Rule 26 penalty requires prima facie knowledge that goods were liable to confiscation, justifying waiver of pre-deposit.

Penalty under Rule 26 of the Central Excise Rules, 2001 requires prima facie material that the person concerned knew or had reason to believe the goods were liable to confiscation. The provision is directed at persons dealing with goods in circumstances attracting confiscation, and mens rea must be shown at least prima facie before penalty exposure is sustained. On the facts noted, the order did not show that the applicant knew or had reason to believe that the purchaser would not export the sugar. The absence of such material justified waiver of pre-deposit of the penalty and stay of recovery.

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Issues: Whether, in proceedings for waiver of pre-deposit and stay of recovery of penalty under Rule 26 of the Central Excise Rules, 2001, the applicant was liable to make a deposit when the order did not prima facie show knowledge or reason to believe that the goods were liable to confiscation.

Analysis: Rule 26 fastens penalty on a person concerned with specified dealings in goods liable to confiscation, but the provision is prima facie directed against persons dealing with excisable goods after obtaining them from a manufacturer. For penalty to be attracted, the person must know or have reason to believe that the goods are liable to confiscation. On the facts noted, the order did not show that, when the sugar was sold, the applicant knew or had reason to believe that the purchaser would not export it. The element of mens rea was therefore not prima facie established.

Conclusion: The applicant was entitled to waiver of pre-deposit of the penalty and stay of recovery.

Ratio Decidendi: Penalty under Rule 26 of the Central Excise Rules, 2001 requires prima facie satisfaction that the person concerned knew or had reason to believe that the goods were liable to confiscation, and absence of such material justifies waiver of pre-deposit and stay.

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