Lucknow: A major tax evasion case has surfaced in Uttar Pradesh involving the pan masala, flavoured chewing tobacco and gutka trade. The Lucknow Regional Unit of the Directorate General of Goods and Services Tax Intelligence (DGGI) has uncovered an alleged network involved in unauthorised production and the supply of products without payment of applicable taxes in Chitrakoot and Banda. The investigation has revealed alleged tax and levy evasion of around ₹185 crore. Large quantities of finished pouches, raw materials and production equipment were seized during the operation.
The DGGI team conducted searches at six premises in Chitrakoot and Banda late on August 18. A total of 27 undeclared pouch-packing machines were seized. These included six machines used for flavoured chewing tobacco, nine machines for pan masala and 12 machines used for producing dual or country-made gutka. According to the investigating agency, two firms were involved, with one engaged in manufacturing activities and the other in trading operations.
Millions of Finished Pouches and Tonnes of Raw Materials Seized
During the searches, officials recovered 1,550,922 finished pouches. The seized material also included around 32.9 tonnes of areca nut, 2.8 tonnes of tobacco and 8.4 tonnes of packaging material. Investigators also recovered 470 kilograms of catechu powder, 850 kilograms of glycerine, 545 kilograms of essence and 256 kilograms of unpackaged pan masala.
Mixing machines used in the preparation of pan masala and related products were also seized, along with machines used for crushing and drying areca nuts. According to the DGGI, the material and equipment recovered during the searches indicate large-scale manufacturing activity.
Products Allegedly Supplied Without Payment of Applicable Taxes
According to the preliminary investigation, the finished products were allegedly supplied to the market without payment of GST, HSNS cess and central excise duty. Officials are examining records, raw material stocks and production capacity to determine the actual tax liability. The agency is also investigating transactions linked to the manufacturing and trading operations.
Following the operation, the owner of the manufacturing firm was arrested on August 19 and subsequently sent to judicial custody after being produced before a court. The investigation is continuing, with authorities examining the distribution chain to determine the markets and traders to whom the allegedly tax-evaded products were supplied.
Increased Scrutiny After Capacity-Based Levy Regime
A capacity-based levy regime came into effect for the pan masala and tobacco sector on February 1, 2026, following which manufacturing units have come under increased scrutiny for tax compliance. The DGGI has stepped up investigations into businesses operating in the sector across the country.
According to the DGGI, 27 such cases nationwide have so far revealed tax evasion of around ₹668 crore, while a total of 17 people have been arrested in these cases. The Chitrakoot-Banda operation is part of this wider enforcement drive. The agency is now matching the seized materials, machinery and documents with production records, sales and tax liabilities.
As the investigation progresses, the role of other individuals and entities associated with the business operations may also come under scrutiny. Authorities are focusing on establishing the complete alleged tax-evasion chain, from manufacturing and storage to the movement of products into the market and the financial transactions associated with the trade.
