Service tax penalty relief for GTA services where tax and interest were paid after the levy dispute was settled

Penalty under sections 77 and 78 of the Finance Act, 1994 was held not sustainable where service tax on GTA services was paid with interest after the levy dispute had been settled by the Supreme Court. The prolonged litigation over the tax liability, coupled with prompt payment after the legal position was finally settled, was treated as a sufficient basis to decline penal action. The appellate view that the facts did not justify penalties was found to be reasonable, and the Tribunal saw no ground to interfere with that conclusion.

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Issues: Whether penalties under sections 77 and 78 of the Finance Act, 1994 were exigible where the service tax on GTA services was paid after the dispute stood settled by the Supreme Court, along with applicable interest.

Analysis: The liability relating to service tax on GTA services had been the subject of prolonged litigation and stood settled only by the Supreme Court. The tax amount, together with interest, was paid within a reasonable time thereafter. In these circumstances, the appellate authority's view that the circumstances did not justify imposition of penalties under sections 77 and 78 was found to be neither unreasonable nor improper. The Tribunal also accepted the conclusion that the controversy surrounding the levy and the prompt payment after settlement did not call for interference with the appellate order.

Conclusion: Penalties under sections 77 and 78 were not sustainable.

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