Hyderabad: The Hyderabad CGST Zone has busted a clandestine pan masala and tobacco manufacturing unit in Medchal-Malkajgiri district and detected total duty and cess evasion of about Rs 160 crore and arrested a person, officials said on Saturday.Acting on specific intelligence, a search operation was conducted at a tin-shed premises on August 20, an official release said.The search led to the detection of 40 undeclared FFS (Form-Fill-Seal) packing machines used to pack pan masala and tobacco/scented jarda, it said.Around 56 workers were found engaged on the shop floor at the time of the search. The unit was found manufacturing and packing several branded and unbranded products of pan masala and scented jarda, it said.The operation resulted in the seizure of a large quantity of finished stock of pouches weighing around 5,500 kg and ready-to-dispatch consignments valued at Rs 76 lakh, along with raw material comprising approximately 2,015 kg of pan masala mixture and 810 kg of tobacco, besides two vehicles used for transportation of the illicit goods, the release said.Officers also seized packing material, the 40 FFS machines, and other incriminating documents."Evidence indicates that the unit was being run clandestinely without registration, with finished goods being cleared without payment of applicable GST, HSNS Cess and Central Excise duty," it said The key person found to be organising and managing the clandestine manufacture and clearance was arrested on August 21 and produced before the Special Judge for Economic Offences, Hyderabad, who remanded him to judicial custody for 14 days, the release said.Based on the stock physically verified, the scale of machinery and manpower deployed, and the statements recorded, the total duty and cess evasion detected is approximately Rs 160 crore, the release said.A capacity-based cess and taxation regime has been in effect since February 1, 2026 in the pan masala and tobacco sector.Under the Health Security se National Security (HSNS) Cess Act, 2025, capacity-based monthly cess is applicable on pan masala, computed on the basis of the 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, it said."Unscrupulous manufacturers attempt to avoid these duties and cesses by using undeclared machinery clandestinely," the release said. To counter it, the Hyderabad CGST Zone has stepped up intelligence-led enforcement in the sector, combining data analytics with coordinated field operations, it added.