Derivative penalty on co-noticees cannot survive after main noticee settles duty dispute under SVLDRS.

Where the main noticee settles the duty dispute under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, penalty proceedings against co-noticees under Rule 26(1) based solely on the same settled cause do not survive independently. CESTAT Ahmedabad relied on the scheme framework, the CBIC circular, and consistent Tribunal precedent to hold that derivative penalties cannot continue after settlement by the principal noticee, even if the co-noticees did not file separate declarations. The penalty on the co-noticees was therefore unsustainable and the appeals were allowed with consequential relief.

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Issues: Whether penalty imposed on co-noticees under Rule 26(1) of the Central Excise Rules, 2002 survives when the main noticee has settled the duty dispute under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019.

Analysis: The Tribunal noted that the SVLDRS framework and the CBIC circular governing the scheme support the position that once the principal duty dispute is settled, the penal proceedings against connected co-noticees do not independently survive. It followed the line of Tribunal decisions cited before it, which had consistently held that derivative penalties on co-noticees cannot be sustained after settlement by the main noticee, even where the co-noticees did not file separate declarations under the scheme. The contrary reliance on the Gujarat High Court decision was distinguished as arising in the context of a different settlement regime.

Conclusion: The penalty on the co-noticees was held to be unsustainable and the appeals were allowed with consequential relief.

Ratio Decidendi: Where the main noticee's duty dispute is settled under SVLDRS, penal liability of co-noticees arising solely from the same settled cause does not survive independently.

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