DGGI officers bust clandestine pan masala, tobacco manufacturing network; detect tax evasion of Rs 185 crore

New Delhi, DGGI officers have unearthed a clandestine pan masala and tobacco manufacturing network in Uttar Pradesh and seized 27 undeclared pouch-packing machines and detected tax evasion of about Rs 185 crore, the finance ministry said on Friday.

The Lucknow Zonal Unit of Directorate General of GST Intelligence (DGGI) busted a clandestine manufacturing operation for pan masala, scented jarda and gutkha across six premises in Chitrakoot and Banda districts of Uttar Pradesh.

Searches around midnight on August 18 at these premises led to the detection of 27 undeclared pouch-packing machines, comprising 6 machines for scented jarda, 9 for pan masala and 12 for dohara/desi gutkha. Mixing, areca nut crushing and drying machines were also found.


The operation also resulted in the seizure of 15,50,922 pouches of finished goods, comprising pan masala, chewing tobacco, scented jarda and sugandhit supari. Raw material and packing material seized include 32.9 MT of areca nut and cut areca nut, 2.8 MT of tobacco, 8.4 MT of packing material, pouches and laminates, 470 kg of katha powder, 850 kg of glycerine, 545 kg of essence and 256 kg of unpacked pan masala.

Evasion of GST, cess and central excise duty of Rs 185 crore has been detected so far, the ministry said.

Evidence indicates that the operation was run through a network of unregistered premises using undeclared machinery, and the finished goods were cleared clandestinely without payment of applicable GST, HSNS Cess and Central Excise duty.

The proprietor of the manufacturing firm was prima facie found to be the person organising and managing the clandestine manufacture and clearance. He was arrested on August 19 under Section 26 of the Health se National Security Cess Act, 2025 and the Central Excise Act.

A capacity-based cess and taxation regime came into effect on February 1, 2026, in the pan masala and tobacco sector. Under the Health Security se National Security Cess Act, 2025 (HSNS), a capacity-based monthly cess is applicable on pan masala, which is computed based on 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. Unscrupulous manufacturers try to avoid these imposts by using undeclared machines clandestinely.

To counter this, the Directorate General of GST Intelligence (DGGI) has stepped up intelligence-led enforcement in this sector, combining data analytics with coordinated field operations across its formations.

Since February 1, 2026, DGGI formations across the country have booked 27 cases involving suppression of production, clandestine clearance and evasion of Rs 668 crore.

Voluntary payment of Rs 11.7 crore has been made during the course of the investigation. A total of 131 pouch-packing machines have been seized and 17 persons arrested.