DGGI unearths clandestine pan masala and tobacco manufacturing network in Uttar Pradesh; 27 undeclared pouch-packing machines seized, evasion of about ₹185 crore detected
Executive Summary
On August 18, 2026, the Lucknow Zonal Unit of the DGGI dismantled an illegal pan masala and tobacco manufacturing network in Uttar Pradesh, detecting tax evasion worth approximately ₹185 crore. The operation resulted in the seizure of 27 undeclared machines and 15.5 lakh pouches of finished goods, alongside the arrest of the firm’s proprietor. This enforcement aligns with the capacity-based taxation regime implemented on February 1, 2026, to curb clandestine production in the sector.
Key Points / Main Content
Enforcement Actions in Uttar Pradesh
Coordinated searches were conducted at six premises in the Chitrakoot and Banda districts involving two firms engaged in manufacturing and trading.
Authorities seized 27 undeclared pouch-packing machines used for producing scented jarda, pan masala, and gutkha.
Seized inventory included 15.5 lakh pouches of finished goods and massive quantities of raw materials: 32.9 MT of areca nut, 2.8 MT of tobacco, and 8.4 MT of packing material.
The proprietor was arrested on August 19, 2026, and remanded to judicial custody for organizing clandestine manufacturing and clearance.
Regulatory and Taxation Framework
A capacity-based taxation regime became effective on February 1, 2026, for the pan masala and tobacco sectors.
Under the Health Security se National Security Cess Act, 2025 (HSNS), a monthly cess is applied to pan masala based on the number and capacity of packing machines.
Chewing tobacco, jarda, and gutkha are subject to a similar capacity-based central excise levy under the Central Excise Act, 1944.
Evasions involve the use of unregistered premises and undeclared machinery to avoid GST, HSNS Cess, and Central Excise duty.
National Enforcement Trends
Since February 1, 2026, DGGI has booked 27 cases involving suppression of production and clandestine clearance.
Total detected evasion of duty, tax, and cess across these cases amounts to ₹668 crore.
To date, 131 pouch-packing machines have been seized and 17 persons arrested nationwide.
Voluntary payments totaling ₹11.7 crore have been made by entities during the course of these investigations.
Impact Analysis
Manufacturers and ProprietorsImpact
Unscrupulous operators face severe legal consequences, including arrest and judicial remand under the HSNS Cess Act, 2025, and the Central Excise Act, 1944. They are liable for massive detected tax evasions (₹185 crore in this specific case) and the forfeiture of machinery and raw materials.
Action Required
Must ensure all manufacturing premises are registered and all pouch-packing machines are declared. They must comply with the capacity-based taxation regime and pay all applicable GST, cess, and excise duties.
Directorate General of GST Intelligence (DGGI)Impact
The agency is actively deploying data analytics and intelligence-led field operations to counter clandestine manufacturing.
Action Required
Must continue coordinated field operations across its formations to identify undeclared machinery and suppressions of production in the tobacco sector.
Pan Masala and Tobacco Industry StakeholdersImpact
The entire sector is under increased scrutiny following the February 2026 implementation of capacity-based levies. Firms operating legally may benefit from a more level playing field as clandestine operators are removed.
Action Required
Entities must reconcile their production capacities with their tax filings and ensure that any "voluntary payments" required during investigations are settled to mitigate further legal action.
Key Entities Referenced
Directorate General of GST Intelligence (DGGI): The primary enforcement agency that conducted the intelligence-led operation to unearth clandestine manufacturing and tax evasion in the tobacco sector.
Capacity-based cess and taxation regime: A specialized tax policy for the pan masala and tobacco sector effective from February 2026, requiring levies based on the number and capacity of packing machines.
Health Security se National Security Cess Act, 2025 (HSNS): The legislation governing capacity-based monthly cess on pan masala; the perpetrator was arrested under Section 26 of this Act.
Central Excise Act, 1944: The law regulating excise levies on chewing tobacco, jarda, and gutkha; used alongside the HSNS Act to prosecute the manufacturing firm's proprietor.
Uttar Pradesh (Chitrakoot and Banda): The central geographic location where the clandestine manufacturing network and unregistered premises were discovered and raided.
Ministry of Finance
DGGI unearths clandestine pan masala and
tobacco manufacturing network in Uttar
Pradesh; 27 undeclared pouch-packing
machines seized, evasion of about ₹185 crore
detected
Proprietor arrested and remanded to judicial custody; 15.5
lakh pouches of finished goods seized from six premises in
Chitrakoot and Banda
Capacity-based cess and taxation regime came into effect
under the Health Security se National Security Cess Act, 2025
(HSNS) applicable on pan masala, and central excise levy
imposed on chewing tobacco, jarda and gutkha under the
Central Excise Act, 1944, on 1st February 2026 respectively
Since 1st February 2026, DGGI formations have booked 27
cases involving suppression of production, clandestine
clearance and evasion of the applicable levy, detecting
evasion of duty, tax and cess of ₹668 crore; with 131 pouch-
packing machines have been seized; 17 persons arrested
प्रव तथ: 21 AUG 2026 1:48PM by PIB Delhi
The Lucknow Zonal Unit of DGGI has busted a clandestine manufacturing operation for pan masala,
scented jarda and gutkha spread across six premises in Chitrakoot and Banda districts of Uttar Pradesh.
Acting on specific intelligence developed by the Unit, officers started coordinated searches around
midnight on 18.08.2026 at these premises, which are connected with two firms, one engaged in the
manufacture of pan masala and allied products and the other in trading.The searches led to 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 includes 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, HSNS Cess and Central Excise duty of
approximately ₹185 crore has been detected so far.
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 19.08.2026 under Section 26 of the HSNS Cess Act, 2025 and Section 13 of the Central Excise
Act, 1944, and produced before the Special Chief Judicial Magistrate (Customs), Lucknow, who remanded
him to judicial custody. Investigation is continuing and further recoveries are expected.
A capacity-based cess and taxation regime came into effect on 1st February 2026 in the pan masala and
tobacco sector. Under the Health Security se National Security Cess Act, 2025 (HSNS) capacity-based
monthly cess is applicable on pan masala, which is computed based on 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, 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 1st February 2026, DGGI formations across the country have booked 27 cases involving suppression
of production, clandestine clearance and evasion of the applicable levy, detecting evasion of duty, tax and
cess of ₹668 crore. Voluntary payment of ₹11.7 crore has been made during the course of investigation. Atotal of 131 pouch-packing machines have been seized and 17 persons arrested.
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SR/KMN
(रलीज़ आईडी: 2301875) आगंतुक पटल : 1963
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