Penalty reduction under service tax law follows when default is early, minor, and Section 80 relief is considered.

Penalty under the service tax regime was examined only on the question of waiver or reduction, with the assessee relying on illness, disability and Section 80 of the Finance Act, 1994. The Tribunal treated the default as arising at an early stage of implementation, noted that the tax involvement was very low, and found the original penalty disproportionate. To prevent recurrence of default, it reduced the penalty and granted partial relief to the assessee.

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Issues: Whether the penalty imposed for continued default under the service tax regime was liable to be waived or reduced on the facts, including the plea of illness and disability and the applicability of Section 80 of the Finance Act, 1994.

Analysis: The appeal related only to waiver of penalty. The default arose in the early stage of implementation of the law and the tax involved was very low. In the circumstances, the Tribunal found that the penalty of Rs. 35,800/- was disproportionate and considered it appropriate to reduce the penalty to Rs. 5,000/- to prevent recurrence of default. The plea for relief was considered in the context of Section 80 of the Finance Act, 1994.

Conclusion: The penalty was reduced to Rs. 5,000/- and the appeal was allowed partly in favour of the assessee.

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