Reasonable cause under service tax law justified reduction of penalty for first-time default, while a separate penalty was upheld.

Section 80 of the Finance Act, 1994 was applied to treat first-time default under a newly introduced service tax levy, together with prompt discharge of tax and interest, as reasonable cause for reducing the penalty under Section 76. The assessee's self-employment and unfamiliarity with the new regime were treated as mitigating factors, so the penalty was reduced. No sufficient ground was found to interfere with the separate penalty under Section 77, which was therefore maintained.

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Issues: (i) Whether the penalty imposed under Section 76 of the Finance Act, 1994 could be reduced by invoking reasonable cause under Section 80 of the Finance Act, 1994. (ii) Whether the penalty imposed under Section 77 of the Finance Act, 1994 was liable to be interfered with.

Issue (i): Whether the penalty imposed under Section 76 of the Finance Act, 1994 could be reduced by invoking reasonable cause under Section 80 of the Finance Act, 1994.

Analysis: The Appellant had discharged the service tax liability and interest, and the circumstances showed first-time default in a newly introduced levy. The Appellant's self-employment and lack of familiarity with the new service tax regime were treated as mitigating factors constituting reasonable cause for invoking Section 80 of the Finance Act, 1994.

Conclusion: The penalty under Section 76 of the Finance Act, 1994 was reduced from Rs. 100 per day to Rs. 10 per day in favour of the Assessee.

Issue (ii): Whether the penalty imposed under Section 77 of the Finance Act, 1994 was liable to be interfered with.

Analysis: No sufficient ground was found to disturb the separate penalty imposed under Section 77 of the Finance Act, 1994.

Conclusion: The penalty under Section 77 of the Finance Act, 1994 was confirmed against the Assessee.

Final Conclusion: The appeal succeeded only to the extent of reduction of the penalty under Section 76, while the penalty under Section 77 remained undisturbed.

Ratio Decidendi: Section 80 of the Finance Act, 1994 permits reduction or waiver of penalty where the circumstances establish reasonable cause for the default.

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