DGGI Detects Alleged ₹185 Crore GST, HSNS Cess and Excise Evasion in Uttar Pradesh Pan Masala Network

The Directorate General of GST Intelligence (DGGI) has uncovered what it described as a clandestine manufacturing network for pan masala, scented jarda and gutkha across six premises in Chitrakoot and Banda districts of Uttar Pradesh. According to a Ministry of Finance release dated 21 August 2026, the operation resulted in the detection of 27 undeclared pouch-packing machines and estimated evasion of GST, Health Security se National Security (HSNS) Cess and Central Excise duty of about ₹185 crore.

The Lucknow Zonal Unit of DGGI began coordinated searches around midnight on 18 August 2026 after developing specific intelligence. The six premises were linked to two firms, one engaged in manufacturing pan masala and allied products and another engaged in trading. DGGI said the evidence indicated use of unregistered premises and undeclared machinery, with finished goods allegedly cleared without payment of the applicable levies.

What DGGI found during the searches

Officials reported finding 27 undeclared pouch-packing machines: six used for scented jarda, nine for pan masala and 12 for dohara or desi gutkha. Other machinery, including mixing, areca-nut crushing and drying equipment, was also found at the searched premises.

The enforcement action led to seizure of 15,50,922 pouches of finished goods comprising pan masala, chewing tobacco, scented jarda and sugandhit supari. DGGI also reported seizure of substantial raw and packing material, including 32.9 metric tonnes of areca nut and cut areca nut, 2.8 metric tonnes of tobacco, 8.4 metric tonnes of packing material, 470 kg of katha powder, 850 kg of glycerine, 545 kg of essence and 256 kg of unpacked pan masala.

Why undeclared machines matter under the 2026 tax regime

The case is significant because a capacity-based cess and taxation framework for the pan masala and tobacco sector took effect from 1 February 2026. Under the Health Security se National Security Cess Act, 2025, capacity-based monthly cess applies to pan masala and is linked to the number, type and capacity of packing machines installed. India Code records that the HSNS Cess Act, 2025, came into force on 1 February 2026 and gives authorities powers including inspection, search, seizure, confiscation and arrest.

A similar capacity-based Central Excise levy applies to chewing tobacco, jarda and gutkha. The enforcement concern is therefore not limited to unreported finished-goods sales: undeclared production machinery can directly affect the levy computation itself. DGGI said the alleged network used undeclared machines and clandestine clearances to avoid GST, HSNS Cess and Central Excise duty.

Arrest and continuing investigation

DGGI said the proprietor of the manufacturing firm was prima facie found to be organising and managing the alleged clandestine manufacture and clearance. He was arrested on 19 August 2026 under Section 26 of the HSNS Cess Act, 2025 and Section 13 of the Central Excise Act, 1944. He was produced before the Special Chief Judicial Magistrate (Customs), Lucknow, who remanded him to judicial custody.

The investigation is continuing, and the Ministry of Finance release said further recoveries are expected. The approximately ₹185 crore figure is therefore an amount detected so far rather than a final adjudicated liability.

DGGI says enforcement has intensified nationwide

The Uttar Pradesh case forms part of a wider enforcement drive since the capacity-based regime began. DGGI stated that from 1 February 2026, its formations across India had booked 27 cases involving alleged suppression of production, clandestine clearance and evasion of applicable duty, tax and cess. Across those cases, detected evasion was stated at ₹668 crore.

DGGI also reported voluntary payments of ₹11.7 crore during investigations, seizure of 131 pouch-packing machines and 17 arrests nationwide. The agency said it is combining data analytics with intelligence-led and coordinated field operations to detect attempts to suppress production through undeclared machinery.

What finance and tax teams should take away

For manufacturers and advisers in affected product categories, the enforcement action underlines the need for production-capacity records, machine declarations, tax registrations, stock movement and levy computations to reconcile with actual operations. The capacity-based framework makes machinery configuration and installed capacity central compliance data, not merely operational information.

Professionals reviewing GST, excise or HSNS Cess exposure should also distinguish between amounts detected during investigation and liabilities finally determined through adjudication. In this case, DGGI's ₹185 crore estimate is an investigative figure and the proceedings are still ongoing.

Key takeaway

DGGI's Lucknow Zonal Unit has detected 27 undeclared packing machines and alleged tax and cess evasion of about ₹185 crore in a six-premise pan masala and tobacco network in Uttar Pradesh. The case highlights how the capacity-based levy regime effective from 1 February 2026 is being enforced through machine-level scrutiny, seizures and coordinated intelligence operations.