No Finding On Confiscation, No Penalty: CESTAT Delhi Sets Aside Excise Penalties On Five Taxpayers

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has recently set aside penalties imposed under Excise Rulels on five taxpayers after finding that the adjudication order did not record any finding that the goods were liable to confiscation.

“There has to be a discussion and a finding that the goods are liable to confiscation. In the absence of such a finding penalties under rule 26 of the Central Excise Rules could not have been imposed. This is clear from a bare perusal of rule 26(1) of the Central Excise Rules.". the court observed.

A bench of President Justice Dilip Gupta and Technical Member P.V. Subba Rao held that the adjudicating authority had neither confiscated the goods nor examined whether they were liable to confiscation and had merely stated so while imposing penalties.

The case arose from an order dated January 31, 2025 passed by the Additional Director General (Adjudication), New Delhi, under which penalties were imposed on the five individuals.

The taxpayers pointed out that the order nowhere examined whether the goods were liable to confiscation. Instead, it simply stated so while imposing penalties, without any real analysis to support it.

The tribunal found merit in this. It noted that under Rule 26 of the Central Excise Rules, a penalty can arise only if a person is dealing with goods that are in fact liable to confiscation, making that determination a basic requirement.

In this case, the bench said that requirement was never met.

The Tribunal also relied on its earlier decision in Shri Ramesh Garg, Chairman of KS Oil Ltd. vs. Commissioner, CGST, Customs & Central Excise, where it had held that "the essential ingredient to impose penalty under Rule 26, namely, confiscation of the goods or goods are liable for confiscation, has not been fulfilled in this case.”

Setting aside the penalties imposed under the January 31, 2025 order, the tribunal allowed all five appeals.