The Central Government, in exercise of the powers conferred by section 35 of the Health Security se National Security Cess Act, 2025 (35 of 2025), has notified the Health Security se National Security Cess (Second Amendment) Rules, 2026 vide Notification No. 03/2026-HSNS Cess [G.S.R. 381(E)] dated May 20, 2026, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i). The amended rules shall come into force on the date of their publication in the Official Gazette.
Background, the principal rules — the Health Security se National Security Cess Rules, 2026 — were originally notified vide Notification No. 01/2026-HSNS Cess [G.S.R. 2(E)] dated January 01, 2026 and brought into force with effect from February 01, 2026. The principal rules established the comprehensive procedural framework for the levy and collection of the Health Security se National Security (HSNS) Cess, including provisions relating to registration of taxable persons, declaration of installed machines and manual process units, computation and payment of cess, monthly returns, abatement on account of non-operation, audit, maintenance of records, compounding of offences, seizure of goods, appeals and revision, mandatory installation of CCTV surveillance, and removal of machines.
Subsequently, the principal rules were amended for the first time vide Notification No. 02/2026-HSNS Cess [G.S.R. 78(E)] dated January 30, 2026, whereby the Health Security se National Security Cess (First Amendment) Rules, 2026 were brought into force with effect from February 01, 2026. The First Amendment, inter alia, introduced the prescribed formula for determining the “maximum rated speed” of a packing machine — S = (R/G) × n — substituted Illustration 2 under rule 16 dealing with quantification of abatement, made consequential changes in FORM HSNS DEC-01 and FORM HSNS CE-01 (Chartered Engineer’s Certificate) by substituting the term “tracks” with “cups” and recalibrating the relevant columns, and, most significantly, inserted a new rule 35 providing for the manner of utilisation of the cess proceeds through a dedicated “Health Security se National Security Cess Fund”.
The present Second Amendment, notified vide Notification No. 03/2026-HSNS Cess dated May 20, 2026, confines its scope exclusively to rule 35 (Utilisation of cess) of the principal rules and effects three targeted modifications aimed at simplifying the institutional and procedural arrangements for transfer, allocation and accounting of the cess proceeds.
Key Amendments under Notification No. 03/2026-HSNS Cess
- First, sub-rule (3) of rule 35 has been omitted. The omitted sub-rule had earlier prescribed that the transfer of the cess to the Health Security se National Security Cess Fund shall be carried out quarterly by the Department of Revenue, Ministry of Finance. With this omission, the rigid quarterly timeline stands done away with, providing the administering authorities greater flexibility in the periodicity of inter-fund transfers, consistent with prevailing budgetary practices.
- Second, in sub-rule (5) of rule 35, the words “Budget Division, Department of Economic Affairs in consultation with” have been omitted. As a result, the identification of activities, schemes and programmes eligible to be financed from the cess proceeds — and the inter-se allocation of the cess (including any interest or penalty) for such designated purposes — shall henceforth be decided solely by the Department of Expenditure, Ministry of Finance, without the earlier requirement of consultation with the Budget Division of the Department of Economic Affairs. This change consolidates decision-making authority within a single division and is expected to reduce procedural overlap.
- Third, sub-rule (6) of rule 35 has been substantially recast. Earlier, the transfer of the amount to the Fund, the debit of the Fund and the maintenance of the Fund’s ledger were required to be carried out as per the accounting procedure formulated by the Office of the Principal Chief Controller of Accounts, Central Board of Indirect Taxes and Customs (CBIC) and as approved by the Comptroller and Auditor General of India (CAG). Through the present amendment, these words have been substituted with “the Chief Controller of Accounts (Finance)”. Accordingly, the operational responsibility for the accounting of the Fund now vests with the Chief Controller of Accounts (Finance), bringing it within the unified accounting architecture of the Ministry of Finance.
It is pertinent to note that notwithstanding the above changes, the other sub-rules of rule 35 continue to remain operative. Cess collections — inclusive of any interest or penalty — shall continue to be credited to the Consolidated Fund of India and utilised, after due appropriation by Parliament, for the purposes set out in section 7 of the Act. The Fund shall continue to finance activities, schemes and programmes relating to public health and the national security of India, and the accounts of the Fund maintained by the Central Government shall remain subject to audit by the Comptroller and Auditor General of India.
Unlike the principal rules and the First Amendment Rules — both of which came into force on a specified prospective date (February 01, 2026) — the Second Amendment Rules have been made effective on the date of their publication in the Official Gazette, that is, May 20, 2026. Stakeholders, including registered persons engaged in the manufacture of specified goods such as pan masala, and the field formations of the Central Board of Indirect Taxes and Customs, are advised to take note of the revised procedural architecture for cess transfer, allocation and accounting with immediate effect.
Quick Reference — Notifications under HSNS Cess Rules 2026
- Notification No. 01/2026-HSNS Cess [G.S.R. 2(E)] dated January 01, 2026 — Principal Rules; effective February 01, 2026.
- Notification No. 02/2026-HSNS Cess [G.S.R. 78(E)] dated January 30, 2026 — First Amendment Rules; effective February 01, 2026.
- Notification No. 03/2026-HSNS Cess [G.S.R. 381(E)] dated May 20, 2026 — Second Amendment Rules; effective from date of publication.
