Reasonable cause can justify waiver of service tax penalties when tax and interest are paid before notice.

Penalties under Sections 76, 77 and 78 of the Finance Act, 1994 were waived because the assessee established reasonable cause under Section 80. The assessee had registered as a service provider, paid service tax with interest before the show-cause notice, and explained that the delay arose from confusion over taxability during the initial period of levy. The record also showed that the dispute concerned the first year of applicability of service tax to the services rendered by a proprietary concern. On these facts, the waiver of penalty was sustained and the Revenue's challenge failed.

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Issues: Whether penalties under Sections 76, 77 and 78 of the Finance Act, 1994 were rightly waived by invoking Section 80 on the ground of reasonable cause.

Analysis: The assessee had registered as a service provider, paid the service tax with interest before the show-cause notice, and explained that delay occurred due to confusion and ambiguity regarding taxability in the initial period of levy. The record also showed that the assessee was a proprietary concern and that the dispute arose in the first year of service tax applicability to the services rendered. On these facts, the finding of reasonable cause for the delay in compliance could not be faulted, and Section 80 was correctly applied to negate penalty.

Conclusion: The waiver of penalties was sustained and the Revenue's challenge to the order setting aside the penalties failed.

Ratio Decidendi: Where reasonable cause for failure to comply is shown, Section 80 of the Finance Act, 1994 permits waiver of penalties otherwise attracted under the penal provisions.

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