Rule 26 penalty on director set aside for lack of evidence of knowledge or participation in clandestine removal

Penalty under Rule 26 of the Central Excise Rules, 2002 was found unsustainable against a company director where the record did not establish knowledge of, or material participation in, the alleged clandestine removal. The shortage was noticed on stock verification, duty was deposited by the company, and the company had already faced penalty under Section 11AC of the Central Excise Act, 1944. In the absence of evidence linking the director to the removal or shortage, separate personal penalty was not justified and was set aside.

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Issues: Whether penalty under Rule 26 of the Central Excise Rules, 2002 was sustainable against the respondent Director for the alleged clandestine removal and stock shortage noticed in the company.

Analysis: The shortage was detected during stock verification and duty was deposited by the company. The company had already been penalised under Section 11AC of the Central Excise Act, 1944. The record did not show that the Director had knowledge of the alleged clandestine removal or material participation warranting a separate penalty under Rule 26.

Conclusion: The penalty on the respondent Director was not sustainable and its setting aside was justified.

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