Penalties for unregistered pan masala, gutkha machines under GST begin Oct 1

The government has set a date of October 1 for imposing a penalty for failure to register certain machines used in the manufacture of pan masala, gutkha, etc., under the GST regime. It has also set a date of April 1, 2025, for mandatory Input Service Distributor registration for entities holding multiple registrations, with penalties imposed for non-adherence.

The Central Board of Indirect Taxes & Custom (CBIC) has notified dates for the changes brought through the Finance Act 2024 in the Interim Budget. Section 13 of the Act prescribes a penalty of ₹1 lakh for every machine not registered by pan masala, gutkha, and other tobacco product manufacturers. Apart from the penalty, unregistered machines will be liable for seizure and confiscation. However, if the imposed penalty is paid or the registration is done within three days of receiving the communication of the penalty order, then there will be no seizure or confiscation.

In order to check tax evasion and based on the recommendation of the GST Council, the government issued a notification in January to seek information from taxpayers dealing in goods such as pan masala and tobacco. Accordingly, two forms — GST SRM-I and GST SRM-II — were notified. The former pertains to the registration and disposal of machines, while the latter later asks for information on inputs and outputs during a month. Earlier, the system was to come into effect on April 1, but it was later deferred to May 15.

• Also read: Pan masala, gutkha firms get time till May 15 to roll out special procedure for registration, monthly return filing

This procedure applies to manufacturers of pan-masala, unmanufactured tobacco (without lime tube) with or without a brand name, ‘hookah’ or ‘gudaku’ tobacco bearing or not bearing a brand name, smoking mixtures for pipes and cigarettes, chewing tobacco (without lime tube), filter khaini, jarda-scented tobacco, snuff, and branded or unbranded ‘gutkha’, etc.

The special procedure is based on suggestions given by a Group of Ministers (GoM). The group said that tax evasion in tobacco products is a common internationalpractice and emphasised that alternate systematic enforcement and administrative mechanisms need to be devised to curb evasion and enhance compliance.

Accordingly, it was suggested that a track-and-trace method needs to be applied. It is an internationally accepted practice used to curb illicit trade in the tobacco sector with the help of electronic means. Besides this, it was also suggested that manufacturers of tobacco products should register each machine and be required to disclose the make, year of production, number of tracks, and capacity of the machine.

• Also read: Chewing tobacco manufacturer used decoy e-way bills to evade GST

ISD registration

Section 11 and 12 of the Finance Act 2024 deal with the manner of distribution of credit by the Input Service Distributor (ISD). ISD means an office of the supplier of goods or services or both, which receives tax invoices for the receipt of input services, including invoices in respect of services liable to tax, and is liable to distribute the input tax credit in respect of such invoices. Now, such an office is required to be registered with effect from April 1 next year.

During its 50th meeting, the GST Council proposed making the ISD mechanism compulsory for the allocation of Input Tax Credit (ITC) related to services acquired by the Head Office but distributed across multiple registrations. On these lines, the Interim Budget made amendments, and now the appointed date has been notified.