Reasonable cause waiver sustained for service tax penalty where unchallenged findings supported relief from punitive action.

Penalty under Section 78 was not restored where the original authority had already invoked Section 80 on a finding of reasonable cause and granted relief from Section 76 penalty. The assessee was treated as a small-time operator and an illiterate person unfamiliar with service tax law, and that factual finding was not challenged by the department. The appellate authority held that the same reasons supporting waiver of Section 76 penalty also justified relief from Section 78, and that the unchallenged Section 80 discretion had to be given effect. The departmental appeal therefore failed.

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Issues: Whether penalty under Section 78 of the Finance Act, 1994 could be sustained when the original authority had invoked Section 80 and granted relief from penalty under Section 76 on the ground of reasonable cause.

Analysis: The assessee had been treated by the original authority as a small time operator and an illiterate person not familiar with service tax law, and that finding was not challenged by the department. The Commissioner (Appeals) held that the same reasons which justified waiver of penalty under Section 76 would also justify relief from penalty under Section 78. The departmental decisions cited were found distinguishable because, unlike the present case, no benefit under Section 80 had been granted there. Since the original authority's invocation of Section 80 remained unchallenged, the appellate relief was held to be a proper giving effect to that discretion.

Conclusion: Penalty under Section 78 was not to be restored, and the departmental appeal failed.

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