Rule 26 penalty requires knowledge or reason to believe; prima facie mens rea was not shown for stay relief.

Rule 26 of the Central Excise Rules, 2001 was treated as targeting persons who acquire, transport, remove, or otherwise deal with excisable goods after obtaining them from a manufacturer, making its application to a manufacturer doubtful at the prima facie stage. Penalty under the rule also requires knowledge or reason to believe that the goods are liable to confiscation, and the record did not prima facie show that the applicant knew or had reason to believe, when selling the sugar, that the exporter would not export it. Mens rea was therefore not established prima facie, and waiver of pre-deposit with stay of recovery was granted.

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Issues: Whether penalty under Rule 26 of the Central Excise Rules, 2001 could be fastened on the manufacturer on the facts disclosed, and whether the applicant had made out a prima facie case for waiver of pre-deposit and stay of recovery.

Analysis: Rule 26 was treated as a provision aimed at persons who acquire, transport, remove, or otherwise deal with excisable goods after obtaining them from a manufacturer, and its application to a manufacturer was viewed as doubtful at the prima facie stage. The order also noted that penalty under the rule requires knowledge or reason to believe that the goods are liable to confiscation, and the record did not show that the applicant knew or had reason to believe, when selling the sugar, that the exporter would not export it. The requirement of mens rea was therefore not shown to be satisfied prima facie.

Conclusion: The applicant was granted waiver of deposit of the penalty and stay of recovery.

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