Pan Masala Unit Busted Near Hyderabad, Rs 160-Crore Tax Evasion Detected

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

Acting on specific intelligence, a search operation was conducted at the premises on Thursday and 40 undeclared FFS (Form-Fill-Seal) packing machines were discovered. Around 56 workers were found engaged on the shop floor at the time of the search. The unit was found manufacturing and packing several branded and unbranded products of pan masala and scented jarda.

The operation resulted in the seizure of a large quantity of finished stock of pouches weighing around 5,500 kg and ready-to-dispatch consignments valued at Rs 76 lakh, along with raw material comprising approximately 2,015 kg of pan masala mixture and 810 kg of tobacco, besides two vehicles used for transporting the illicit goods. Officers also seized packing material, the 40 FFS machines, and other incriminating documents.

Evidence indicates that the unit was being run clandestinely without registration, with finished goods being cleared without payment of applicable GST, HSNS (Health Security se National Security) Cess and Central Excise duty. The person found to be organising and managing the clandestine manufacturing and clearance was arrested on Friday and produced before the Special Judge for Economic Offences, Hyderabad. He has been sent to judicial custody for 14 days.

"Based on the stock, scale of machinery and manpower, and the statements recorded, the total duty and cess evasion detected is approximately Rs 160 crore," said an official. 

A capacity-based cess and taxation regime has been in effect since February 1, 2026, in the pan masala and tobacco sector. Under the HSNS Cess Act, 2025, capacity-based monthly cess is applicable on pan masala, computed on the basis of the number, type, and capacity of packing machines installed. 

A similar capacity-based central excise levy is imposed on chewing tobacco, jarda and gutkha under the Central Excise Act, 1944.