Conditional Bail in Pan Masala HSNS Cess Evasion Case: Telangana High Court’s Approach
Overview
The Telangana High Court, in Mohsin Shabbir Khan. Vs State of Telangana, dealt with a bail petition arising from alleged large-scale evasion of cess on pan masala under the Health Security Se National Security Cess Act, 2025 (HSNS Cess Act, 2025). The assessee was accused of running a concealed manufacturing setup for “Kalakaar” branded Pan Masala through undeclared packing machines and clearing goods without registration or payment of HSNS Cess, resulting in an estimated loss of around ₹12 crore to the exchequer.
Although the allegations related to serious economic offences, the Court examined the nature of the offence, the statutory punishment, the duration of custody, and the progress of investigation, and ultimately decided to grant regular bail with stringent conditions.
This write-up distills and rephrases the key aspects of the High Court’s reasoning and the conditions imposed while allowing the Criminal Petition.
Background and Case Origin
Registration of the Case
- The case arose from Crime No. F.No.HQAE/V/01/2026-27-HYD-GST-AE registered by the Superintendent of Central Tax, Anti-Evasion Section, Hyderabad GST Commissionerate.
- The offences were booked under:
Section 18(1)(a)of the HSNS Cess Act, 2025Section 18(1)(b)of the HSNS Cess Act, 2025Section 18(1)(c)of the HSNS Cess Act, 2025- read with
Section 19(1)of the HSNS Cess Act, 2025
The prosecution case was that the assessee was at the centre of a cess evasion racket involving undisclosed manufacturing, sham corporate structures, and deliberate non-compliance with statutory registration and payment obligations.
Search and Seizure Operations
On 09.05.2026, officers from the Anti-Evasion Section conducted search operations at multiple premises allegedly under the control or influence of the assessee. Based on specific intelligence input, the authorities claimed to have unearthed:
- Four packing machines used for packing pan masala;
- Significant quantities of “Kalakaar” branded Pan Masala;
- Related raw materials; and
- Packing materials required for manufacturing and clearing the product.
These materials were seized on the ground that the operations were being carried out without the mandatory registration under the HSNS Cess Act, 2025 and without payment of cess.
Allegations of Clandestine Manufacturing
The investigating agency alleged that:
- The assessee, together with certain others, was secretly engaged in the manufacture and clearance of Pan Masala using undeclared packing machines.
- No registration had been obtained under the HSNS Cess Act, 2025, despite the activity being squarely covered by the statute.
- No HSNS Cess was paid on the goods manufactured and cleared.
- The cess evasion was tentatively quantified at around ₹12 crore.
The prosecution further stated that the assessee was effectively controlling and managing the entities involved and that:
- Proxy directors and sham arrangements were used to conceal the real control;
- The structure was allegedly designed to avoid detection and to escape payment of HSNS Cess.
On the strength of the material collected during the investigation, the assessee was arrested on 17.06.2026. He remained in judicial custody from 18.06.2026 onwards.
Submissions of the Parties
Contentions on Behalf of the Petitioner
Counsel appearing for the assessee urged the Court to exercise its discretion under the criminal procedure framework and grant regular bail, relying primarily on the following points:
- Quantum of Punishment
- The offences under
Sections 18(1)(a),18(1)(b)and18(1)(c)of the HSNS Cess Act, 2025 are punishable with imprisonment of less than five years. - In such circumstances, continued incarceration during investigation was argued to be disproportionate.
- The offences under