Penalty for suppression denied where collected service tax was not payable on the underlying service at the relevant time.

Penalty for suppression was held inapplicable where the service was not taxable at the relevant time and the amount collected was only required to be deposited under the special provision governing collected sums. The High Court reasoned that the provision for non-payment by a taxable service provider did not apply once the underlying service was outside the tax net, and that the penal provision required proof of fraud, collusion, wilful misstatement, suppression of facts, or intent to evade tax. As the delayed deposit of the collected amount did not establish those ingredients, penalty was set aside and relief from penalty restored.

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Issues: Whether penalty under Section 78 of the Finance Act, 1994 was leviable where the service tax collected was not payable under Section 68 at the relevant time and was instead required to be deposited under Section 73A(2) of the Finance Act, 1994.

Analysis: Section 68 governs liability to pay service tax by a person providing taxable services. On the relevant dates, the service rendered by the appellant was not taxable, though an amount was collected and was therefore required to be deposited forthwith under Section 73A(2). Section 76 applies to a person liable under Section 68 who fails to pay tax, and was therefore inapplicable once the service itself was not taxable at the relevant time. Section 78 requires fraud, collusion, wilful mis-statement, suppression of facts, or contravention with intent to evade payment of service tax. On the facts, the delayed deposit of the collected amount did not establish wilful suppression or the requisite intent to evade, and the case did not fall within the penal provision.

Conclusion: Penalty under Section 78 of the Finance Act, 1994 was not leviable, and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded, the Tribunal's order was set aside, and the Commissioner (Appeals)'s relief from penalty was restored.

Ratio Decidendi: Penalty under Section 78 cannot be imposed unless the statutory ingredients of fraud, collusion, wilful mis-statement, suppression of facts, or intent to evade service tax are established, and it is not attracted where the service was not taxable at the relevant time and the amount collected was only required to be deposited under Section 73A(2).

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