Reasonable cause for service tax default justified waiver of penalties where tax and interest were paid before notice.

Penalty under the Finance Act, 1994 was waived because the service tax and interest had already been paid before issuance of the show cause notice, and the assessee's non-compliance arose from genuine confusion over the taxability of amounts received from financial institutions for facilitating loans. The contemporaneous departmental circular supported that confusion, and those facts were treated as reasonable cause for the default. Relief under Section 80 was therefore granted and the penalties were set aside.

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Issues: Whether penalties under Section 80 of the Finance Act, 1994 were liable to be waived where service tax and interest had been paid and the assessee showed confusion regarding taxability.

Analysis: The service tax demand had been discharged with interest before issuance of show cause notice. The record also indicated confusion regarding the taxability of amounts received from financial institutions for facilitating loans, supported by the contemporaneous departmental circular clarifying the issue. On these facts, the circumstances disclosed reasonable cause for the default, attracting the benefit of Section 80.

Conclusion: Penalties were set aside and relief under Section 80 was granted.

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