The Goods and Services Tax Network (GSTN) has issued a detailed advisory clarifying the reporting mechanism for tobacco and tobacco-related products brought under Retail Sale Price (RSP)-based valuation, addressing key compliance challenges ahead of the regime’s implementation from February 1, 2026.
The advisory follows Notifications 19/2025–Central Tax and 20/2025–Central Tax, dated December 31, 2025, which prescribe RSP-based valuation for a wide range of tobacco products. While the notifications alter the basis of GST valuation, the GSTN clarification focuses on practical reporting issues in e-invoicing, e-way bills and return filings, providing relief to manufacturers, importers and distributors.
What the RSP-Based Valuation Regime Provides
Under the notified framework, GST on specified tobacco products is no longer linked to the actual transaction value between supplier and recipient. Instead, tax liability is determined with reference to the Retail Sale Price declared on the package, irrespective of discounts, promotional pricing or negotiated sale values.
The notified list includes pan masala, unmanufactured tobacco, cigarettes, cigars, other manufactured tobacco products, and certain tobacco- or nicotine-based inhalation products, falling under HSN codes 2106, 2401, 2402, 2403 and 2404.
For these goods, RSP is treated as a tax-inclusive price, and GST is required to be computed using a statutory reverse-calculation formula. The deemed taxable value is derived from the RSP after extracting the applicable tax component, rather than being directly reported as the sale price.
The System Mismatch and Compliance Challenge
While the law mandates RSP-based valuation, GST compliance systems were designed around a transaction-value model. Invoices generated through the e-invoice portal, e-way bill system and outward supply returns (GSTR-1/IFF) are subject to validations requiring the sum of taxable value and tax to not exceed the total invoice value.
In RSP-based valuation scenarios, this condition often fails. The deemed taxable value derived from RSP can exceed the actual commercial consideration, particularly where trade discounts are involved. This created the risk of invoice rejections, system errors and filing disruptions despite correct tax computation.
The GSTN advisory directly addresses this mismatch.
What the GSTN Advisory Clarifies
To ensure smooth system functionality without altering the statutory valuation framework, GSTN has prescribed a reporting workaround for notified tobacco goods.
For e-invoicing, e-way bills and GSTR-1/1A/IFF filings, taxpayers are advised to:
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Report the net sale value (actual transaction value) in the taxable value field
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Compute and report tax strictly as per the RSP-based formula
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Report the total invoice value as the sum of the net sale value and the RSP-derived tax amount
GSTN has clarified that the taxable value field may reflect the commercial consideration for system purposes, even though tax liability remains anchored to RSP. Taxpayers may also manually edit system-calculated tax figures in returns to align them with RSP-based computation.
The advisory applies only to the notified HSNs and is a trade facilitation measure without diluting legal requirements.
Why the Advisory Is Important
Without this guidance, businesses could have faced technical rejections, blocked e-way bills, return mismatches and potential disputes despite substantive compliance.
By aligning statutory valuation with system architecture, the advisory reduces the risk of avoidable litigation, particularly during the initial phase of implementation. It also provides clarity to compliance teams and ERP system providers configuring invoicing and reporting workflows.
Impact on the Tobacco Industry
The shift to RSP-based valuation represents a structural change for the tobacco sector. By delinking GST liability from transaction value, the regime curbs discount-driven tax arbitrage and value suppression, leading to higher and more predictable tax outgo.
While this may increase working capital pressure, it brings greater uniformity, transparency and reduced interpretational disputes. From a regulatory perspective, it strengthens revenue assurance and traceability in a sector viewed as high-risk from a tax enforcement standpoint. The GSTN advisory further mitigates operational risk by ensuring system constraints do not undermine legal compliance.
Expert View: Balancing Enforcement with Ease of Doing Business
Tax experts have welcomed the clarification as pragmatic.
“This advisory is a practical and timely clarification,” said Rajat Mohan, Senior Partner, AMRG & Associates. “While GST must be paid on the RSP as mandated by law, allowing reporting of net sale value for system purposes avoids technical mismatches and compliance disruption. It benefits manufacturers, importers and distributors while also aiding tax authorities through cleaner data and reduced disputes.”
Experts said the move reflects a broader regulatory intent to tighten valuation norms in sensitive sectors without allowing technology platforms to become a source of unintended non-compliance.
Who Needs to Pay Attention
The advisory is relevant for tobacco manufacturers, FMCG companies with tobacco portfolios, importers, wholesalers, distributors, ERP solution providers and tax professionals.
GSTN has advised taxpayers to ensure correct classification of goods and strict application of RSP-based valuation where notified, warning that incorrect application could invite demand, interest and penalties.
The Road Ahead
As India’s GST framework evolves, RSP-based valuation of tobacco goods signals a shift towards tighter valuation controls in select sectors. The GSTN advisory plays a crucial role in translating policy intent into workable compliance.
