Penalty relief for delayed service tax compliance where registration was sought promptly and tax with interest was paid after detection.

Service tax on re-treading of old tyres was brought into force from 16.06.2005, and the appellants applied for registration soon thereafter. Because tax and interest were paid after detection and the facts supported a lenient approach, penalty under section 78 was set aside under section 80. The tax and interest determined by the lower authorities were otherwise confirmed.

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Issues: Whether penalty under section 78 of the Finance Act, 1994 was liable to be set aside in view of the appellants' application for registration soon after levy of service tax, payment of tax and interest after detection, and the case for a lenient view under section 80.

Analysis: The appellants were engaged in re-treading of old tyres, a service brought within the service tax net from 16.06.2005. They applied for registration shortly thereafter and the application was acknowledged by the department. The tax and interest were paid after detection by the Central Excise Intelligence Directorate. In these circumstances, a lenient view was considered appropriate for the purpose of penalty.

Conclusion: Penalty under section 78 was set aside, while the tax and interest determined by the authorities below were confirmed.

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