Hyderabad CGST Busts Illegal Pan Masala Unit, Unearths Rs 160-Crore Tax Evasion

Officers of the Hyderabad CGST Zone have busted an illegal pan masala and tobacco manufacturing facility operating out of a tin-shed unit on the outskirts of Hyderabad, detecting duty and cess evasion estimated at Rs 160 crore.

Acting on specific intelligence, tax officials conducted a search operation at the premises on Thursday. Inside, they found 40 undeclared Form-Fill-Seal (FFS) packing machines and approximately 56 workers actively engaged on the shop floor. The clandestine unit was involved in manufacturing and packing several branded and unbranded varieties of pan masala as well as scented jarda.

The search operation led to the seizure of roughly 5,500 kg of finished pouches and ready-to-dispatch consignments valued at Rs 76 lakh. Enforcement officers also confiscated raw materials, including around 2,015 kg of pan masala mixture and 810 kg of tobacco, alongside two vehicles used to transport the illicit products. In addition, all 40 FFS machines, packing materials, and various incriminating documents were seized from the spot.

According to officials, evidence gathered during the raid revealed that the manufacturing unit was operating clandestinely without statutory registration. The finished goods were being cleared and supplied without the payment of applicable Goods and Services Tax (GST), Health Security se National Security (HSNS) Cess, and Central Excise duty.

The individual responsible for organising and managing the clandestine manufacturing operation and product clearances was arrested on Friday. He was subsequently produced before the Special Judge for Economic Offences in Hyderabad and remanded to judicial custody for 14 days.

An official stated that the total duty and cess evasion was assessed at approximately Rs 160 crore based on the seized stock, the scale of machinery and manpower, and statements recorded during the investigation.

A capacity-based taxation and cess regime has been in place for the pan masala and tobacco sector since February 1, 2026. Under the HSNS Cess Act, 2025, a monthly cess is levied on pan masala according to the number, type, and capacity of installed packing machines. A similar capacity-based central excise levy applies to chewing tobacco, jarda, and gutkha under the Central Excise Act, 1944.