Concessional interest and penalty relief under service tax law granted where statutory conditions were met and no contumacious conduct was shown.

Concessional interest under the proviso to Section 75 of the Finance Act, 1994 was available because the turnover for each financial year remained below the prescribed limit and the plea raised was a pure question of law. Penalty under Section 78 was unsustainable because the sales commission was duly accounted for through cheques and reflected in income-tax records, with no deliberate defiance of law, contumacious conduct, or misstatement of facts. The appeal therefore succeeded on both the interest and penalty issues, and relief was granted accordingly.

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Issues: (i) Whether the appellant was entitled to reduced rate of interest under the proviso to Section 75 of the Finance Act, 1994; (ii) Whether penalty under Section 78 of the Finance Act, 1994 was sustainable.

Issue (i): Whether the appellant was entitled to reduced rate of interest under the proviso to Section 75 of the Finance Act, 1994.

Analysis: The turnover for each financial year was below the prescribed limit and the plea was a pure question of law raised for the first time. On that basis, the appellant satisfied the conditions for the concessional rate of interest under the proviso.

Conclusion: The appellant was held entitled to the reduced rate of interest under Section 75 of the Finance Act, 1994.

Issue (ii): Whether penalty under Section 78 of the Finance Act, 1994 was sustainable.

Analysis: The receipt of sales commission was duly accounted for through cheques and reflected in the income-tax records. In the absence of deliberate defiance of law, contumacious conduct, or misstatement of facts, the essential basis for penalty was not made out.

Conclusion: The penalty under Section 78 of the Finance Act, 1994 was set aside.

Final Conclusion: The appeal succeeded and the appellant obtained relief against the penalty as well as the disputed rate of interest.

Ratio Decidendi: Penalty for service tax default is not sustainable without deliberate defiance of law or contumacious conduct, and concessional interest is available where the statutory conditions for the proviso are met.

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