Penalty Dropped Under Rule 26 of Central Excise Rules 2002 After Settlement Commission Immunity for Undervaluation Allegations

CESTAT allowed the appeal and set aside the penalty under rule 26 of the Central Excise Rules, 2002 imposed for alleged undervaluation and issuance of parallel invoices, holding that the appellant's approach to the Settlement Commission attracted immunity from penalty based on binding precedent; consequently the penalty on the appellant was dropped, and the appeal disposed of.

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The appellant appealed an order imposing penalty under Rule 26 of the Central Excise Rules, 2002, arising from issuing parallel invoices and enabling inadmissible Cenvat credit; the main beneficiary settled its case before the Settlement Commission while the appellant's own Settlement application was rejected. Central question: whether penalty under Rule 26 can be imposed on a co-noticee who approached the Settlement Commission when the principal party obtained settlement. Relying on the Tribunal's precedent in Mamta Garg (citing S.K. Colombowala), the Tribunal emphasized that it is necessary to "examin[e] role of each of noticees" to determine whether acts are "part and parcel of same offence" or amount only to abetment; if so, co-noticees "may be covered for immunity" but if a co-noticee committed an "offence distinct and liable for penalty" immunity is not automatic. Here, since the appellant had approached the Settlement Commission and its role was linked to the main offence, the penalty under Rule 26 was dropped and the appeal was allowed.

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