Penalty relief for disputed service tax classification where tyre retreading involved conflicting views and no wilful evasion was found

Penalties under Sections 77 and 78 of the Finance Act were not sustained where the dispute concerned the taxability of tyre retreading as maintenance or repair service and the issue involved interpretation of law with conflicting views. The appellant had already paid the tax with interest and challenged only the penal component. In these circumstances, the matter was treated as one of legal ambiguity rather than wilful evasion, and the existence of divergent views justified setting aside the penalties while leaving the remainder of the order undisturbed.

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Issues: Whether the penalties imposed under Sections 77 and 78 of the Finance Act were sustainable when the dispute involved interpretation of law and conflicting views on taxability.

Analysis: The appellant accepted the tax liability already paid with interest and confined the challenge to the penalties. The issue related to the taxability of tyre retreading under maintenance or repair service, on which divergent views had existed. In these circumstances, the matter was one of interpretation of law rather than wilful evasion, and the existence of conflicting views justified interference with the penal component.

Conclusion: The penalties under Sections 77 and 78 of the Finance Act were set aside, while the impugned order was otherwise upheld.

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