The operation in Assam, India, was repackaging mustard and palm oil, according to Times of Assam.
The premises was raided by students after a tip-off, and they found the machine used to seal oil packets. It is believed the owner had absconded.
The food and civil supplies inspector has closed the premises and taken samples of oil and the packaging ahead of an enquiry.
People in the local Kenduguri district have praised the student activist team, but are accusing the district administration of failing to protect them from such trade.