Penalty relief for disputed abatement on free-supplied materials where tax and interest were paid before notice.

Penalty was not leviable where construction service tax and interest were paid promptly after departmental objection and before the show cause notice. The dispute concerned whether the value of free-supplied materials had to be included for abatement under the relevant exemption notifications, and the issue was treated as debatable during the material period because conflicting views and interim orders existed. In the absence of suppression or mala fide intent, the statutory discretion under section 80 of the Finance Act, 1994 was properly exercised to grant relief from penalty.

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Issues: Whether penalty was leviable where service tax and interest had been paid promptly, the issue on abatement of the value of free-supplied materials remained debatable, and the benefit of section 80 of the Finance Act, 1994 was extended.

Analysis: The respondents were providing construction services. The controversy related to inclusion of the value of free-supplied items in the assessable value for abatement under the relevant exemption notifications. Although service tax had been confirmed, the Commissioner declined to impose penalty because the tax and interest were paid immediately after being pointed out by the department, before issuance of the show cause notice, and the issue was one on which conflicting views and interim orders existed during the relevant period. In these circumstances, suppression or mala fide intent could not be attributed to the respondents, and the statutory discretion under section 80 was properly exercised.

Conclusion: Penalty was not leviable and the relief from penalty was upheld.

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