LUCKNOW: The Directorate General of GST Intelligence (DGGI), Lucknow Regional Unit, has busted a major illegal manufacturing network involved in the production and clandestine clearance of pan masala, flavoured zarda and gutkha in Uttar Pradesh, detecting tax and cess evasion of around Rs 185 crore.The crackdown, carried out at six premises in Chitrakoot and Banda, led to the seizure of 27 undeclared pouch-packing machines and 15,50,922 pouches of finished products, besides large quantities of raw materials and packing material, officials said.Acting on intelligence inputs, DGGI officers launched coordinated searches at the six premises around midnight on August 18. The premises were linked to two firms, one engaged in the manufacture of pan masala and allied products and the other involved in trading activities.The searches revealed a concealed manufacturing setup operating with machinery that had not been declared to the tax authorities. Of the 27 pouch-packing machines, six were being used for flavoured zarda, nine for pan masala and 12 for double/desi gutkha.Investigators also found machinery used to mix, crush and dry areca nut, indicating that the premises had the infrastructure to manufacture and pack multiple tobacco and pan masala products.15.5 lakh pouches seizedDGGI officials seized 15,50,922 pouches of finished products, comprising pan masala, chewing tobacco, flavoured zarda and flavoured supari.The operation also resulted in the seizure of 32.9 metric tonnes of areca nut and crushed areca nut, 2.8 metric tonnes of tobacco, 8.4 metric tonnes of packing material, pouches and laminates, 470 kg of catechu powder, 850 kg of glycerine, 545 kg of essence and 256 kg of unpacked pan masala.According to the DGGI, the evidence gathered during the searches indicated that the manufacturing network was operating through unregistered premises and undeclared production machinery. Finished products were allegedly being removed from the premises and supplied in the market without payment of applicable GST, HSNS cess and central excise duty.The investigation has so far established evasion of around Rs 185 crore in GST, Health Security National Security (HSNS) cess and central excise duty, making the Chitrakoot-Banda operation one of the significant enforcement operations against clandestine pan masala and tobacco production in the region.Owner arrested, sent to judicial custodyThe owner of the manufacturing firm was found to have organised and operated the clandestine production and clearance activities, according to the agency.He was arrested on August 19 under Section 26 of the Health Security National Security Cess Act, 2025, and Section 13 of the Central Excise Act, 1944.The accused was produced before the Special Chief Judicial Magistrate (Customs), Lucknow, and was subsequently sent to judicial custody.The DGGI said the investigation is continuing and that further recovery of finished goods, raw materials, documents and other evidence is expected.Capacity-based levy targetedThe action assumes significance as the government introduced a capacity-based tax and cess regime for the pan masala and tobacco sector from February 1, 2026.Under the HSNS Cess Act, 2025, pan masala manufacturers are required to pay a capacity-based monthly cess calculated on the basis of the number, type and capacity of pouch-packing machines installed at their premises.Similarly, chewing tobacco, zarda and gutkha attract capacity-based central excise duty under the Central Excise Act, 1944.According to the DGGI, the new system has prompted the agency to intensify intelligence-based enforcement against manufacturers attempting to conceal production capacity by operating undeclared pouch-packing machines.The agency has been using intelligence inputs and data analytics to identify discrepancies in production, machine capacity and movement of finished goods, followed by searches and seizures at suspected premises.Rs 668 crore evasion detected nationwideThe Chitrakoot-Banda operation is part of a broader nationwide enforcement drive against clandestine production and clearance of pan masala and tobacco products.Since February 1, 2026, various DGGI formations across the country have registered 27 cases involving concealment of production, clandestine removal of goods and evasion of applicable taxes and cess.Across these cases, the agency has detected Rs 668 crore in duty, tax and cess evasion. Investigations have also resulted in the voluntary deposit of Rs 11.7 crore.The nationwide drive has so far resulted in the seizure of 131 pouch-packing machines and the arrest of 17 persons.The latest operation in Chitrakoot and Banda, however, stands out for the scale of the suspected evasion, with around Rs 185 crore in GST, HSNS cess and central excise duty evasion detected in the single network, officials said.
