Penalty under Rule 26 fails where no evidence shows buyer connivance or collusion in alleged duty evasion.

Penalties under Rule 26 of the Central Excise Rules, 2002, imposed on buyer-units and proprietors for alleged undervaluation and duty short-payment were found unsustainable where the record did not show their involvement in the manufacturer's clearance of yarn to the DTA. The Tribunal noted that the buyers' and manufacturer's statements contained nothing to reflect buyer participation, and no evidence was discussed by the adjudicating authority to prove deliberate connivance or collusion. In the absence of an evidential foundation for evasion-related conduct, the penalties were held not to be called for and the impugned order was set aside.

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Issues: Whether penalties imposed on the buyers and proprietors were sustainable under Rule 26 of the Central Excise Rules, 2002 in the absence of evidence showing their deliberate involvement in the alleged duty evasion.

Analysis: The material on record, including the statements of the buyers' proprietors and the representative of the manufacturer, did not disclose any participation by the buyer units in the alleged undervaluation or evasion. The adjudicating authority recorded a finding of connivance and collusion without discussing any supporting evidence. In the absence of evidence establishing deliberate involvement, the statutory basis for imposing penalty was not made out.

Conclusion: The penalties were not sustainable and were set aside in favour of the assessees.

Ratio Decidendi: Penalty under Rule 26 of the Central Excise Rules, 2002 cannot be sustained without evidence of conscious participation, connivance, or collusion in the evasion of duty.

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