ambala expressed concerns that the Bill is silent on sharing the cess pool with States and suggested referring it to a Select Committee. He also noted the unusual bilingual nature of the Bill's title.

Originally introduced on December 1, 2025, the Bill proposes to levy a cess on the production of goods such as paan masala and other notifiable items. The cess rates range from Rs 1.01 crore to Rs 25.47 crore per machine per month, with provisions allowing the government to double these rates if necessary.

The legislation includes provisions for audits by senior officers and mechanisms for recovering unpaid cess with interest and penalties. Offenses under the Bill include undeclared production, non-payment, lack of registration, and tampering with seized goods, with penalties starting at Rs 10,000 or the evaded amount. Serious fraud cases exceeding Rs 1 crore may result in imprisonment ranging from one to five years.

The Bill establishes a three-tier appeals process and authorizes officers of Joint Commissioner rank or higher to inspect, search, and seize goods or records when evasion is suspected.

This legislative move follows the Lok Sabha's passage of the Central Excise (Amendment) Bill, 2025 the previous day, which revised excise duties on tobacco products following the expiration of the GST compensation cess.

During that discussion, Sitharaman had clarified, "This is not a new law. This is not an additional tax. This is not something that Centre is taking away." She emphasized that the revenue collected would go to the divisible pool, with 41 percent redistributed to the States.