Penalty waiver for consultant fraud upheld where no collusion or intent to evade service tax was shown

Penalty under Section 78 of the Finance Act, 1994 was waived because non-payment of service tax and non-filing of returns were traced to a consultant's fraud, with no evidence of collusion, wilful misstatement, suppression of facts or intent to evade by the assessee. On the same factual foundation, reasonable cause under Section 80 justified relief from penalty, and the penalty under Section 77 was reduced. The material also showed that criminal action was taken against the consultant and the assessee was not named in the FIR, supporting the conclusion that the default was not attributable to deliberate evasion by the assessee.

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Issues: Whether penalty under Section 78 of the Finance Act, 1994 could be waived and penalty under Section 77 of the Finance Act, 1994 could be reduced where non-payment of service tax and non-filing of returns were attributable to fraud committed by the consultant and reasonable cause was shown.

Analysis: The respondent had entrusted calculation, payment of service tax and filing of returns to a consultant and had paid cash for that purpose. The record showed no contrary evidence of collusion between the respondent and the consultant. The department had also initiated criminal action against the consultant, and the respondent was not named in the FIR. In these circumstances, the ingredients of fraud, collusion, wilful misstatement or suppression of facts with intent to evade payment were not established. The Commissioner (Appeals) therefore applied Section 80 to hold that reasonable cause existed for waiving penalty under Section 78, and, on the same factual basis, took a lenient view in reducing the penalty under Section 77.

Conclusion: The waiver of penalty under Section 78 and the reduction of penalty under Section 77 were justified.

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