Dry roast all the Kolhapuri masala ingredients, then grind them in a blender jar to make a fine powder. Set the masala aside.

Heat 1 teaspoon oil in a pan. Add the cashews and roast them, then add the melon seeds and roast. Add chopped onions, garlic, and green chilies, and sauté. Add chopped tomatoes and cook for 5 minutes. Let the mixture cool, then blend into a smooth paste.

Heat 2 tablespoons oil in a pan. Add mustard seeds and cumin seeds for tempering. Add the prepared Kolhapuri masala and mix well. Add red chili powder, turmeric, coriander powder, and salt, then add the prepared paste. Sauté until the oil separates.

Add water as needed to adjust the consistency. Add the remaining Kolhapuri masala if desired. Once the gravy comes to a boil, add paneer pieces.

Cook for 5 minutes, then turn off the heat. Your Paneer Kolhapuri is ready. Serve hot with chapati or rice.