GST Update: Weekly Goods and Service Tax latest News – January 2026

GST WEEKLY UPDATE : 43/2025-26 (28.01.2026)

1.RSP-Based Valuation of Notified Tobacco Goods under GST – Practical Reporting Guidance and Compliance Challenges:

With effect from 1 February 2026, the Government has introduced Retail Sale Price (RSP)-based valuation for specified tobacco and tobacco-related products under GST. While the statutory framework mandates tax computation on RSP, existing GST systems are designed on a transaction-value model, resulting in practical reporting challenges. This article analyses the legal framework, computation mechanism, system constraints, and the reporting guidance issued by GSTN, with illustrations.

1. Legislative Background

Vide Notification Nos. 19/2025–Central Tax and 20/2025–Central Tax dated 31 December 2025, the Government has notified RSP-based valuation for specified tobacco products with effect from 01.02.2026.

The notified goods broadly cover:

• Pan masala
• Unmanufactured tobacco and tobacco refuse
• Cigars, cigarettes and cigarillos
• Other manufactured tobacco (excluding biris)
• Nicotine and tobacco-based inhalation products without combustion

Under this regime, taxable value is no longer linked to actual consideration, but is derived from the RSP printed on the package, irrespective of trade discounts or net realization.

2. RSP-Based Valuation – Computation Mechanism

For notified goods, the tax amount is required to be back-calculated from RSP, which is a tax-inclusive value.

Statutory Formula

Tax Amount = (RSP × Applicable GST Rate) ÷ (100 + Applicable GST Rate)
Deemed Taxable Value = RSP – Tax Amount

Thus, GST liability is fixed with reference to RSP, even if the commercial transaction value is significantly lower.

Read also:No refund on ITR AY 2025-26 until Income Tax Department completes investigation on you

3. Illustration – Practical Impact

Particulars	Amount (₹)
RSP per pack	100
Quantity	1,000 packs
Aggregate RSP	1,00,000
IGST @ 40% (RSP-based)	28,571.43
Deemed Taxable Value	71,428.57
Actual Net Sale Value	60,000

The key anomaly arises because deemed taxable value exceeds actual transaction value, which is inconsistent with system validations.

4. System-Level Challenges

Existing e-Invoice, e-Way Bill and GSTR-1 systems are built on a transaction-value model and enforce the validation:

Taxable Value + Tax Amount ≤ Invoice Value

In RSP-based valuation, this condition fails if the deemed taxable value is reported, leading to technical rejections.

5. GSTN Reporting Advisory – Trade Facilitation Measure

To resolve this mismatch, GSTN has issued a practical reporting advisory, allowing taxpayers to adopt the following approach:

1. Taxable Value Field
   Report the Net Sale Value (actual commercial consideration).
2. Tax Amount Field
   Report tax computed strictly as per RSP-based formula, even though it is derived from a higher deemed value.
3. Invoice Value
   Report Net Sale Value + RSP-based tax amount.

This methodology ensures system validation is satisfied without diluting statutory tax liability.

6. Legal Position and Risk Considerations

• The advisory is a procedural facilitation, not a relaxation of law.
• Tax liability must still be discharged strictly on RSP basis.
• Proper classification of notified HSNs is critical to avoid disputes.
• Documentation should clearly demonstrate RSP computation workings for audit defence.

7. Conclusion

RSP-based valuation marks a decisive shift towards revenue certainty and anti-evasion in the tobacco sector. However, until system architecture is fully aligned, the GSTN-prescribed reporting method serves as a pragmatic bridge between law and technology. Taxpayers must ensure accuracy in computation, classification, and disclosure to mitigate litigation exposure.

2.Enhanced GST, Compensation Cess and Excise Structure on Tobacco Products – A Post-February 2026 Analysis:

     1.Overview of the Revised Tobacco Tax Regime

The post-February 2026 framework reflects a policy shift towards higher sin taxation, combining:

• GST (up to 40%)
• Compensation Cess
• Central Excise Duty
• National Calamity Contingent Duty (NCCD) (continuing)

The objective is dual: revenue augmentation and consumption deterrence.

2. Cigarettes – Length-Based Compensation Cess

Length of Cigarette	Compensation Cess per 1,000 sticks (₹)
Not exceeding 65 mm	4,170
65 mm – 70 mm	6,417
70 mm – 75 mm	8,775
Above 75 mm	13,770

This length-wise differentiation significantly increases the effective tax burden on premium segments.

3. Pan Masala – GST and Cess Computation

Particulars	Amount (₹)
Basic Value	1,00,000
Compensation Cess	4,000
GST Base	1,04,000
CGST @ 20%	20,800
SGST @ 20%	20,800
Invoice Value	1,45,600

The cascading impact of cess inclusion in GST base results in substantial tax loading.

4. Chewing Tobacco – Tax Burden Illustration

Particulars	Amount (₹)
Basic Value	80,000
Compensation Cess	4,000
GST Base	84,000
CGST @ 20%	16,800
SGST @ 20%	16,800
Invoice Value	1,17,600

5. Biris – Differential Treatment Continues

Particulars	Amount (₹)
Basic Value	50,000
GST @ 18%	9,000
Invoice Value	59,000

Biris continue to enjoy a relatively concessional regime, reflecting socio-economic considerations.

Read also:GSTAT: Centre Notifies New Rules For GST Appellate Tribunal

6. Compliance and Documentation Requirements

• Invoices must comply with Rule 46 of CGST Rules
• Clear disclosure of HSN, cess, GST bifurcation and RSP (where applicable)
• Alignment between GST, excise and customs valuations is essential

 Compliance & return:

Form HSNS REG-01

Every manufacturer must obtain mandatory registration under the HSNS Cess framework.

Procedure:

• Application to be made electronically on www.cbic-gst.gov.in
• Enrollment as a “New User” under the HSNS Cess tab
• Submission of details such as:
  • Legal name
  • PAN
  • Email ID and mobile number
• Generation of Enrollment Reference Number (ERN)
• Filing of Form HSNS REG-01 using ERN
• Issuance of Temporary Registration Number (TRN) for initial compliance

Failure to register may attract penal consequences, suspension of manufacturing operations and seizure of machinery.

 Declaration of Manufacturing Details

Form HSNS DEC-01

Upon grant of registration:

• A cess declaration must be filed within 7 days
• Declaration includes:
  • Number and type of machines
  • Manufacturing capacity
  • Operational status of machinery

This declaration forms the basis for cess computation and future departmental verification.

 Monthly Payment of HSNS Cess:

Form HSNS PMT-01

HSNS Cess is required to be:

• Paid monthly
• Electronically by the 7th day of the same month

Illustration:
Cess liability for February 2026 must be paid on or before 7 February 2026.

Payment is to be made through:

• Taxpayer Dashboard → e-Payment option

Delayed payment may result in interest, penalties and enforcement action.

Monthly Return Filing:

Form HSNS RET-01

Every registered manufacturer must file a monthly return:

• Due date: 20th day of the succeeding month
• Mode: Electronic filing through taxpayer dashboard

Example:
Return for February 2026 is due by 20 March 2026.

The return captures:

• Machine details
• Cess liability paid
• Operational continuity of manufacturing units

 Interplay with GST and Other Indirect Taxes

Manufacturers must simultaneously comply with:

• GST returns (GSTR-1, GSTR-3B)
• RSP-based valuation for notified tobacco goods
• Compensation Cess and Central Excise levies
• E-Invoice and e-Way Bill requirements

The HSNS Cess operates independently of GST, and input tax credit is not available for such cess, increasing the effective tax cost.

Read also:GSTN Postpones Non-Editable Table 3.2 in GSTR-3B After Taxpayers’ Grievances

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