Penalty under Rule 26(2) must match the relevant period and cannot exceed the limited amount actually sustained.

Penalty under Rule 26(2) of the Central Excise Rules, 2002 could not be sustained for the period before 1.3.2007 because that provision was not available in the manner invoked, and no penalty was proposed under the alternative provisions. For the post-1.3.2007 period, penalty was confined to the specific admitted invoice transaction and upheld only to the extent of the value involved. Any rebate adjustment had to be limited to the penalty actually sustained, so the set-off was restricted to the upheld amount and the remaining rebate claim was allowed.

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Issues: (i) Whether penalty under Rule 26(2) of the Central Excise Rules, 2002 was sustainable for the period prior to 1.3.2007 and for the post-1.3.2007 period; (ii) whether the rebate amount could be adjusted against the penalty sustained.

Issue (i): Whether penalty under Rule 26(2) of the Central Excise Rules, 2002 was sustainable for the period prior to 1.3.2007 and for the post-1.3.2007 period.

Analysis: The penalty notice and adjudication were confined to Rule 26(2) of the Central Excise Rules, 2002. For the period prior to 1.3.2007, the provision was not available in the manner invoked, and there was no proposal to impose penalty under Rule 25(1)(d) or Rule 26(1) of the Central Excise Rules, 2002. For the post-1.3.2007 period, the admitted invoice transaction attracted penalty only to the extent of the specific invoice/value involved.

Conclusion: The penalty was held not imposable for the period prior to 1.3.2007, but was confirmed to the extent of Rs. 9,048 for the post-1.3.2007 period.

Issue (ii): Whether the rebate amount could be adjusted against the penalty sustained.

Analysis: Since the full penalty did not survive, the rebate claim could not be adjusted beyond the amount of penalty ultimately upheld.

Conclusion: The rebate adjustment was restricted to Rs. 9,048 and the balance rebate claim was allowed.

Final Conclusion: The challenge to penalty succeeded in part, resulting in deletion of the pre-1.3.2007 penalty and confirmation only of the limited post-1.3.2007 amount, with corresponding restriction on rebate adjustment.

Ratio Decidendi: Where a penalty is invoked under a specific provision not in force or not properly proposed for the relevant period, it cannot be sustained for that period, and any surviving monetary adjustment must be confined to the penalty actually upheld.

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