Reasonable cause under service tax law justified penalty reduction, but continuing delay prevented complete waiver.

Section 80 of the Finance Act, 1994 was applied to accept reasonable cause for delayed payment of service tax during the initial period after banking and financial services entered the service tax net from 10-9-2004, so the penalty was reduced. However, the delay continued beyond that initial period, and complete waiver was therefore not justified. The reduced penalty was upheld, while enhancement of penalty was rejected and full deletion was declined.

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Issues: Whether penalty for delayed payment of service tax could be reduced by invoking reasonable cause under Section 80 of the Finance Act, 1994, and whether the reduced penalty required interference.

Analysis: The delay was found to relate largely to the initial months after banking and financial services were brought into the service tax net from 10-9-2004. On that basis, reasonable cause was accepted for the initial period and Section 80 was treated as having overriding effect over Section 76 of the Finance Act, 1994. At the same time, the delay was not confined to the initial period alone and continued thereafter, so complete waiver of penalty was not justified.

Conclusion: The reduction of penalty was upheld, enhancement of penalty was rejected, and deletion of penalty was declined.

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