Rule 209A penalty needs proof of knowledge for traders, but direct admissions can sustain penalty for clandestine removal.

Penalty under Rule 209A of the Central Excise Rules, 1944 requires proof that the person knew or believed the goods were liable to confiscation. On the traders' part, the record showed ordinary purchase on challans, bills and invoices, with no reliable evidence of knowledge that the goods were non-duty-paid or part of clandestine activity, so the penalty was not sustainable. On the director's part, admissions of parallel invoices, non-accountal of goods, and knowing involvement in clandestine removal established direct participation in evasion, so the penalty was justified.

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Issues: (i) Whether penalty under Rule 209A of the Central Excise Rules, 1944 was sustainable against traders who purchased goods on challans and bills without proof of knowledge that the goods were non-duty-paid; (ii) Whether penalty on the director was justified for preparation of parallel invoices and clandestine removal of goods without payment of duty.

Issue (i): Whether penalty under Rule 209A of the Central Excise Rules, 1944 was sustainable against traders who purchased goods on challans and bills without proof of knowledge that the goods were non-duty-paid.

Analysis: The material on record showed that the traders received the goods in the ordinary course of trade on challans, bills and invoices. There was no reliable evidence that they knew the goods were removed without payment of duty or that they were beneficiaries of any clandestine activity. Penalty under Rule 209A required knowledge or belief that the goods were liable to confiscation, which was not established.

Conclusion: Penalty on the traders was not sustainable and was set aside.

Issue (ii): Whether penalty on the director was justified for preparation of parallel invoices and clandestine removal of goods without payment of duty.

Analysis: The director's own statements admitted preparation of parallel invoices, sale of goods without payment of duty, non-accountal in statutory records, and knowing involvement in illicit clearance and removal. The record therefore established direct participation in the evasion activity, making the penalty justified.

Conclusion: Penalty on the director was upheld.

Final Conclusion: The penalties were deleted in respect of the traders, while the penalty on the director was sustained, resulting in a partial allowance of the connected appeals.

Ratio Decidendi: Penalty on a person dealing with excisable goods cannot be sustained under Rule 209A unless knowledge or belief of the non-duty-paid character of the goods is proved, but direct admission of participation in clandestine removal justifies penalty.

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