Knowledge or reason to believe is required for excise penalty, while inadvertent default justified reduction and no confiscation.

Penalty under Rule 209A requires proof that the person dealt with goods liable to confiscation with knowledge or reason to believe that they were so liable. On the facts, the employees, the director, the truck owners and the drivers were not shown to have the necessary knowledge or direct involvement, so the penalty against them was set aside. For the manufacturer, the omission to make the RG 23A debit entry was treated as inadvertent and not part of a deliberate design to evade duty, so the penalty was reduced; the redemption fine was maintained, and confiscation of plant and machinery was found unsustainable and was set aside.

---

---

Issues: (i) Whether penalty under Rule 209A of the Central Excise Rules was sustainable against employees, directors, truck owners and drivers; (ii) whether the penalty imposed on the manufacturer under Rule 173Q of the Central Excise Rules read with Section 11AC of the Central Excise Act required reduction and whether confiscation of plant and machinery could be sustained.

Issue (i): Whether penalty under Rule 209A of the Central Excise Rules was sustainable against employees, directors, truck owners and drivers.

Analysis: Rule 209A contemplates involvement with goods liable to confiscation with knowledge or reason to believe. The record showed that the relevant invoice carried the debit entry and the omission in the statutory register arose in the course of the excise in-charge being on leave due to illness. On these facts, the employees and the director had no direct dealing with the goods in the requisite sense, and the truck owners and drivers were not shown to have knowledge or reason to believe that the goods were liable to confiscation.

Conclusion: Penalty under Rule 209A was not sustainable against the employees, the director, the truck owners or the drivers.

Issue (ii): Whether the penalty imposed on the manufacturer under Rule 173Q of the Central Excise Rules read with Section 11AC of the Central Excise Act required reduction and whether confiscation of plant and machinery could be sustained.

Analysis: The omission to make the debit entry in RG 23A was attributed to the sudden illness of the excise in-charge, and the available materials did not disclose a deliberate design to evade duty. The circumstances warranted leniency in the quantum of penalty. At the same time, the redemption fine was found to be already lenient, while confiscation of plant and machinery was not justified on the facts.

Conclusion: The penalty on the manufacturer was reduced, the redemption fine was maintained, and confiscation of plant and machinery was set aside.

Final Conclusion: The appeals succeeded in part, with the penalties on individuals set aside, the manufacturer's penalty substantially reduced, and the confiscation of plant and machinery annulled.

Ratio Decidendi: Penalty provisions directed at persons dealing with goods liable to confiscation require proof of knowledge or reason to believe, and where the default is shown to be inadvertent and unsupported by deliberate intent, the penalty may be reduced and confiscation curtailed.

---