CESTAT Quashes ₹45 Lakh Penalty Under Rule 26 for Inapplicability Without Confiscation of Goods [Read Order]
CESTAT set aside a ₹45 lakh Rule 26 penalty, holding it inapplicable in the absence of goods liable for confiscation and no personal involvement beyond salary
The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) allowed the appeal filed by Shri Venkat R. Chari, holding that the personal penalty of ₹45 lakh imposed under Rule 26 of the Central Excise Rules, 2004, was unsustainable in law in the absence of goods liable for confiscation.
The dispute arose when Shri Venkat R. Chari, an employee of Shri Krishna Impex, was subjected to a penalty for alleged involvement in a rebate scam.
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The department contended that MSN Enterprises and others issued invoices for components and parts of watches and clocks without actual supply of goods, that Balaji Enterprises availed Cenvat credit on paper, and that exports through Shri Krishna Impex were also allegedly fictitious. Consequently, the appellant was held liable under Rule 26 in the alleged scheme.
The appellant contended that he had no involvement in the business affairs of Shri Krishna Impex, had acted only as an employee, and had received no personal benefit beyond his salary.
The appellant argued that penalties under Rule 26 cannot be imposed in the absence of confiscation of goods. Several witnesses examined before the Tribunal confirmed that the appellant had no role in the business operations or in any fraudulent activity, while Central Excise officers corroborated the genuine flow of goods, manufacture, and exports.
The Tribunal observed that cross-examinations conducted by the department were insufficient due to the common interest among co-noticees, and the statements could not be fully relied upon without independent corroboration.
The Bench comprising Somesh Arora (Judicial Member) emphasized by referring to Rule 26 that the penalty can only be imposed if goods are liable for confiscation. In this case, no confiscable goods were involved, and the appellant’s managerial role or signatory position did not establish malfeasance beyond his salary.
The Tribunal held that imposition of personal penalty without confiscable goods or proof of active involvement is unsustainable as having found no evidence of malfeasance as well as no confiscable goods.
Accordingly, the Tribunal set aside the penalty, allowed the appeal, and held that Shri Venkat R. Chari could not be held personally liable under Rule 26 in the absence of goods liable for confiscation.
The Appellant was represented by Paresh M Dave along with Sudhanshu Bissa, while P. Ganesan appeared for the Revenue.
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