Reverse charge service tax penalty fails where tax and interest are paid before notice and no suppression is shown.

Penalty under Section 78 of the Finance Act, 1994 was held unsustainable where service tax payable under reverse charge on services from overseas commission agents was paid with interest before issue of the show-cause notice. The assessee's books of account reflected the transactions in the ordinary course of business, and there was no material to show deliberate suppression, active concealment, or contumacious conduct. Penalty confirmed on assumptions and presumptions could not be sustained on these facts, and the penal action was set aside in favour of the assessee.

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Issues: Whether penalty under Section 78 of the Finance Act, 1994 was sustainable where the assessee had paid the service tax with interest before issue of the show-cause notice and there was no active concealment or contumacious conduct.

Analysis: The liability arose on reverse charge basis for services received from overseas commission agents. The tax and interest were deposited on being pointed out, and the transactions were reflected in the books of account maintained in the ordinary course of business. On these facts, there was no material to support a finding of deliberate suppression or contumacious conduct. The penalty had been confirmed on assumptions and presumptions, which could not sustain the penal action.

Conclusion: Penalty under Section 78 of the Finance Act, 1994 was not justified and was set aside in favour of the assessee.

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