Appeal granted, penalty waived under Section 78. Prompt payment and lack of mala fides considered.

The Tribunal allowed the appeal, waiving the penalty under Section 78 of the Act. The appellant's prompt payment of the entire service tax liability, lack of intention to avoid tax payment, and availability of Cenvat credit were considered as reasonable cause for non-payment. The Tribunal found no evidence of mala fides regarding non-payment of service tax and referenced previous cases where penalties were waived under similar circumstances, leading to the modification of the impugned order.

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Issues: Liability of service tax on External Commercial Borrowings (ECB) received from foreign banks under the category of Banking and Financial services.

Analysis:
1. The appellant appealed against the Order-in-Appeal sustaining the Order-in-Original confirming a service tax demand under the category of Banking and Financial services related to ECB loans from foreign banks. An equal penalty was imposed under Section 78 of the Finance Act, 1994, along with an additional penalty under Section 77 of the Act.

2. The appellant contended that they believed the liability of paying service tax on ECB loans rested with the Indian branches of the foreign banks. Upon realizing their mistake, they paid the entire service tax along with interest before receiving the Show Cause Notice. They argued that since all figures related to ECB loans were reflected in their balance sheet, the extended period for invoking penalty should not apply to them.

3. The Departmental Representative reiterated the lower authorities' findings, while the appellant relied on various case laws to support their claim, including Bharat Forge Ltd. Vs. CCE, Pune and CCE Vs. Textile Corporation Marathwada Ltd.

4. The Tribunal considered the submissions, case laws, and evidence provided by both parties. The appellant had paid the entire service tax liability along with interest before the Show Cause Notice, with a small additional payment due to different tax rates for a certain period. No evidence of mala fides regarding non-payment of service tax was presented by the Department.

5. The appellant invoked Section 80 of the Finance Act, 1994, claiming reasonable cause for non-payment of service tax. They cited a Tribunal decision in Bharat Forge Ltd. Vs. CCE, Pune, where a waiver of penalty was granted due to the appellant's prompt payment of service tax, lack of intention to avoid payment, and availability of Cenvat credit.

6. The appellant argued for revenue neutrality, stating no mens rea or mala fide on their part, and referenced the CESTAT decision in Jain Irrigation System Ltd. Vs. CCE, Nasik. Relying on the precedents set in Bharat Forge Ltd. and Jain Irrigation System Ltd. cases, the Tribunal set aside the penalty imposed under Section 78 of the Act, modifying the impugned order accordingly.

7. In conclusion, the Tribunal allowed the appeal, waiving the penalty under Section 78 of the Act based on the appellant's prompt payment, lack of intention to avoid tax payment, and the availability of Cenvat credit, in line with the principles established in previous Tribunal decisions.

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