The Karnataka High Court has recently granted bail to S. Nithyananda-the proprietor of M/s N Square Enterprises-who was arrested under the newly enacted Health Security and National Security Cess (HSNS) Act, 202 for allegedly evading cess amounting to around 42 crores.

The single judge bench of Justice S Vishwajith Shetty granted him bail on October 17[Saturday].

The accused had been in judicial custody since August 20, 2026, following a crackdown by the Directorate General of GST Intelligence (DGGI), Bengaluru Zonal Unit at his factory in Nelamangala, and his residence in Sheshadripuram. According to DGGI, the search of the factory led to the recovery of six undeclared vertical Forms, Fill and Seal (FFS) pouch packing machines, alongside large quantities of raw materials, packaging materials, and finished pan masala goods.

The department had earlier alleged that the accused was engaged in unregulated manufacture and clearance of pan masala, without following the norms for registration, declaration of machinery, or payment of applicable cess.

After the search, the DGGI computed the alleged evasion around Rs 1 crore per machine every month, with a total liability of around 42 crores for the time period of February 2026 -August 2026.

After his arrest, Nityananda had filed bail applications which were previously rejected by the Special Court for Economic Offences on September 1, and thereafter, the Sessions Court on October 6, 2026.

Senior Advocate Sunil Kumar S., appearing for the petitioner, argued that the entire case rests on a presumptive calculation of cess. He heavily relied on the recent judgment of the High Court of Karnataka in M/s Dhariwal Industries Pvt. Ltd. v. Union of India, wherein a Single Judge bench of Justice M Nagaprasanna struck down the capacity-based manner of levying cess under the HSNS Act as violative of Article 14.

Though the Division Bench then subsequently stayed the single bench order, the petitioner contended that the liability to the tune of 42 crores attributed is a disputed departmental calculation. Kumar argued that it should not be treated as a final adjudicated liability at the bail stage.

It was further argued that the investigation is substantially complete, since all incriminating materials are in the custody of the respondent. The petitioner emphasized that even the mahazar proceedings were video-recorded, making evidence tampering impossible.

The High Court, after hearing both sides, accordingly allowed the petition, directing the release of the petitioner, subject to conditions.

Recently, the Karnataka government has imposed a one-year ban on the sale of Pan Masala containing nicotine or tobacco, effective from August 10, 2026