Rule 26(1) penalty needs proof of knowledge that goods were liable to confiscation; stay granted for lack of evidence.

Penalty under Rule 26(1) requires evidence that the person dealt with excisable goods knowing them to be liable to confiscation. Where the Department had earlier accepted the job-work activity and related service tax pattern, mere later reclassification of the activity as manufacture did not establish the requisite knowledge. On the available record, the appellant showed no material linking it to conscious dealing in goods liable to confiscation, and a strong prima facie case for interim relief was made out. Waiver of pre-deposit was granted and recovery of the penalty was stayed.

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Issues: Whether the appellant was entitled to waiver of pre-deposit and stay of recovery of penalty imposed under Rule 26(1) on the ground that the requisite knowledge of the goods being liable to confiscation was not established.

Analysis: The undisputed facts showed that the job-worker activity and service tax payment pattern were known to the Department and were accepted at the relevant time. On that basis, the appellant could not be said to have received the goods with knowledge that they were non-duty paid and liable for confiscation merely because the Department later took a different view that the activity amounted to manufacture. For penalty under Rule 26(1), knowledge or involvement in dealing with goods liable to confiscation must be shown, and no such evidence was found on the record. The appellant, therefore, made out a strong prima facie case for interim relief.

Conclusion: Waiver of pre-deposit was granted and recovery of the penalty was stayed in favour of the appellant.

Ratio Decidendi: Penalty under Rule 26(1) cannot be sustained unless there is evidence that the person dealt with excisable goods knowing them to be liable to confiscation.

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