The Telangana High Court has granted regular bail to Mohsin Shabbir Khan, who was arrested in connection with an alleged ₹12 crore Health Security National Security (HSNS) Cess evasion involving the clandestine manufacture and clearance of pan masala.
The bench of Justice K. Sujana observed that the alleged offences are punishable with imprisonment of less than five years and that the investigating agency had not sought further custodial interrogation despite the ongoing investigation.
According to the prosecution, officers of the Anti-Evasion Section, Hyderabad GST Commissionerate, conducted coordinated searches on May 9, 2026, based on specific intelligence at premises allegedly linked to the petitioner. During the searches, officials reportedly seized four packing machines, substantial quantities of “Kalakaar” branded pan masala, along with raw materials and packaging materials.
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The department alleged that the petitioner, acting in concert with others, had been clandestinely manufacturing and clearing pan masala through undeclared packing machines without obtaining registration under the Health Security National Security Cess Act, 2025, and without payment of the applicable HSNS cess. The authorities estimated the alleged tax evasion at approximately ₹12 crore.
Investigators further claimed that Mohsin Shabbir Khan exercised effective control over the entities involved in the alleged operations and used proxy directors and sham arrangements to conceal ownership and evade cess liability. Based on the evidence collected during the investigation, he was arrested on June 17, 2026, for offences under Sections 18(1)(a), 18(1)(b), and 18(1)(c) read with Section 19(1) of the HSNS Act, 2025.
Appearing for the petitioner, counsel argued that the offences alleged are punishable with imprisonment of less than five years and contended that the arrest had been made without serving the statutory notice contemplated under Section 35(3) of the Bharatiya Nagarik Suraksha Sanhita (BNSS). The defence also submitted that the HSNS Cess Act is a newly enacted legislation and questioned the jurisdictional aspects relating to the prosecution of the alleged economic offence.
The State strongly opposed the bail plea, contending that the petitioner had played a significant role in the alleged cess evasion scheme. The prosecution further informed the Court that Accused No. 2, described as the alleged kingpin, was absconding and believed to be residing abroad, while having already approached the Court for anticipatory bail. On these grounds, the State urged the Court to reject the petition.
After considering the rival submissions and examining the record, the High Court noted that the petitioner had remained in judicial custody since June 18, 2026. The Court observed that although the investigation was still in progress, the investigating agency had not filed any custody petition seeking further interrogation of the accused.
The Court also took note of the fact that the alleged offences carry a maximum punishment of less than five years. Considering the duration of incarceration and the overall circumstances of the case, Justice K. Sujana held that the matter was fit for grant of regular bail.
While allowing the criminal petition, the High Court directed the petitioner to execute a personal bond of ₹25,000 with two sureties of the like amount to the satisfaction of the Special Court for Trial of Economic Offence Cases, Hyderabad.
The Court further directed the petitioner to appear before the concerned Station House Officer every Monday at 11:00 a.m. for eight weeks, or until the filing of the charge sheet, whichever is earlier, and thereafter whenever required for investigation. The petitioner was also directed to comply with the statutory conditions governing bail under the BNSS.
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