Ahmedabad: With just days to go before a stricter tax regime takes effect on Feb 1, cigarettes, pan masala and other tobacco products have virtually disappeared from retail shelves across the city, triggering black market activity and inflated pricing as traders scramble to maximize profits ahead of the levy hike.Pan shop owners said supplies of most tobacco products, including cigarettes and pan masala, have been severely curtailed over the past two weeks. Bharat Vaghela, a pan shop owner, said retailers are bearing the brunt of the supply crunch. “For the past two weeks, we have been forced to procure stock at maximum retail price, which has completely eroded our margins. For our regular customers, we absorb the losses and sell at normal rates, while others are being charged Rs 1-2 extra per stick just to keep our businesses viable. The situation has become so dire that even when we place orders for 10 packets, we receive only six or seven due to short supply,” he said.
Consumers said pan shop owners are reluctant to sell cigarette packets, citing acute shortages. “If I ask for a pack, I am offered only three or four loose cigarettes. Plus, Rs 2 is being charged extra per stick,” said Nayan Patel, a sales executive.“Typically, when a retailer purchases a pack of cigarettes with a maximum retail price of Rs 300, the cost price is around Rs 290, providing a margin of Rs 10 per pack. Currently, while there is no official increase in tobacco prices, several retailers allege that distributors and wholesalers are forcing them to procure the same pack at a price equal to or even slightly above the MRP. This means the retailer is effectively paying Rs 10 more per pack even before any revised tax rates come into effect,” explained a source in the tobacco distribution network.“To recover this additional procurement cost, retailers are selling cigarettes at a premium above the printed MRP. In many cases, individual sticks are being sold at Rs 2-4 above the listed price. A similar pattern of price escalation and artificial scarcity has also been observed in the sale of pan masala, gutkha, and other tobacco products,” the source added.Tax expert Monish Bhalla said, “The govt has introduced a much stricter and more comprehensive taxation framework for pan masala, tobacco, gutkha, chewing tobacco, zarda scented tobacco, cigarettes and allied products effective from Feb 1, 2026. The primary objective behind this overhaul is to eliminate issues of under-valuation, revenue leakage and misuse of input tax credit mechanisms by decisively shifting the tax base to the retail sale price and capacity-based production metrics, instead of transaction value or actual clearances.“He added that the tobacco industry will once again come under the purview of the central excise, alongside GST and cess. “Manufacturers will pay tax based on machine capacity, which will substantially increase their tax liability. Prior to the GST rollout, excise duty was applicable on tobacco products, and it will now return in addition to GST and cess,” Bhalla said.Explaining the revised valuation method, Bhalla said, “GST will no longer be calculated on invoice value or dealer price, but on the MRP printed on the package. The retail sale price (RSP) includes all taxes, cess, duties, freight, dealer margin and other charges. If more than one RSP is printed on a package for different markets, the highest RSP will be applied.” However, industry representatives contested claims of a supply crunch, attributing the situation to market behaviour rather than stock availability.Sanjay Joshi, national president of the All-India Pan Masala, Gutkha Wholesalers’ & Retailers’ Association, denied any supply disruption. “There is no shortage in the market. Adequate stock is available with both wholesalers and retailers. In fact, ahead of Feb 1, many traders procured additional stock to avoid higher procurement costs after the tax rate hike,” he said. However, sources said that some traders, seeking to profit ahead of the tax change, are supplying loose cigarettes, pan masala and other tobacco products instead of properly sealed packs, often at inflated prices, exploiting consumer demand.
