Company liability for Rule 26 penalties not recognised; penalties must target responsible natural persons and veil be lifted.

Rule 26(1) of the Central Excise Rules cannot operate to impose penal liability on a company as an artificial juristic person; penal consequences under Rule 26 are directed at natural persons who can possess requisite knowledge and culpable conduct, and therefore the corporate veil must be lifted to reach responsible individuals. The effect is that penalty cannot be imposed on the respondent company incorporated under the Companies Act, 2013, the order dropping penalty is upheld and the Revenue's appeal is dismissed.

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Issues: (i) Whether penalty under Rule 26(1) of the Central Excise Rules, 2002 can be imposed on a company incorporated under the Companies Act, 2013.

Analysis: The Tribunal examined whether the term "person" in Rule 26(1) can extend to an artificial juristic entity such as a company for imposing penalty. The Tribunal relied on earlier decisions of the Tribunal and Larger Benches which hold that penal consequences under Rule 26 (including Rule 26(2)) are directed at natural persons who possess the requisite knowledge and conduct, and that a company as an artificial entity does not itself have a mind to form the requisite knowledge; therefore, to punish culpable individuals the corporate veil must be lifted. The Tribunal noted consistent precedents (including Rashmi Metaliks Limited and other cited decisions) concluding that penalties under Rule 26 are not imposable on an artificial entity in the absence of specific statutory provision making the company itself liable.

Conclusion: Penalty under Rule 26(1) of the Central Excise Rules, 2002 cannot be imposed on the respondent company incorporated under the Companies Act, 2013; the impugned order upholding the dropping of penalty is therefore upheld and the Revenue's appeal is dismissed.

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