Finance Minister Nirmala Sitharaman on Friday, December 5, strongly defended the Health Security and National Security Cess Bill, 2025, in Lok Sabha, asserting that the levy targets only demerit goods like tobacco and pan masala while emphasising the government’s need for steady defence funding.
Responding to concerns during the discussion, Sitharaman clarified that the cess would be imposed exclusively on demerit goods and not expanded beyond this scope.
She stressed that money is fungible and can be deployed for critical areas including defence and infrastructure.
“I need to give money for defence. Collecting revenue and making sure the nation is well is the duty of every government,” she stated.
The FM highlighted that proceeds from the cess would be utilised solely for two purposes: public health and national security. She noted it had taken considerable time to restore the army’s preparedness, making a steady flow of resources essential for the defence sector.
The Finance Minister underlined that Parliament’s authority on taxation remains fully intact.
“A notification to levy a cess as per particular rates is laid in Parliament; nothing goes beyond Parliament,” she said, pointing to Supreme Court rulings that reinforce the legislature’s power to impose cesses.
On technical aspects, Sitharaman explained that the tobacco sector remains highly evasion-prone, making even the current 40% GST rate insufficient. She defended the production capacity-based levy, clarifying it was not a new parameter but an existing mechanism.
“Actual production was difficult to tax; machine-based duty is not new,” she said.
On pan masala specifically, the FM acknowledged the industry’s ingenuity in creating new variants and emphasised the need for flexibility to bring such products under the levy without seeking parliamentary approval each time.
Currently, the effective tax on pan masala stands at 88%, but once the compensation cess expires and GST is capped at 40%, there are concerns about reduced tax incidence.
“We can’t allow it to become cheaper and also lose revenue,” Sitharaman asserted, while categorically stating there was no intent to encroach upon the GST Council’s domain.
Rebutting criticism that the cess would dilute GST principles, she said: “There is absolutely no intent to step into the domain of GST, which is with the GST Council.” She also clarified that tobacco advertisements are not subject to the new cess.
