Introduction
On January 23, 2026, the Goods and Services Tax Network (GSTN) released an important advisory regarding the reporting of taxable value and tax liability under Retail Sale Price (RSP)-based valuation for notified tobacco goods. This update is highly relevant for businesses engaged in the supply of tobacco products, as it directly impacts how invoices, e-way bills, and GST returns must be reported.
Tobacco products have always been under strict regulatory scrutiny due to their high tax incidence and potential for revenue leakage. With this advisory, GSTN aims to ensure uniformity, transparency, and compliance in reporting, thereby reducing mismatches and audit risks. For businesses, this is not just a procedural update—it is a compliance mandate that requires immediate attention.
Key Highlights of the Advisory
- Applicability
- The advisory applies to notified tobacco goods under GST law.
- Businesses dealing in such products must adopt Retail Sale Price (RSP) -based valuation instead of transaction value for tax reporting.
- Scope of Reporting
The advisory covers three major compliance areas:
- e-Invoices – Taxable value and tax liability must be reported on the basis of RSP.
- e-Way Bills – Movement of goods must reflect RSP-based valuation.
- GSTR-1 / GSTR-1A / IFF – Outward supplies must be reported consistently with RSP valuation.
- Purpose of RSP-Based Valuation
- Ensures uniform taxation across the supply chain.
- Prevents undervaluation and revenue leakage.
- Aligns reporting across invoices, transport documents, and returns.
Understanding RSP-Based Valuation
Retail Sale Price (RSP) valuation means that GST is calculated based on the declared retail sale price printed on the product packaging, which can be same or different from the transaction value between supplier and buyer.
For example:
- If a tobacco product has an RSP of ₹200, the GST liability must be calculated on ₹200, even if the supplier sells it to a distributor at ₹150.
- This ensures that the tax base remains consistent and prevents manipulation of transaction values.
Goods covered:
Vide Notification Nos. 19/2025-Central Tax and 20/2025-Central Tax, both dated 31.12.2025, Retail Sale Price (RSP)-based valuation for specified tobacco and tobacco-related products has been prescribed with effect from 01.02.2026.
The said notifications cover the following HSN codes and descriptions:
- 2106 90 20 – Pan masala
- 2401 – Unmanufactured tobacco; tobacco refuse (other than tobacco leaves)
- 2402 – Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
- 2403 – Other manufactured tobacco and substitutes; homogenised/reconstituted tobacco; tobacco extracts and essences (other than biris)
- 2404 11 00 – Products containing tobacco or reconstituted tobacco intended for inhalation without combustion
- 2404 19 00 – Products containing tobacco or nicotine substitutes intended for inhalation without combustion
As per the notifications, valuation of the notified goods is required to be carried out on the basis of the declared RSP. The taxable value for GST purposes is no longer linked to the actual sale price but derived from the RSP printed on the package.
Computation of Tax under RSP-Based Valuation
For goods notified under RSP-based valuation, tax is computed using the formula:
Tax Amount = (RSP × GST Rate %) ÷ (100 + Sum of applicable tax rate)
Deemed Taxable Value = RSP – Tax Amount
Thus, GST liability is determined with reference to RSP, irrespective of the actual sale price.
Example (IGST @ 40%):
- Total RSP: ₹1,00,000
- Tax Amount: ₹28,571.43
- Deemed Taxable Value: ₹71,428.57
Commercial transaction values may differ (e.g., net sale value ₹60,000), but statutory tax is always derived from RSP.
- Existing System Validations
Currently, e-Invoice, e-Way Bill, and GSTR-1 systems validate that:
Taxable Value + Tax Amount ≤ Total Invoice Value
In RSP-based valuation, deemed taxable value plus tax may exceed the commercial transaction value. Hence, special reporting guidance is provided.
Reporting Guidance for RSP-Based Valuation Goods
For e-Invoice and e-Way Bill:
- Report Net Sale Value (commercial consideration) in the taxable value field.
- Report Tax Amount as per RSP formula.
- Report Total Invoice Value as Net Sale Value + Tax Amount.
For GSTR-1 / GSTR-1A / IFF:
- Report Net Sale Value in taxable value field.
- Report Tax Amount as per RSP formula (editable if system auto-calculates differently).
- Report Total Invoice Value as Net Sale Value + Tax Amount.
Compliance Requirements
Businesses must immediately align their systems and processes with the advisory. Key compliance requirements include:
- e-Invoice Reporting
- Ensure taxable value reflects RSP-based valuation.
- Tax liability must match the notified rules.
- e-Way Bill Generation
- Goods in transit must show RSP-based taxable value.
- Prevents discrepancies between invoices and transport documents.
- GSTR-1 / GSTR-1A / IFF Filing
- Outward supplies must be reported with RSP-based values.
- Ensures consistency across returns and invoices.
Risks of Non-Compliance
Failure to comply with the advisory can lead to serious consequences:
- Mismatch Notices – Incorrect reporting may trigger notices from GST authorities.
- Financial Penalties – Wrong valuation can result in penalties and interest.
- Audit Red Flags – Tobacco goods are high-risk items for GST audits; errors increase scrutiny.
- Operational Disruptions – Incorrect e-way bills can delay transportation and supply chain operations.
Action Points for Businesses
To ensure smooth compliance, businesses should take the following steps:
- Review Internal Systems
- Check whether invoicing software applies RSP-based valuation automatically.
- Update ERP/Accounting Software
- Configure systems to capture RSP values correctly in e-Invoices and e-Way Bills.
- Train Staff and Accountants
- Educate teams on new reporting requirements to avoid manual errors.
- Cross-Check GSTR-1 Filings
- Ensure outward supplies match invoices and transport documents.
- Download and Study the Advisory PDF
- Refer to the official GST advisory for detailed instructions.
Conclusion
The GST advisory on RSP-based valuation of tobacco goods is a crucial compliance update that businesses cannot afford to ignore. By mandating RSP-based reporting across e-Invoices, e-Way Bills, and GSTR-1 filings, GSTN has reinforced its commitment to transparency and revenue protection.
For businesses, this means revisiting internal systems, updating software, and training staff to ensure accurate reporting. Non-compliance can lead to penalties, audit risks, and operational disruptions. On the other hand, timely adoption of these guidelines will ensure smooth compliance, reduce risks, and build trust with tax authorities.
In essence, this advisory is not just a technical update; it is a compliance imperative for tobacco suppliers. Businesses should act immediately to align their processes and safeguard against potential risks.