Delhi High Court to Decide Validity of Compensation Cess on Pan Masala Under GST Act

The Delhi High Court has adjourned the hearing on two writ petitions challenging the constitutional validity of the compensation cess levied on pan masala under the Goods and Services Tax (Compensation to States) Act, 2017 . The Division Bench of Justice Anil Kshetarpal and Justice Shail Jain listed the matter for final disposal on September 24, 2026 , after the respondents sought time to engage a fresh arguing counsel.

Background of the Challenge

The petitions, filed by Dharampal Satyapal Ltd. and the Smokeless Tobacco Association , argue that the levy of compensation cess on pan masala is unconstitutional. The compensation cess is a mechanism under the GST regime to compensate states for revenue loss during the transition to GST. However, the petitioners contend that its application to pan masala is without legal basis and violates fundamental rights .

Notably, a single judge of the Karnataka High Court has already quashed the impugned notifications imposing the cess. The government has appealed that decision before a Division Bench of the Karnataka High Court , which remains pending. The Delhi High Court will now independently examine the identical constitutional questions.

The Legal Questions at Hand

At its core, the challenge revolves around whether the levy of compensation cess on pan masala is within the legislative competence of the Union and whether it violates Article 14 of the Constitution . The Karnataka High Court , in its ruling, found that the levy based on assumed production capacity of machines, rather than actual quantity manufactured, was unreasonable and arbitrary . The Delhi High Court is likely to consider these issues afresh.

What the Court Said

On August 14, 2026 , the court noted that the respondents required time to engage a new arguing counsel. "Learned counsel representing the Respondents seeks an adjournment to enable the Respondents to engage a fresh arguing counsel," the court recorded. Consequently, the court directed the matter to be "List for final disposal on 24.09.2026 in the Supplementary List."

Looking Ahead

The Delhi High Court 's decision will have significant implications for the pan masala industry and for the interpretation of the compensation cess under the GST regime. If the court upholds the challenge, it may set a precedent for other goods subjected to similar cess. The industry has already secured a favorable ruling from the Karnataka High Court , and a consistent view from the Delhi High Court could strengthen the legal position against the levy.

As the legal battle continues, all eyes will be on September 24, 2026 , when the court is scheduled to hear final arguments.