Service tax return penalty set aside where initial levy issues and inactive business made immediate penal action unwarranted

Penalty for failure to file a service tax return for an earlier quarter was treated as unwarranted where the levy was newly introduced, the assessee said it was not carrying on active business during the relevant period, and filing difficulties arose in the initial phase of the regime. The note emphasises that past default could be regularised and that departmental officers should have advised filing of the return rather than proceeding directly to penal action. On those facts, the penalty was set aside.

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Issues: Whether penalty for failure to file the service tax return for the earlier quarter was sustainable in the facts of the case.

Analysis: The service tax regime had been recently introduced, the assessee had explained that he was not carrying on active business during the relevant period, and the record showed that registration and filing difficulties arose in the initial period of levy. The order notes that the law contemplated regularisation of a past default and that the departmental officers could have advised filing of the return instead of proceeding straightway to penal action. In these circumstances, the penal action was found to be unwarranted.

Conclusion: The penalty was set aside and the appeal was allowed.

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