Penalty under service tax law not sustainable absent wilful suppression where tax and interest were paid before notice.

Penalty under Section 78 of the Finance Act, 1994 was held unsustainable where service tax and interest had been paid before the show cause notice and the department failed to prove wilful suppression or intent to evade. The Tribunal noted that liability arose on reverse charge for services received from foreign entities and sponsorship services, but found the notice allegations vague, the case drawn from the assessee's records, and audit visits inconsistent with suppression. In the absence of mala fide intent, the extended period and consequential penalty were not justified. Revenue precedents were distinguished on their facts, while authority supporting waiver of penalty on similar facts was applied.

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Issues: Whether penalty under Section 78 of the Finance Act, 1994 was sustainable where the service tax and interest had been paid before issuance of show cause notice and the non-payment was found to be without suppression of facts or intent to evade tax.

Analysis: The liability arose on reverse charge for services received from foreign entities and on sponsorship services. The record showed that the assessee had discharged the service tax along with interest before the show cause notice. The Tribunal found no positive act of suppression or withholding of information, and held that the allegations in the notice regarding sponsorship were vague. It further held that the department had drawn the case from the assessee's records and audit visits had taken place, which negatived suppression. In the absence of mala fide intent, the invocation of the extended period and consequent penalty were not justified. The precedents relied on by the Revenue were distinguished because they proceeded on proved suppression, while the precedent supporting waiver of penalty for similar facts was found applicable.

Conclusion: Penalty under Section 78 was not imposable and the order setting it aside was upheld.

Final Conclusion: The Revenue's appeal failed and the assessee retained the benefit of waiver of penalty.

Ratio Decidendi: Where tax and interest are paid before the show cause notice and the department fails to establish wilful suppression or intent to evade, penalty under Section 78 cannot be sustained, especially when reasonable cause is shown.

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