Penalty relief under Sabka Vishwas cannot be denied for a procedural declaration lapse when eligibility is otherwise established.

Under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, penalty relief could not be denied to co-noticees merely because they did not file separate declarations where they were otherwise eligible and the liability related only to penalty or late fee; the omission was treated as procedural, and the benefit was allowed. Penalty under Rule 26 of the Central Excise Rules, 2002 was also unsustainable because the record did not show positive connivance or culpable participation, the findings were inconsistent with the order itself, and the penalty had been imposed by reference to provisions not in force during the material period; the penalties were set aside.

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Issues: (i) whether co-noticees who did not file a declaration under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 could be denied the benefit of penalty relief when the main noticee had settled the dispute; (ii) whether the penalty imposed on the appellants under Rule 26 of the Central Excise Rules, 2002 was sustainable on merits.

Issue (i): whether co-noticees who did not file a declaration under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 could be denied the benefit of penalty relief when the main noticee had settled the dispute.

Analysis: The statutory scheme contemplated relief for penalty or late fee under Section 124 of the Finance Act, 2019 where the tax dues related only to penalty or late fee. Rule 3 required a separate declaration for each case, but the filing requirement was treated as procedural in the context of penalty-only liability. The appellants were otherwise eligible for the statutory relief, and denial of that relief merely for non-filing of the declaration would elevate a formality over the substantive benefit intended by the scheme.

Conclusion: The benefit of the scheme could not be denied to the appellants on the ground that they had not filed declarations.

Issue (ii): whether the penalty imposed on the appellants under Rule 26 of the Central Excise Rules, 2002 was sustainable on merits.

Analysis: The record did not establish any positive act of connivance by the appellants. The findings against some appellants were inconsistent with the facts recorded in the impugned order itself, and there was no supporting investigation at the level of the transporter or truck drivers to disprove the appellants' version. The penalty was also imposed by relying upon provisions not in force during the material period. In the absence of proof of culpable participation and in view of the incorrect legal basis adopted, the penalty could not be sustained.

Conclusion: The penalty imposed on the appellants was unsustainable.

Final Conclusion: The appeals succeeded and the appellants obtained complete relief from the impugned penalties.

Ratio Decidendi: Where a statutory scheme grants full relief from penalty or late fee and the assessee is otherwise eligible, a procedural omission such as non-filing of a declaration cannot defeat the substantive benefit; penalty under Rule 26 requires a legally sustainable basis and proof of culpable involvement.

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