Rule 31D: Retail Sale Price Valuation for Pan Masala and Tobacco

Rule 31D explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

For eight years GST valued goods by what the parties actually agreed. From 1 February 2026 a class of goods is valued by what is printed on the pack — irrespective of discount, scheme or negotiated price, and at every stage of the chain rather than only the first.

Rule 31D of the CGST Rules, inserted with effect from 1 February 2026, prescribes that for notified supplies of pan masala and specified tobacco products, the value of supply is determined by reference to the retail sale price (RSP) declared on the package. The declared RSP is deemed inclusive of GST, and the taxable value is derived as RSP × 100 ÷ (100 + applicable GST rate). A new clause (f) in the first proviso to rule 86B, effective the same date, exempts non-manufacturer registered persons from the 1% cash-payment restriction in respect of these goods.

What the rule does

It is "a special method of valuation… thereby carving out an exception to the general principle of transaction value embodied in Section 15."

The approach is not new; the regime is. "the underlying approach is conceptually similar to the RSP-based valuation mechanism that existed under the erstwhile central excise law for specified goods."

The formula:

TAXABLE VALUE = RSP × 100 ÷ (100 + APPLICABLE GST RATE)

And the consequence: "the tax payable is no longer dependent upon the actual transaction price between the manufacturer and the buyer. Whether the goods are supplied at a discount, under promotional schemes or at any other negotiated commercial price, the valuation for GST purposes continues to be governed by the declared retail sale price."

Why it applies at every stage, not just the first

This is the feature that distinguishes rule 31D from the excise model it resembles.

"Since the RSP is printed on the package and remains fixed throughout the distribution chain, this valuation mechanism applies uniformly at every stage of supply — from manufacturer to distributor, distributor to wholesaler, and wholesaler to retailer — and not merely to the first taxable supply by the manufacturer."

Excise was a levy on manufacture, so RSP valuation naturally bit once. GST taxes every supply, so a value fixed by the pack fixes the value at every one of them.

And that produces a distinctive economic result: "downstream registered persons typically have no scope for value addition, and their output GST liability closely mirrors the ITC available to them from the tax already paid at earlier stages."

A distributor's output tax and input credit are, in effect, the same number. Which is precisely what created the rule 86B problem.

The rule 86B problem, and clause (f)

Rule 86B ordinarily "mandates that at least 1% of output tax liability be discharged in cash irrespective of available ITC, to curb the misuse of fake ITC in high-risk sectors."

Applied to an RSP chain, that makes no sense. The Guide explains: "Applying this restriction rigidly to non-manufacturers in this specific goods category would have imposed an unnecessary cash outflow despite there being no real risk of ITC-based revenue leakage, since the underlying goods are already taxed on a fixed, verifiable RSP basis."

Hence the new clause (f) in the first proviso to rule 86B, effective 1 February 2026:

"the registered person other than a manufacturer shall be exempted from the provisions of this rule only in respect of goods specified under Rule 31D, on which the tax has been paid by the supplier on the basis of retail sale price."

Read the three limits in that clause.

It is for "a registered person other than a manufacturer". The manufacturer remains within rule 86B — which is right, since the manufacturer is where value is actually added.

It is "only in respect of goods specified under Rule 31D". A distributor also dealing in ordinary goods stays within rule 86B for that part of its liability.

It is conditional on tax having been paid on an RSP basis by the supplier. If the upstream supply was valued conventionally, the relief does not attach.

What "notified goods" means here

Rule 31D applies to notified supplies of pan masala and specified tobacco products — the same commodity family that carries the 40% rate under the GST 2.0 structure and, historically, compensation cess.

The category already carries two other special treatments worth reading together.

No export with payment of tax. Per Notification No. 1/2023-Integrated Tax dated 31.07.2023, as amended by Notification No. 5/2023-Integrated Tax dated 26.10.2023, "the 'with payment of tax' route has been withdrawn for specified sin goods, such as pan masala and tobacco products. Exporters of such notified goods must export only under bond or LUT, without payment of integrated tax, and claim refund of unutilised input tax credit."

A special procedure and machinery reporting regime applies to these manufacturers under the packing-machine registration provisions introduced alongside.

The common thread is verification. Every one of these measures replaces a taxpayer-declared figure — transaction value, export value, production quantity — with something externally fixed: a printed price, a bonded route, a registered machine capacity.

What this means in practice

Discount schemes stop affecting tax. An FMCG-adjacent distributor running a trade scheme on rule 31D goods reduces its realisation but not its GST — a material change from the section 15(3) position that applies to everything else. Post-sale discounts under section 15(3)(b) →

MRP changes become tax events. A revised RSP printed on a new batch changes the taxable value of every subsequent supply of that batch, at every stage.

Stock in hand at the transition needs care. Goods supplied on or after 1 February 2026 are valued under rule 31D even where procured earlier at a conventionally valued price — creating a credit-and-liability mismatch on transition stock that has to be worked out batch by batch.

And the ordinary rule 28 machinery falls away for these goods. Where value is fixed by RSP, the open market value hierarchy, the 90% rule and the full-ITC proviso have nothing left to determine. Rule 28 valuation →

Key takeaways

• Rule 31D, from 1 February 2026, values notified pan masala and tobacco supplies by the declared retail sale price.
• The RSP is deemed inclusive of GST; taxable value = RSP × 100 ÷ (100 + rate).
• The actual transaction price is irrelevant — discounts and schemes do not reduce the value.
• It applies at every stage of the chain, not only the manufacturer's first supply.
• Downstream persons therefore have little value addition, and output tax closely tracks input credit.
• New clause (f) to the first proviso to rule 86B, same date, exempts non-manufacturers from the 1% cash payment rule for these goods, where tax was paid on an RSP basis.
• The relief does not extend to manufacturers, or to the same person's other goods.
• These goods also cannot be exported with payment of IGST — Notification No. 1/2023-Integrated Tax as amended.

Read next

• Rule 28 Valuation: The 90% Rule and the "Any Value" Proviso
• Rule 86B: The 99% Credit Restriction
• GST 2.0: The Two-Rate Structure of 5%, 18% and 40% Explained

Disclaimer: Positions stated as on 5 September 2026, based on section 15 of the CGST Act, 2017, rules 31D and 86B of the CGST Rules, 2017 (both as effective from 1 February 2026) and Notification No. 1/2023-Integrated Tax dated 31 July 2023 as amended by Notification No. 5/2023-Integrated Tax dated 26 October 2023, as reproduced in the ICAI GST Sectoral Guide on Fast-Moving Consumer Goods (July 2026, updated with Finance Act, 2026 amendments).