Penalty under Section 78 sustained where tax was collected, suppressed, and paid only after departmental action.

Penalty under Section 78 of the Finance Act, 1994 was not waived under Section 80 because service tax and interest were paid only after departmental action had begun, not as a voluntary discharge. The assessee had collected service tax from clients, failed to remit it, and filed nil returns despite taxable receipts, which was treated as deliberate suppression rather than bona fide belief. The decision also applied the principle that penalty under Section 78 operates in comparable circumstances to penalty under Section 11AC of the Central Excise Act, 1944, leaving the penalty sustained.

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Issues: Whether the penalty imposed under Section 78 of the Finance Act, 1994 was liable to be waived under Section 80 on the ground that service tax and interest were paid before adjudication and the assessee claimed bona fide belief.

Analysis: The appeal was confined to the penalty under Section 78. The record showed collection of service tax from clients, failure to remit it, and filing of nil returns despite taxable receipts. The payment of tax and interest was made only after departmental action began, not as a voluntary discharge. In these circumstances, the facts disclosed deliberate suppression and the benefit of Section 80 was held unavailable. The principle that penalty under Section 78 is attracted in comparable circumstances to Section 11AC of the Central Excise Act, 1944 was applied.

Conclusion: Waiver of penalty under Section 78 was rejected and the penalty was sustained.

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