Bona fide belief and pre-notice payment of service tax justified deletion of penalty under the Finance Act, 1994.

Penalty under Section 76 of the Finance Act, 1994 was treated as unsustainable where service tax on commission was paid with interest before the show cause notice and the assessee showed a bona fide belief of non-liability based on employer communication and the exemption claimed under Notification No. 13/2003-S.T. The Tribunal considered that timely discharge of tax and interest, together with absence of contumacious conduct, made the penalty harsh, and it set the penalty aside.

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Issues: Whether penalty under Section 76 of the Finance Act, 1994 was leviable where the assessee did not pay service tax on commission received, entertained a bona fide belief regarding non-liability, and discharged the tax with interest before issuance of the show cause notice.

Analysis: The appellant had acted under a bona fide belief that service tax was not payable, particularly in view of the employer's communication and the exemption claimed under Notification No. 13/2003-S.T. dated 20-6-2003. The tax liability and interest were paid promptly before the show cause notice. In such circumstances, the imposition of penalty was considered harsh, and the Tribunal followed its earlier view that penalty should not be sustained where the liability had been discharged in time and the surrounding facts showed absence of contumacious conduct.

Conclusion: Penalty under Section 76 was not leviable and was set aside.

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