Bona fide service tax dispute over MICR cheque processing justified waiver of penalty pre-deposit and stay of recovery.

A bona fide dispute on service tax liability for processing of MICR cheques, coupled with payment of tax and interest before issue of the show cause notice, supported waiver of pre-deposit of penalties. The record showed that departmental clarification on the levy came later, and the facts did not justify invoking suppression or the extended period for demanding pre-deposit. On that basis, full stay of recovery of the penalties was granted pending disposal of the appeal.

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Issues: Whether the appellant was entitled to waiver of pre-deposit and stay of recovery of penalties imposed under the service tax provisions, in the light of a bona fide dispute on tax liability, payment of tax with interest before the show cause notice, and absence of suppression.

Analysis: The appellant had raised a bona fide doubt regarding service tax liability on processing of MICR cheques. The tax department's clarification on the issue came later, and the appellant discharged the service tax liability for the entire period together with interest before the show cause notice was issued. On these facts, the invocation of suppression and the extended period was not justified for the purpose of insisting on pre-deposit of penalties.

Conclusion: The appellant was entitled to full waiver of the penalties pending disposal of the appeal, and the stay application was allowed.

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