Rule 26 penalty on co-noticees cannot be pursued after main noticee settlement, and pre-deposit should not bar merits hearing.

Penalty under Rule 26 of the Central Excise Rules against co-noticees was considered in light of the main noticee's settlement before the Settlement Commission, and the appellate authority's refusal to hear the matter without pre-deposit was found improper. The distinction drawn by the Commissioner (Appeals) based on the settlement penalty imposed on the main noticee did not justify different treatment of the co-noticees. The appeals should have been decided on merits without insisting on pre-deposit, and the dismissal for non-compliance with the deposit direction was set aside with remand for fresh decision on merits.

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Issues: Whether penalty imposed on the co-noticees could be sustained when the main noticee had settled the dispute before the Settlement Commission, and whether the Commissioner (Appeals) could dismiss the appeals for failure to make the directed pre-deposit.

Analysis: The order records that the penalties were imposed under Rule 26 of the Central Excise Rules. The appellate authority had dismissed the appeals only for non-compliance with the stay direction requiring deposit of the penalty amounts as a condition for hearing. It was held that the distinction drawn by the Commissioner (Appeals) on the basis that the Settlement Commission had imposed a penalty on the main noticee did not justify treating the co-noticees differently. The reasoning followed the view that once the dispute of the main noticee is settled before the Settlement Commission, the issue of penalty against the co-noticees cannot be pursued on that basis, and the appeals ought to be decided on merits without insisting on pre-deposit.

Conclusion: The dismissal for non-compliance with pre-deposit was set aside and the matter was remanded to the Commissioner (Appeals) for decision on merits without insisting on any pre-deposit.

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