The Delhi High Court is currently examining an important constitutional challenge in Vinod J Sharma vs Union of India & Ors., concerning the validity of the Health Security and National Security Cess Act, 2025 (“HSNS Cess Act”).

The case raises a fundamental question: after the introduction of GST, can the Parliament impose a separate cess on goods like pan masala outside the GST framework?

This issue is significant because GST was designed to simplify India’s indirect tax system by subsuming multiple taxes into a single structure. Any parallel levy therefore invites scrutiny.

Background of the Levy

The HSNS Cess came into effect from 1 February 2026 and applies, among others, to pan masala. Two aspects of this levy make it distinct.

First, it is based on quantity (weight of pouches) rather than value. Second, it is imposed independently of GST.

This is important because GST is fundamentally a value-based tax on supply. A quantity-based levy imposed outside GST raises the question whether the cess is, in effect, similar to the earlier excise duty on manufacture.

GST Framework and Constitutional Position

To understand the challenge, it is necessary to briefly look at how GST changed India’s taxation structure.

With the Constitution (101st Amendment) Act, 2016, Article 246A was introduced. This provision gives Parliament and States the power to levy GST, creating a special framework for taxation of goods and services.

At the same time, most indirect taxes such as central excise duty (except on limited products like petroleum and tobacco) were subsumed into GST. The idea was to avoid multiple taxes on the same transaction.

Parliament still retains residuary powers under Article 248 to legislate on matters not specifically covered elsewhere. However, the key question here is whether such powers can be used for goods that are already part of the GST regime.

Key Issues Before the Court

Legislative Competence

The primary argument of the petitioner is that the HSNS Cess is effectively a tax on manufacture, similar to excise duty. Since GST has already subsumed such taxes for most goods, Parliament may not have the authority to reintroduce a similar levy under a different name.

This argument is based on the principle that what cannot be done directly cannot be done indirectly.

Nature of the Levy

Another important issue is whether the levy is truly a “cess” or actually a tax in substance.

Courts have consistently held that the true nature of a levy depends on how it operates, not what it is called. If the HSNS Cess is imposed on production and calculated based on quantity, it may resemble a specific excise duty rather than a GST-linked levy.

Arbitrariness in Calculation

The cess is calculated based on the weight of the product, not its value. This leads to situations where products of different prices but similar weight are taxed equally.

As a result, lower-priced products may bear a higher relative burden. This raises concerns under Article 14 of the Constitution, which requires reasonable and non-arbitrary classification.

Constitutional Challenge

The petition also challenges the law on broader constitutional grounds, including:

  • Lack of legislative competence
  • Violation of Article 14 (equality)
  • Violation of Article 19(1)(g) (freedom to carry on business)

Additionally, reliance has been placed on Article 270 to argue that the Constitution does not independently empower Parliament to impose such a cess in this context.

Court’s Initial View

The Delhi High Court has issued notice in the matter, indicating that the issues raised deserve detailed examination. The Court has noted prima facie merit in the arguments relating to legislative competence and arbitrariness.

The matter is currently pending, with further submissions to be filed.

Comparison with GST Compensation Cess

A useful comparison can be made with the GST Compensation Cess.

The Compensation Cess:

  • Has clear constitutional backing under the 101st Amendment
  • Is part of the GST framework
  • Is value-based
  • Is linked to a specific purpose—compensating States for revenue loss

In contrast, the HSNS Cess:

  • Operates independently of GST
  • Is based on quantity
  • Does not have explicit constitutional backing within the GST scheme

This distinction may become important in determining its validity.

Possible Stand of the Government

The Union Government may defend the levy by arguing that a cess is a separate fiscal tool and not necessarily part of GST. It may rely on Parliament’s residuary powers to justify the law.

It may also argue that such levies are used as policy tools, particularly for goods like pan masala, which are often subject to higher taxation for regulatory reasons.

Why This Case Matters

The outcome of this case could have wider implications. It may clarify whether GST is intended to be a complete and exclusive system for indirect taxation, or whether additional levies can exist alongside it.

It could also define the limits of Parliament’s power to introduce cesses on goods already covered under GST. Further, the judgment may impact future policy decisions involving similar levies and influence the balance of taxing powers between the Centre and States.

Conclusion

The challenge to the HSNS Cess Act represents an important moment in the evolution of India’s GST regime. At its core, the case questions whether the unified structure of GST can coexist with parallel levies that resemble pre-GST taxes. The Delhi High Court’s decision will provide clarity on the scope of Parliament’s powers in the post-GST era and help define the boundaries of indirect taxation going forward.