Rule 26(1) penalty for handling cash linked to unaccounted goods sustained on inference, but reduced as excessive.

Penalty under Rule 26(1) of the Central Excise Rules, 2002 was examined in relation to alleged handling of cash connected with unaccounted goods. The record did not establish direct knowledge that the cash was linked to offending goods, but surrounding circumstances supported an inference of involvement in the trade activity, so liability was sustained. However, the original penalty was found excessive on the facts, and the quantum was reduced accordingly. The order therefore maintained the finding of liability while granting only partial relief on penalty amount.

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Issues: Whether penalty imposed under Rule 26(1) of the Central Excise Rules, 2002 for alleged handling of cash in connection with unaccounted goods was warranted in full, and whether the quantum of penalty called for reduction.

Analysis: The appellant was visited with penalty on the premise that large cash handling as an Angadiya indicated involvement in relation to offending goods. The record did not show direct knowledge on the appellant's part that the cash was linked to offending goods, though an inference of some involvement in the trade activity was drawn from the magnitude of cash handled and the surrounding circumstances. In these facts, the finding of liability was maintained, but the extent of penalty was considered excessive.

Conclusion: The penalty under Rule 26(1) was upheld on merits, but its quantum was reduced from Rs. 5,50,000 to Rs. 1,25,000.

Final Conclusion: The appeal succeeded only to the limited extent of reduction of penalty, while the finding of liability remained undisturbed.

Ratio Decidendi: Where liability under Rule 26(1) is inferable from the surrounding circumstances but direct knowledge is not established, the penalty may be sustained with a reduced quantum if the original amount is found excessive.

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