Reduced central excise penalty and trader liability under Rule 26 depend on timely payment and a clear finding of knowing involvement.

Payment of duty, interest, redemption fine and 25% of the penalty within 30 days attracted the reduced-penalty scheme under section 11AC of the Central Excise Act, so the assessee was entitled to that limited penalty benefit. Penalty under rule 26 of the Central Excise Rules, 2004 could not be sustained against a trader because there was no specific finding that it knowingly acquired, transported, sold or otherwise dealt with excisable goods liable to confiscation with the required knowledge or reason to believe. The reduction in penalty was therefore upheld, while the trader's penalty was deleted for want of the requisite finding.

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Issues: (i) Whether the assessee was entitled to the benefit of reduced penalty under section 11AC of the Central Excise Act, 1944 on payment of duty, interest, redemption fine and 25% of the penalty within the prescribed period; (ii) Whether penalty under rule 26 of the Central Excise Rules, 2004 could be sustained against the trader in the absence of a finding that it knowingly dealt with excisable goods liable to confiscation.

Issue (i): Whether the assessee was entitled to the benefit of reduced penalty under section 11AC of the Central Excise Act, 1944 on payment of duty, interest, redemption fine and 25% of the penalty within the prescribed period.

Analysis: The duty liability was not contested and the amounts demanded, together with interest and redemption fine, had been paid. The further payment of 25% of the penalty was also made within 30 days of the order-in-original. In that situation, the statutory scheme under section 11AC entitled the assessee to the reduced penalty consequence contemplated by the provision.

Conclusion: The issue is answered in favour of the assessee, and the penalty under section 11AC was sustained only to the limited extent consistent with the reduced-penalty scheme.

Issue (ii): Whether penalty under rule 26 of the Central Excise Rules, 2004 could be sustained against the trader in the absence of a finding that it knowingly dealt with excisable goods liable to confiscation.

Analysis: Rule 26 requires a finding that the person acquired, transported, removed, kept, sold, purchased, or otherwise dealt with excisable goods knowing or having reason to believe that they were liable to confiscation. The appellate authority had reproduced the rule, but there was no specific finding that the trader had so dealt with the goods with the requisite knowledge or belief.

Conclusion: The penalty on the trader was unsustainable and was set aside.

Final Conclusion: The appeal of the manufacturer succeeded to the extent of the statutory reduced-penalty benefit, and the trader's penalty was deleted for want of the necessary finding under rule 26; the matters were thus disposed of in substantial part in favour of the assessee-side.

Ratio Decidendi: Reduced penalty under section 11AC follows when duty, interest and the stipulated portion of penalty are paid within the prescribed time, and penalty under rule 26 cannot survive without a clear finding of conscious dealing with goods liable to confiscation.

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