Rent-a-cab service tax upheld, but penalties waived where reasonable cause was shown under the Finance Act.

Service tax on rent-a-cab activity was treated as taxable in light of the governing High Court precedent, so the demand with interest was upheld. Penalties under the Finance Act were not sustained because the assessee showed reasonable cause, supported by the earlier favourable Tribunal view, and section 80 barred penalty in those facts. The result was partial relief: substantive tax liability survived, but the penalty component was set aside.

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Issues: (i) whether service tax demand on rent-a-cab service was sustainable; (ii) whether penalties under the Finance Act were imposable in the facts of the case.

Issue (i): whether service tax demand on rent-a-cab service was sustainable.

Analysis: The demand arose from renting motor cabs and vans to customers during the relevant period. The Tribunal relied on the binding view of the Punjab and Haryana High Court that had reversed the earlier Tribunal decision favourable to the assessee. On that basis, the service was treated as taxable and the confirmation of demand with interest was found free from infirmity.

Conclusion: The service tax demand along with interest was upheld, against the assessee.

Issue (ii): whether penalties under the Finance Act were imposable in the facts of the case.

Analysis: Section 80 of the Finance Act bars penalty where the assessee proves reasonable cause for the failure. Since the earlier Tribunal view had been in favour of the assessee, the Tribunal treated the assessee's conduct as supported by reasonable cause and held that penalties under Sections 77 and 78 were not justified.

Conclusion: The penalties were set aside, in favour of the assessee.

Final Conclusion: The demand of service tax with interest survived, but the penalty component did not, resulting in partial relief to the assessee.

Ratio Decidendi: Where the substantive tax liability is upheld on the basis of the governing precedent, penalties may still be waived if the assessee establishes reasonable cause for the default.

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