Reasonable cause and pre-notice tax payment bar penalty for wilful suppression under service tax law.

Penalty for service tax non-payment was held unsustainable where the assessee had paid the tax and interest before issue of the show cause notice, and reasonable cause had already been accepted for dropping penalties under Sections 76 and 77. That accepted finding was treated as equally applicable to the proposed penalty under Section 78, and in the absence of material showing wilful suppression or intent to evade, the Section 78 penalty could not survive. The assessee therefore succeeded on penalty liability.

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Issues: Whether penalty under Section 78 of the Finance Act, 1994 was sustainable when the assessee had deposited the service tax and interest before issuance of the show cause notice and the adjudicating authority had already accepted reasonable cause by dropping penalties under Sections 76 and 77.

Analysis: The assessee had paid the service tax and interest before the show cause notice. The adjudicating authority had invoked Section 80 of the Finance Act, 1994 and accepted reasonable cause for the failure, resulting in no penalty under Sections 76 and 77. Since the Revenue did not challenge that finding, the same reasonable cause applied to the proposed penalty under Section 78 as well. In the absence of wilful suppression or intent to evade, the penalty under Section 78 could not survive.

Conclusion: Penalty under Section 78 was not imposable and the assessee succeeded.

Ratio Decidendi: Where reasonable cause for non-payment is accepted under Section 80 of the Finance Act, 1994 and the tax with interest is paid before issuance of notice, penalty under Section 78 is not leviable in the absence of material showing wilful suppression or intent to evade.

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