What is the Track and Trace Mechanism under GST?

Track and Trace is an anti-evasion measure introduced in Budget 2025-26 under Section 148A of CGST Act. It requires specified goods to carry Unique Identification Marking (digital codes or physical markings) to trace their movement through the supply chain.

When does Track and Trace become effective?

The Track and Trace Mechanism becomes effective from October 1, 2025. The GST Council will notify the specific goods categories and detailed compliance requirements closer to the implementation date.

Which goods will require Track and Trace marking?

The mechanism targets goods prone to tax evasion including tobacco products, pharmaceuticals, liquor, and other specified items. The exact list will be notified by the GST Council before October 2025.

What are the penalties for non-compliance?

Transporting goods without required Track and Trace marking attracts a penalty of Rs 10,000 or tax sought to be evaded, whichever is higher. Goods may also be detained until compliance is verified.

How will Track and Trace affect my business operations?

Affected businesses will need to integrate marking systems, update inventory management, and ensure all outward supplies carry valid identification codes. TallyPrime updates will include Track and Trace support when implemented.

Track and Trace Mechanism Under GST: Avoiding Penalties from October 2025

The Union Budget 2025-26, presented on February 1, 2025, introduced a groundbreaking anti-evasion measure: the Track and Trace Mechanism for goods prone to tax evasion. Effective October 1, 2025, Section 148A of the CGST Act empowers the government to mandate Unique Identification Marking (digital stamps or marks) on specified goods, enabling real-time tracking throughout the supply chain. The 55th GST Council meeting (December 2024) first approved this mechanism, targeting high-risk sectors like cigarettes, pan masala, pharmaceuticals, and alcohol. Non-compliance invites a penalty of Rs 1 lakh or 10% of tax payable, whichever is higher. This comprehensive guide explains the mechanism, affected goods, compliance requirements, and how businesses must prepare.

What is the Track and Trace Mechanism?

Definition: System requiring Unique Identification Marking (UIM) on goods prone to tax evasion
Purpose: Monitor complete supply chain from manufacturer to end consumer
Technology: Digital stamps, QR codes, RFID tags, or similar secure markings
Legal basis: Section 148A inserted in CGST Act via Finance Bill 2025 (enacted February 2025)
Effective date: October 1, 2025 (per Notification No. 16/2025-CT dated September 17, 2025)
Scope: Goods specified by government notification (initially cigarettes, expected to expand)

Legislative Framework

55th GST Council Meeting (December 2024): Approved adoption of Track and Trace Mechanism
Union Budget 2025-26 (February 1, 2025): Proposed insertion of Section 148A in CGST Act
Finance Act 2025: Enacted Section 148A, defining Unique Identification Marking
Section 148A provisions: Government can specify persons/goods requiring UIM, mandate machinery details, recordkeeping requirements
Notification No. 16/2025-CT (September 17, 2025): Operationalized Track and Trace from October 1, 2025

Unique Identification Marking: Technical Details

Definition: Digital stamp, digital mark, or similar marking that is unique, secure, and non-removable
Characteristics: Must be tamper-proof, machine-readable, and linked to product/batch details
Information recorded: Product name, manufacturer details, batch/serial number, production date, MRP, tax rate
Technology options: QR codes, RFID tags, blockchain-based digital stamps, NFC tags
Electronic storage: Information stored in centralized government database accessible by tax authorities
Verification: Officers can scan UIM at any supply chain stage to verify authenticity and tax compliance

Goods Expected to Be Covered

First phase (October 2025): Cigarettes and tobacco products (confirmed)
Expected additions: Pan masala, gutkha, scented tobacco products
Regulated goods: Pharmaceuticals (to prevent counterfeit drugs)
High-value items: Alcohol and liquor (state-specific implementation)
Expansion potential: Goods with history of tax evasion or counterfeit issues
Notification-based: Government will periodically notify additional goods through official gazette

Section

High tax evasion: Cigarette industry notorious for under-reporting and illicit trade
Revenue loss: Estimated Rs 10,000+ crore annual revenue loss due to cigarette tax evasion
International precedent: Track and Trace for tobacco products implemented in EU, Turkey, Brazil
Public health: Helps combat counterfeit cigarettes and ensures proper tax collection on sin goods

Compliance Requirements for Businesses

Affix UIM: Manufacturers must affix Unique Identification Marking on goods or packages
Maintain records: Detailed logs of UIM affixed, goods produced, and supply chain movements
Furnish machinery details: Declare installed production machinery and capacity to GST authorities
Electronic reporting: Upload UIM data and supply chain information to government portal
Supply chain tracking: Distributors and retailers must scan/record UIM during transactions
Cooperation with audits: Allow GST officers to verify UIM and inspect records
Periodic returns: File additional returns specific to Track and Trace (format to be notified)

Penalties Under Section 122B (New Provision)

Penalty structure: Rs 1 lakh or 10% of tax payable, whichever is higher
Applicability: Failure to comply with Section 148A requirements
Additional to other penalties: Section 122B penalty is in addition to any other GST penalties
Examples of violations: Not affixing UIM, tampering with markings, failing to maintain records, not reporting to portal
Repeated violations: Can lead to business suspension or GST registration cancellation
Criminal prosecution: Serious evasion cases may invite criminal proceedings under CGST Act

How Track and Trace Prevents Tax Evasion

Real-time monitoring: Tax authorities can track goods movement at every supply chain stage
Production verification: Reconcile declared production with actual output via machinery capacity data
ITC fraud prevention: Detect fake invoices and false input tax credit claims
Under-reporting detection: Identify discrepancies between reported sales and actual market supply
Counterfeit identification: Distinguish genuine goods from counterfeit products
Supply chain transparency: End-to-end visibility reduces opportunities for tax evasion

Implementation Timeline and Roadmap

October 1, 2025: Track and Trace effective for cigarettes and notified goods
October-December 2025: Pilot phase with manufacturer onboarding and system testing
January 2026: Full enforcement with penalty provisions active
2026-2027: Gradual expansion to other high-risk goods (pan masala, pharmaceuticals, alcohol)
Long-term: Integration with e-Way Bill and e-Invoicing systems for holistic compliance

Preparing Your Business for Track and Trace

Step 1: Determine if your goods are covered (check government notifications)
Step 2: Identify UIM technology suitable for your products (QR codes, RFID, etc.)
Step 3: Procure UIM affixing machinery or engage authorized vendors
Step 4: Register on government Track and Trace portal (details to be notified)
Step 5: Integrate UIM scanning with inventory management and ERP systems
Step 6: Train production and warehouse staff on UIM affixing and scanning
Step 7: Update compliance SOPs to include Track and Trace requirements
Step 8: Conduct trial runs and validate UIM scanning at all supply chain stages

TallyPrime and Track and Trace Integration

Current status: TallyPrime updates expected to support Track and Trace data entry
UIM field in inventory: Ability to record UIM numbers for each batch/product
Supply chain reporting: Track UIM movements across sales and purchase transactions
Compliance reports: Generate Track and Trace reports for GST filing
API integration: Connect TallyPrime with government Track and Trace portal
Future feature: Automated UIM scanning via mobile app integrated with TallyPrime

Industry Impact and Challenges

Capital investment: Manufacturers must invest in UIM technology and affixing machinery
Operational changes: Supply chain processes need modification to scan and record UIM
Small businesses: Compliance burden higher for MSMEs with limited technology infrastructure
Distributors/retailers: Must adopt UIM scanning systems at warehouses and retail outlets
Cost implications: UIM cost (estimated Rs 0.50-2 per marking) may impact product pricing
Transition period: Initial implementation challenges expected in Oct-Dec 2025

Benefits Beyond Tax Compliance

Counterfeit prevention: UIM helps authenticate genuine products, protecting brand reputation
Supply chain efficiency: Real-time tracking improves inventory management and logistics
Consumer confidence: Buyers can verify product authenticity by scanning UIM
Data analytics: Businesses gain insights into supply chain patterns and market distribution
Regulatory compliance: Meets international standards for product tracking (especially for exports)

Unsure how Track and Trace will impact your business? Mark IT Solutions provides Track and Trace readiness assessments, TallyPrime integration for UIM tracking, and compliance support. Our team can help you understand the requirements, choose the right UIM technology, and implement supply chain modifications. Contact us for a free consultation on Track and Trace compliance.