Reasonable cause for service tax default sustained where sickness, financial distress and BIFR proceedings justified waiver of penalty.

Sickness, financial distress and BIFR proceedings were accepted as reasonable cause for delayed service tax payment and supported waiver of penalty under the statutory reasonable-cause provision. The Tribunal's deletion of penalty for non-payment of tax was sustained on that basis, while penalty for non-filing of returns was retained. The HC found no reason to interfere, and the Revenue's challenge failed.

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Issues: Whether the assessee had established reasonable cause for failure to pay service tax and non-filing of returns so as to justify deletion of penalty under the service tax law.

Analysis: The assessee's sickness, financial distress, and proceedings before the BIFR were treated as sufficient cause for the delay in payment of service tax. The default related to the period October 1999 to March 2003, and the record also showed partial payment for April 2002 to March 2003. On these facts, the Tribunal had upheld the statutory penalty only for non-filing of return under Section 77, while deleting the penalty for non-payment of tax on the footing that reasonable cause was made out under Section 80. The Court found no justification to interfere with that conclusion.

Conclusion: The assessee was entitled to the benefit of reasonable cause and the deletion of penalty was sustained.

Final Conclusion: The appeal filed by the Revenue was rejected and the Tribunal's order deleting the penalty was left undisturbed.

Ratio Decidendi: Where the assessee establishes sufficient cause, including financial incapacity arising from sickness and BIFR proceedings, penalty under the service tax law may be waived in exercise of the statutory reasonable-cause provision.

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