Retrospective penalty and confiscation-linked liability under the Central Excise Rules were rejected for lack of statutory basis and proof.

Penalty under Rule 26(2) of the Central Excise Rules, 2002 could not be sustained for alleged conduct that occurred before the sub-rule was inserted, because penal provisions do not operate retrospectively absent clear legislative intent. Penalty under Rule 25 was also unsustainable since the record did not show that the appellants removed, stored, manufactured, or otherwise dealt with goods liable to confiscation; supplying documents for credit purposes was insufficient to satisfy Rule 25. The impugned penalties were therefore set aside, and the appeals succeeded.

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Issues: (i) Whether penalty under Rule 26(2) of the Central Excise Rules, 2002 could be sustained for alleged conduct occurring before the insertion of that sub-rule; (ii) Whether penalty under Rule 25 of the Central Excise Rules, 2002 could be imposed when the appellants were not shown to have dealt with goods liable to confiscation.

Issue (i): Whether penalty under Rule 26(2) of the Central Excise Rules, 2002 could be sustained for alleged conduct occurring before the insertion of that sub-rule.

Analysis: Rule 26(2) came into force only with Notification No. 8/2007-C.E. (N.T.) dated 01.03.2007. The alleged period preceded that amendment. Penal provisions are not retrospective unless the legislature clearly so provides. The provision relied upon for penalising issuance of documents or abetment in taking ineligible credit was therefore not available for the relevant period.

Conclusion: The penalty under Rule 26(2) was not sustainable and was set aside.

Issue (ii): Whether penalty under Rule 25 of the Central Excise Rules, 2002 could be imposed when the appellants were not shown to have dealt with goods liable to confiscation.

Analysis: Rule 25 applies where a person removes, accounts for, manufactures, stores, or otherwise deals with excisable goods in circumstances attracting confiscation. The record did not show that the appellants handled, removed, or otherwise dealt with any goods liable to confiscation. The allegation against them was confined to supplying documents on the basis of which credit was taken, which did not satisfy the essential ingredients of Rule 25.

Conclusion: The penalty under Rule 25 was not sustainable and was set aside.

Final Conclusion: The impugned penalties on the appellants could not be sustained in law, and the appeals succeeded.

Ratio Decidendi: A penal provision cannot be applied to conduct predating its insertion, and penalty under Rule 25 requires proof that the person dealt with goods liable to confiscation.

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