The Goods and Services Tax Network (GSTN) has issued an important advisory clarifying the reporting and compliance mechanism for RSP-based valuation of notified tobacco and tobacco-related products, effective 1 February 2026. The advisory follows the issuance of Notification Nos. 19/2025-CT and 20/2025–CT dated 31 December 2025, which mandate valuation based on Retail Sale Price (RSP) instead of transaction value for specified goods.
RSP-Based Valuation: What Has Changed?
Under the new framework, GST liability on certain tobacco products will no longer depend on the actual sale price charged between supplier and buyer. Instead, tax will be calculated on the RSP printed on the package, irrespective of discounts or commercial consideration.
The notified goods include:
- Pan masala (HSN 2106 90 20)
- Unmanufactured tobacco and tobacco refuse
- Cigarettes, cigars and cigarillos
- Other manufactured tobacco products (excluding bidis)
- Tobacco or nicotine products meant for inhalation without combustion
How GST Is to Be Computed Under RSP Valuation
GST is required to be computed using the prescribed statutory formula:
Tax Amount = (RSP × Applicable GST Rate) / (100 + Applicable GST Rate)
The taxable value is then derived by deducting the tax amount from the RSP. This means GST is treated as included in the RSP, unlike the traditional transaction-value method.
Key Challenge: System Validations in GST Returns
GSTN has acknowledged that the existing e-Invoice, e-Way Bill and GSTR-1 systems are designed around transaction-value reporting. As a result, taxpayers may face validation errors where the deemed taxable value (as per RSP) exceeds the commercial invoice value.
To address this issue, GSTN has prescribed a special reporting mechanism as a trade facilitation measure.
Reporting Guidance for e-Invoice, e-Way Bill and GSTR-1
For supplies covered under RSP-based valuation, taxpayers are advised to report details as follows:
- Taxable Value: Report the Net Sale Value (actual commercial consideration)
- Tax Amount: Compute strictly as per the RSP-based valuation formula
- Total Invoice Value: Report as Net Sale Value + Tax Amount
This ensures that the system condition - Taxable Value + Tax ≤ Total Invoice Value - is satisfied, while still discharging the correct statutory tax liability.
Where system-calculated tax differs from the RSP-based tax, taxpayers may manually edit the tax amount in GSTR-1 to reflect the correct liability.
Limited Applicability and Compliance Responsibility
GSTN has clarified that this reporting mechanism:
- Applies only to the HSNs notified for RSP-based valuation
- Is a facilitation measure, without diluting statutory provisions
- Requires self-assessment and careful verification by taxpayers before filing returns
Taxpayers must also ensure the correct classification of goods and apply RSP-based valuation strictly where mandated under law.
Bottom Line
With RSP-based valuation coming into force from 1 February 2026, manufacturers and suppliers of tobacco products must realign their invoicing, return filing and system reporting practices. The GSTN advisory provides much-needed clarity to avoid validation errors while ensuring full tax compliance.
Official copy of the advisory has been attached
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