Rule 26 penalty needs independent evidence of active involvement and falls when the principal demand is set aside.

Penalty under Rule 26(1) of the Central Excise Rules, 2002 requires independent corroborative evidence showing a person's active involvement in the prohibited handling of excisable goods. On the facts stated, the employee's role as General Manager (Accounts) and the allegation of diversion of goods were not enough, because the record did not establish direct evidence of liability. The penalty also could not survive once the main demand against the principal assessee had already been set aside in the connected matter. The Tribunal therefore held the penalty unsustainable and set it aside.

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Issues: Whether the penalty imposed under Rule 26(1) of the Central Excise Rules, 2002 on a company employee could be sustained in the absence of independent corroborative evidence and when the main demand against the principal assessee had already been set aside.

Analysis: The basis for penalty was the allegation that the appellant, while functioning as General Manager (Accounts), was connected with diversion of goods and the alleged irregular availment of credit. The record, however, did not establish by independent evidence that he himself had dealt with excisable goods in the manner required for Rule 26 liability. The findings against the principal assessee had already been reversed in the connected matter, and the Tribunal treated that conclusion as materially affecting the present penalty. In these circumstances, the impugned penalty rested on assumptions and could not survive.

Conclusion: The penalty under Rule 26(1) of the Central Excise Rules, 2002 was not sustainable and was set aside in favour of the assessee.

Final Conclusion: The impugned order was annulled and the appeal succeeded.

Ratio Decidendi: Penalty under Rule 26(1) cannot be sustained without independent corroborative evidence establishing the person's active involvement in the prohibited handling of excisable goods, and it cannot survive where the foundational demand against the principal assessee has been set aside.

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