Service tax penalty relief for first-time compliance lapse where tax was paid with interest and reasonable cause was shown.

Penalty for delayed filing of service tax returns and delayed deposit of tax was held unsustainable where the assessee paid the tax with interest, had not collected it from clients, and was dealing with the levy in its first quarter of introduction. Section 68(3) supported delayed payment in the stated circumstances, and Section 80 permitted waiver of penalty on reasonable cause. On that basis, penalty under Sections 76 and 77 was set aside.

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Issues: Whether penalty under Sections 76 and 77 of the Finance Act, 1994 was sustainable for delay in filing the service tax return and depositing service tax for the first quarters after introduction of service tax.

Analysis: The appellant had deposited the service tax along with interest and had not collected the tax from clients. The decision turned on Section 68(3), which permitted delayed payment in the stated circumstances, and on Section 80, which enabled waiver of penalty where reasonable cause existed. As service tax had been introduced for the first time, the relevant period was the first quarter, and the assessee was new to the levy, the case was treated as one warranting relief from penalty.

Conclusion: Penalty was not imposable under Sections 76 and 77, and the order imposing penalty was set aside in favour of the assessee.

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