Knowledge Requirement for Penalty and Limits of Show Cause Notice in confiscation and redemption fine

Penalty under Rule 209A requires proof that the purchaser knew the goods were cleared without duty payment; on the stated facts, bona fide purchase against invoices, entry in records, cheque payment and no discrepancy in accounts meant the requisite knowledge was not established, so the penalty was not sustainable. Confiscation of seized goods and redemption fine cannot be imposed where the show cause notice proposed only penalty; such relief goes beyond the notice and is invalid. The appellate order was therefore set aside to the extent challenged.

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Issues: (i) Whether penalty under Rule 209A could be imposed on purchasers of goods alleged to have been cleared without payment of duty, in the absence of knowledge that the goods were not duty paid; (ii) Whether confiscation of seized goods and redemption fine could be sustained when the show cause notice had proposed only penalty.

Issue (i): Whether penalty under Rule 209A could be imposed on purchasers of goods alleged to have been cleared without payment of duty, in the absence of knowledge that the goods were not duty paid.

Analysis: The appellants were an SSI unit, not availing Modvat credit, and had purchased the goods against invoices, entered the receipt in their records, and made payment by cheque. No discrepancy in their records was found. On these facts, the necessary knowledge that the goods were cleared without duty payment was not established, and the appellants were bona fide purchasers.

Conclusion: Penalty under Rule 209A was not sustainable against the appellants.

Issue (ii): Whether confiscation of seized goods and redemption fine could be sustained when the show cause notice had proposed only penalty.

Analysis: The show cause notice did not propose confiscation of the goods found in the appellants' premises. The adjudicating and appellate authorities nevertheless ordered confiscation and redemption fine. Such relief travelled beyond the scope of the notice and could not be sustained.

Conclusion: Confiscation of the goods and the redemption fine were not sustainable.

Final Conclusion: The appellate order was set aside to the extent challenged, and the appellants obtained consequential relief under the law.

Ratio Decidendi: Penalty for dealing with allegedly non-duty-paid goods requires proof of knowledge, and confiscation or redemption fine cannot be imposed beyond the scope of the show cause notice.

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