Rule 26 penalty needs goods liable to confiscation; absent that finding, the penalty cannot stand.

Penalty under Rule 26(1) of the Central Excise Rules, 2002 requires that the person deal with excisable goods known, or reasonably believed, to be liable to confiscation. Where no goods were confiscated and no finding was recorded that the goods were liable to confiscation, the statutory precondition for penalty was absent. On that basis, the penalty could not be sustained and was set aside in favour of the assessee.

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Issues: Whether penalty under Rule 26 of the Central Excise Rules, 2002 could be sustained when no goods were confiscated and no goods were held liable to confiscation.

Analysis: Rule 26(1) authorises penalty only where a person deals with excisable goods that he knows or has reason to believe are liable to confiscation. The provision therefore makes liability to confiscation, or actual confiscation, the foundational condition for imposing penalty. On the facts recorded in the impugned order, no goods were confiscated and no finding was returned that any goods were liable to confiscation. The statutory precondition for invoking Rule 26(1) was thus absent.

Conclusion: Penalty under Rule 26(1) could not be imposed and was rightly set aside in favour of the assessee.

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