Rule 209A penalty fails where bona fides and absence of knowledge of confiscability are established on the facts.

Penalty under Rule 209A of the Central Excise Rules, 1944 was found unsustainable because the surrounding facts did not support a finding that the assessee or its employee knew, or had reason to believe, that the gases were liable to confiscation. A written contract for the gas plant existed from the inception of the unit, the assessee consistently maintained that the plant was taken on rent and installed in its premises, and an earlier departmental adjudication had accepted exemption eligibility. The gases were also industrial inputs, and Modvat credit would have neutralised the duty burden. On these facts, the penalty on the employee also could not survive.

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Issues: Whether penalty under Rule 209A of the Central Excise Rules, 1944 was sustainable against the assessee and its employee on the footing that they knew or had reason to believe that the gases were liable to confiscation.

Analysis: The arrangement for the gas plant was supported by a written contract and had existed from the inception of the unit. The assessee had consistently maintained that the plant was taken on rent and installed in its , and the earlier departmental adjudication had accepted exemption eligibility. These surrounding circumstances supported the bona fides of the assessee's position. The gases were also industrial inputs for which Modvat credit would have neutralised the duty burden, making it difficult to infer any deliberate procurement of offending goods with knowledge of confiscability.

Conclusion: Penalty under Rule 209A was not justified against the assessee. The employee's penalty also could not survive once the employer-assessee was found not guilty.

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