The Central Board of Indirect Taxes and Customs (CBIC) has issued Instruction No. 01/2026 dated February 10, 2026, laying down a comprehensive Standard Operating Procedure (SOP) for verifying declarations filed by manufacturers under the newly introduced HSNS Cess and Capacity Determination framework.
The SOP provides a structured mechanism for the verification of machinery used in the production of pan masala, chewing tobacco, jarda scented tobacco, and gutkha, marking a crucial step toward plugging revenue leakages and ensuring transparency in capacity-based taxation.
Background: New Compliance Regime Effective from February 2026
With effect from February 1, 2026, manufacturers are required to file declarations in:
- FORM HSNS DEC-01 under the HSNS Cess Rules, 2026
- FORM CE DEC-01 under the Capacity Determination Rules, 2026
These declarations capture detailed information about packing machines and production capacity, which directly impact the calculation of cess and duty liability.
Role of QCI in Technical Verification
To ensure accuracy and technical reliability, CBIC has engaged the Quality Council of India (QCI) as a technical partner.
QCI will assist tax authorities in verifying machine specifications, including:
- Revolutions per minute (RPM) of motors
- Gear ratios
- Number of funnels or cups in packaging machines
This collaboration introduces a specialized technical layer into GST and excise compliance, reducing reliance on self-declared data.
Step-by-Step Verification Process
1. Data Sharing & Planning
- Registration and declaration data are shared daily between GST systems and DG GST.
- QCI prepares a verification schedule and communicates inspection dates.
2. Coordination with Field Officers
- Jurisdictional officers inform taxpayers in advance.
- Manufacturers must ensure:
- Availability of machines
- Technical documents
- Access to personnel
3. On-Site Machine Verification
During inspection, QCI verifies:
- Machine speed and capacity using calibrated instruments
- Manufacturer specifications and markings
- Physical configuration of machines
In exceptional cases, machine dismantling may be permitted with prior approval.
Mandatory Videography & Reporting
One of the most notable compliance features introduced is:
- Mandatory videography of the entire verification process
- Preservation of recordings by tax authorities
- Submission of inspection reports by QCI within 7 days
This ensures audit trail integrity and accountability.
Coverage Includes Non-Operational Machines
The SOP clarifies that all machines, including:
- Sealed machines
- Non-operational machines
must be declared and verified. Such machines will be temporarily de-sealed for inspection and resealed afterward in the presence of authorities.
Post-Verification Actions
Once verification is complete:
- The jurisdictional officer issues an order:
- Confirming declarations
- Determining cess liability under HSNS Rules, or
- Fixing annual production capacity
- Weekly monitoring reports are submitted to DG GST for centralized oversight.
Why This SOP Matters
This SOP is a critical step in:
- Standardizing verification procedures nationwide
- Reducing tax evasion through under-reporting of capacity
- Bringing technical precision into tax administration
- Enhancing transparency via videographed inspections
For manufacturers, it signals a shift toward data-backed compliance with minimal room for ambiguity.
Click here to view/download the official copy of the instruction
Conclusion
The CBIC's latest SOP reflects a clear policy direction: tightened compliance backed by technology and technical expertise. With QCI's involvement and stringent verification protocols, businesses in the tobacco and pan masala sectors must ensure accurate declarations and readiness for detailed inspections.
This development is expected to significantly impact how capacity-based taxation is enforced in India, making compliance more robust and verifiable than ever before.
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