Rule 26 penalty requires knowledge of confiscable goods and active involvement; mere supply of branded packing material is insufficient.

Penalty under Rule 26 of the Central Excise Rules, 2002 requires proof that the person was concerned with excisable goods knowing, or having reason to believe, that they were liable to confiscation. A brand owner that merely supplied empty cartons bearing its brand name to manufacturers was not shown to have instigated any wrongful SSI exemption claim or to have played a sufficient role in the alleged evasion. In the absence of evidence of knowledge, reason to believe, or active involvement in the offending transaction, the penalty was held unsustainable and relief was granted.

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Issues: Whether penalty could be imposed on the appellant under Rule 26 of the Central Excise Rules, 2002 for supplying packing material bearing its brand name to manufacturers who availed small scale industry exemption.

Analysis: The appellant was the brand owner and had supplied empty cartons to the manufacturers, but the record did not show that the appellant instigated them to claim exemption or that it had any role in the alleged evasion beyond supplying packing material. For penalty under Rule 26, the department had to establish that the person was concerned with excisable goods knowing, or having reason to believe, that they were liable to confiscation. The evidence on record did not show that the appellant knew that the goods were not eligible for exemption or that it had any reason to believe that the goods were liable for confiscation.

Conclusion: Penalty under Rule 26 was not sustainable and the appellant was entitled to relief.

Ratio Decidendi: Penalty under Rule 26 of the Central Excise Rules, 2002 can be imposed only when the person had knowledge or reason to believe that the goods were liable to confiscation and had a sufficient role in the offending transaction.

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