The Central Board of Indirect Taxes and Customs (CBIC) has notified a major change in the valuation mechanism under GST for specified tobacco-related products, including pan masala and cigarettes. Through Notification No. 19/2025 - Central Tax and Notification No. 20/2025 - Central Tax, both dated December 31, 2025, the government has introduced retail sale price (RSP)-based valuation for certain goods, effective from February 1, 2026.
Under the amended notification, the value of supply for pan masala, unmanufactured tobacco, cigarettes, cigars, and other manufactured tobacco products will now be deemed as the declared retail sale price minus applicable GST. This change has been made by inserting a new clause (iv) in Notification No. 49/2023-Central Tax, issued under Section 15(5) of the CGST Act, 2017, based on the recommendations of the GST Council.
To operationalise this valuation method, the government has also inserted a new Rule 31D in the CGST Rules, 2017 via the Central Goods and Services Tax (Fifth Amendment) Rules, 2025. The rule provides a clear formula for calculating the tax portion embedded in the retail sale price, ensuring uniform valuation across states and supply chains.
The notified goods include pan masala (HSN 2106 90 20), unmanufactured tobacco, cigarettes and cigars, other manufactured tobacco products (excluding bidis), and new-age tobacco or nicotine products meant for inhalation without combustion. The rules also clarify that where multiple retail sale prices are declared on a package, the highest RSP will be considered for GST valuation purposes.
Further, the amendment to Rule 86B provides relief to registered persons other than manufacturers by exempting them from certain restrictions, provided GST has already been paid by the supplier on an RSP basis. This move is expected to plug revenue leakages, simplify valuation disputes, and strengthen compliance in high-revenue, sin-goods sectors.
Tax experts believe the RSP-based valuation aligns GST with existing excise and compensation cess structures for tobacco products and may significantly boost revenue certainty while reducing under-reporting of transaction values.
Official copy of the notification has been attached
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