Hyderabad CGST uncovers illegal pan masala unit with Rs 160 crore tax evasion

The Hyderabad CGST Zone busted a clandestine pan masala and tobacco manufacturing unit in Medchal-Malkajgiri district, detecting estimated tax and cess evasion of Rs 160 crore. Officials seized machinery, finished products, raw materials, vehicles and other incriminating documents.

Hyderabad: The Hyderabad CGST Zone has busted a clandestine pan masala and tobacco manufacturing unit operating from a tin-shed facility on the outskirts of Hyderabad in Medchal-Malkajgiri district, detecting estimated tax and cess evasion of about Rs 160 crore.

Acting on specific intelligence, CGST officials conducted a search at the premises on August 20 and detected 40 undeclared FFS (Form-Fill-Seal) pouch-packing machines used for manufacturing and packing pan masala and tobacco products, including scented ‘zarda’. Around 56 workers were found engaged in manufacturing and packing activities when the premises were searched.

Officials seized around 5,500 kg of finished pan masala and tobacco pouches, including ready-to-dispatch consignments valued at Rs 76 lakh. The seized material also included about 2,015 kg of pan masala mixture and 810 kg of tobacco, besides packing material and other incriminating documents. Two vehicles allegedly used for transporting the illicit goods were also seized.

According to the Hyderabad CGST Zone, the unit was operating clandestinely without registration and was clearing finished products without payment of applicable GST, Health Security and National Security (HSNS) Cess and Central Excise duty.

The key person allegedly organising and managing the clandestine manufacture and clearance was arrested on August 21. He was produced before the Special Judge for Economic Offences, Hyderabad, who remanded him to judicial custody for 14 days.

Based on the stock physically verified, the machinery and manpower deployed, and statements recorded during the investigation, officials estimated the total duty and cess evasion at approximately Rs 160 crore.

A capacity-based cess and taxation regime for the pan masala and tobacco sector has been in force since February 1, 2026. Under the Health Security and National Security (HSNS) Cess Act, 2025, a capacity-based monthly cess is applicable to pan masala based on the number, type and capacity of packing machines installed. A similar capacity-based central excise levy is applicable to chewing tobacco, zarda and gutkha under the Central Excise Act, 1944.

The Hyderabad CGST Zone said unscrupulous manufacturers attempt to evade the levy by operating undeclared machinery clandestinely. The department has intensified intelligence-led enforcement in the sector by combining data analytics with coordinated field operations.