DGGI Uncovers ₹185 Crore Tax Evasion in Illegal UP Tobacco Network

The Directorate General of GST Intelligence (DGGI) has uncovered a clandestine pan masala and tobacco manufacturing network operating across six premises in Uttar Pradesh’s Chitrakoot and Banda districts. The Lucknow Zonal Unit conducted searches at the locations around midnight on August 18 and detected 27 undeclared pouch-packing machines. The investigation has so far revealed tax evasion involving GST, cess and central excise duty worth approximately ₹185 crore, according to the Finance Ministry.

The machines seized during the operation included six used for scented jarda, nine for pan masala and 12 for dohara or desi gutkha. Officials also found machinery used for mixing ingredients, crushing areca nuts and drying materials. The findings indicated that the manufacturing activity was allegedly being carried out through unregistered premises, with production and clearance of finished products taking place without payment of the applicable taxes and duties.

The operation led to the seizure of 15,50,922 pouches of finished products, including pan masala, chewing tobacco, scented jarda and sugandhit supari. Authorities also seized around 32.9 metric tonnes of areca nut and cut areca nut, 2.8 metric tonnes of tobacco and 8.4 metric tonnes of packing material, pouches and laminates. Other seized materials included 470 kg of katha powder, 850 kg of glycerine, 545 kg of essence and 256 kg of unpacked pan masala.

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According to the Finance Ministry, the evidence gathered during the searches suggested that the network used undeclared machinery to manufacture and clear products clandestinely. The proprietor of the manufacturing firm was allegedly found to be organising and managing the manufacturing and clearance operations. He was arrested on August 19 under provisions of the Health Security-cum-National Security Cess Act, 2025, and the Central Excise Act.

A capacity-based taxation and cess system for the pan masala and tobacco sector came into effect on February 1, 2026. Under the Health Security-cum-National Security Cess Act, a monthly cess on pan masala is calculated according to the number, type and capacity of pouch-packing machines installed. A similar capacity-based central excise levy applies to chewing tobacco, jarda and gutkha, making the declaration of machinery an important part of compliance.

The latest action forms part of a wider enforcement drive by the DGGI against tax evasion in the sector. Since February 1, DGGI formations across India have registered 27 cases involving alleged suppression of production, clandestine clearance and tax evasion amounting to ₹668 crore. During these investigations, ₹11.7 crore was voluntarily paid, while 131 pouch-packing machines were seized and 17 people were arrested.

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