Central excise penalty cannot be sustained against a trader absent proof of knowledge, connivance, or illicit clearance involvement.

Penalty under Rule 173Q(1)(a) and (d) of the Central Excise Rules, 1944 could not be imposed on a trader or buyer of processed fabrics where the notice made no specific allegation of knowledge, reason to believe, or active involvement in the alleged illicit clearance. The provision was held inapplicable on the recorded facts because the appellant was only a trader/buyer, not the assessee, and there was no proof of connivance or abetment. In the absence of specific notice and supporting evidence linking the appellant to goods liable to confiscation or illegal removal, the penalty was unsustainable.

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Issues: Whether penalty under Rule 173Q(1)(a) and (d) of the Central Excise Rules, 1944 could be sustained against a trader and buyer of processed fabrics in the absence of any specific allegation of knowledge, reason to believe, or active involvement in the alleged illegal clearance.

Analysis: The notice did not attribute any specific act to the appellant. There was no allegation that the appellant had knowledge that the goods were liable to confiscation or that it had reason to believe that the goods were being cleared illicitly. On the facts recorded, the appellant was only a trader/buyer and not the assessee against whom the penal provision was directed. The rule could not be applied merely because the appellant had dealt with the processed fabrics, without proof of connivance or abetment.

Conclusion: Penalty under Rule 173Q(1)(a) and (d) could not be sustained against the appellant, and the finding is in favour of the assessee.

Ratio Decidendi: A penalty provision in central excise cannot be imposed on a trader or buyer unless the notice and evidence establish specific involvement, knowledge, or reason to believe that the goods were liable to confiscation or were being cleared in violation of law.

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