Service tax penalty for procedural defaults was held unwarranted after tax and interest were paid, with no wilful negligence shown.

Penalty under Sections 76, 77 and 78 of the Finance Act, 1994 was considered for non-registration, non-payment of service tax and non-filing of returns, where the tax liability had already been discharged with interest. The material point was whether procedural defaults still justified penalty despite subsequent compliance; the explanation accepted was ignorance of law, payment from the assessee's own pocket, and absence of wilful negligence. As no lower-authority finding justified penalty in those circumstances, the commentary states that the power to impose penalty is discretionary and not automatic, so penalty was not warranted and was set aside in favour of the assessee.

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Issues: Whether penalty under Sections 76, 77 and 78 of the Finance Act, 1994 was leviable for non-registration, non-payment of service tax during the relevant period and non-filing of returns, despite subsequent payment of tax and interest.

Analysis: The service tax liability was not disputed and had already been discharged with interest. The only controversy was whether penalty should still be imposed for the procedural defaults. The explanation accepted was that the failure to register and file returns arose from ignorance of law, that tax and interest were paid from the appellants' own pocket, and that there was no willful negligence. No finding had been recorded by the lower authorities explaining why penalty was in the circumstances. The power to impose penalty did not mean that penalty must be imposed in every case.

Conclusion: Penalty was not warranted and was set aside in favour of the assessee.

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